The Living Income Community of Practice recently held a two day event in Bonn on the 30th and 31st of January 2019 to support learning, action and collaboration around the topic of Living Income. An objective of the Living Income Community of Practice is to identify and discuss effective strategies to improving the levels, quality and stability of incomes of smallholder farmers. This blog explores some of the key reflections from the second day of the event, which focused on this objective.
The day covered the challenges and approaches to closing income gaps, the role and levers of different actors (including businesses, government and standard systems), specific strategic such as affordable finance for smallholders, pricing and trading models, strategies and roles of government actors, income diversification and actions at the sector level, specifically on cocoa, coffee and tea.
Throughout the day, attendees and speakers identified a range of strategies to improve incomes including: advocacy strategies (engaging and supporting multi-stakeholder initiatives), voluntary commitments, public policy regulation, financial services, pricing strategies (use of reference price, price premiums, trading and contracting models), geographical scope choices, income diversification, and a range of related programs to increase value to farmers. A clear take away is the importance of creating the enabling conditions to pursue multiple strategies to advance towards living income.
Maximising returns of key cash crop and enabling farmer investment
A session on ‘Affordable Finance for Smallholders’ stressed that smallholder households are diverse; however, financial products are not always tailored to their needs, aspirations or characteristics. The importance of segmenting smallholder households and conducting deeper analysis on group characteristics was emphasised in order to create appropriate financial products for leveraging incomes. One outtake from the session was that tools need not be limited to traditional products (e.g. credits) but can for example take the form of productivity packages from which farmers can select. Analysis of farmer characteristics may also suggest that products targeting farm related improvements may not be the most effective for income improvement. For example, in a case where a farmer segment values the provision of schooling greater than farm productivity, providing products that finance schooling may provide smallholders with free capital that they invest in improving their farm incomes. The session also highlighted that there is a huge catalogue of data available that can be leveraged for designing financial products (e.g. the CGAP smallholder families data hub).
Pricing and trading model strategies are challenging as smallholders face extreme price volatility and often extended periods of low prices, meaning low returns for their cash crops and but also a disincentive to invest in their farms and low return on investments made. Innovative companies are combining premium and ‘living income’ pricing with trade mechanisms like longer term contracting and partnerships to build value over time with smallholder suppliers. Companies are prevented from agreeing on minimum prices themselves, so the work of third parties like Fairtrade on competition law innovation for sustainability commitments was also discussed.
Income diversification was another strategy explored in a session focusing on ‘why it is needed to close income gaps and how can it be done well?’. Income diversification becomes key when a farmer’s main cash crop is not generating sufficient income for their families. It can help increasing annual income, improving resilience, improving cash flow or increasing women’s control of income. Supporting diversification intentionally is however challenging, as it is difficult to maintain farmer loyalty and commitment to a secondary crop when the primary crop is in a boom phase of very high prices. Two farmer leaders described routes to successful diversification, which included provision of technical services, the enhancement of farmer interest and commitment, the strengthening of the ability for cooperatives to pre-finance, and making use of Living Income benchmark research to begin a process of analysing most promising routes to diversification and living income.
A session on ‘The strategies and roles of government actors’ showed that governments’ role in closing the income gap can take a number of different forms. For example, designing regulations to improve the concept around sustainability and therefore, creating an enabling environment. There are specific policies where the government can focus, such as working on agricultural policies, incentivising the link between the rural and the urban, incentivising the market and consumption patterns, focusing on due diligence and purchasing practices or setting the bars of minimum prices. There is also room for collaboration at policy level across countries and advocacy work at European level.
Importance of working together
A central theme of the day was the power of partnerships and the importance of learning from each other on the tough, complex work of closing the income gap for farmers. Mapping who is doing what and what is working, can help prevent duplication of efforts, allows for knowledge sharing and helps identifying potential partners. This would tackle the need for a better linkage between the range of current initiatives and would allow for a better connection between the micro and the macro levels. This was for example mentioned by the finance sector, who expressed that the sector is very diverse, which stress the need of partnership and alignment with others, so there is a framework for action and a real scale up of effective solutions.
At various other points in the day, it was stressed that to date, strategies have missed consumers and consumption patterns, evidencing a gap between market and production. It was also raised that there is a need for more involvement of the NGOs who are implementing a lot of work and are day in day out with the farmers.
The session ‘Living Wage and Living Income, Malawi 2020 Tea initiative’ showed that partnerships have a proven multiplier effect when it comes to driving change. Such collaborations in the Living income space come across challenges such as high inflation (negating positive income/wage effects), tax brackets, origin contamination and threat of reduction in commodity sourcing. Some key lessons were raised such as the importance of building a landscape approach from the beginning and see the connectivity with other sectors, the power of collective bargaining, the need of guaranteeing supply through buyers commitments included into contracts and the relevance of building a multi-stakeholder initiative that involves all parties and that also consider the consumer.
From the day, it became clear that closing the income gap is about systemic change. There is no silver bullet or simple solution to the issue of poverty (e.g. just pay more) but there is a need to take into account how to mitigate risks and look at the whole system, considering a range of elements and consequent actions. This is also because living income is part of the bigger sustainable livelihoods picture which requires measures to deal with concerns on multiple angles (social, environmental and economic). In this context, one might argue that the key question is: what can we do to change the system so living income is the outcome?
A huge thank you to all of those who contributed to the event. To see who presented in each of the sessions click here to review the event agenda.
To access all of the presentations and resources from the event visit: https://www.living-income.com/bonnevent2019