16th April 2014
For anyone familiar with Cargill, the name brings to mind things that are big – very big. As one of the world’s largest privately owned companies, the agribusiness giant buys, trades and distributes agricultural products in vast amounts. Yet for its executive chairman, Greg Page, the global food system also relies on things that are small.
He’s talking about smallholder farmers. Since many food commodities – including cocoa, coffee and palm oil – are highly labour intensive, they cannot be raised and harvested using industrial techniques. “The smallholder issue is a big one,” says Page. “If we’re going to use rain-fed agriculture to feed the world, we have to bring Africa in because of the water resources that they have – but we’ve not come far in smallholder farm economics.”
Why not? As Page sees it, the economics of smallholder farming are relatively straightforward. But sociological, structural and legal barriers prevent farmers in developing countries from improving their livelihoods and playing a greater role in global food supply chains.
First, there are questions of land and price. When farms are little more than one hectare in size, it’s tough for farmers to move beyond feeding their families. “Either their life is going to be incredibly poor or the price they have to receive for the commodities they grow needs to be incredibly high,” says Page.
With a few hectares, however, farmers can become more efficient, giving them a better chance of selling their crops at prices urban consumers can afford and earning enough money to send their children to school.
One answer, says Page, is to link smallholder farmers to a nucleus farm, allowing them to combine their logistics to capitalise on economies of scale, whether purchasing inputs such as fertilizer or shipping products.
Some NGOs have criticised this model, saying that size of the nucleus farms needed to achieve scale leads to “land grabs”. Page, however, sees these as legal rather than commercial issues, and says the answer is to create stronger protections for landowners, particularly since farmers with extremely small plots of land frequently lack clear title.
“It’s what I call abuse of the principle of socialism – if you don’t own your property you can’t use it as collateral,” he says. “If the ability put up land as collateral didn’t exist in the United States, our agriculture wouldn’t exist in the way it does. It’s the foundation of access to capital to improve performance.”
The limited size of so many smallholder farms also presents hurdles when it comes to increasing the traceability of food commodities through initiatives such as the Roundtable on Sustainable Palm Oil, an initiative Cargill supports.
However, the problem with traceability is the red tape, he says. The amount of paperwork that has to be submitted to comply often overwhelms small farms. “It puts modest-sized family farms with four or five hectares of palm trees at a disadvantage compared to those running 100,000-hectare farms,” he says. “So we have to think through the documentation.”
Some in the food industry – particularly those relying on crops such as cocoa and coffee – worry about the aging of rural farmers in developing countries. One study found their average age was 51. And as their children are increasingly drawn to cities, many predict a decline in smallholder farming, putting agricultural commodities supplies at risk.
So is this a threat? Page doesn’t think so – quite the opposite, in fact. As people get jobs in the cities and generate income, demand for food rises, lifting prices and making farming a better commercial proposition. “All that off-farm income that goes to urban workforces flows back to agriculture,” he says. “I know people wring their hands about it, but I see it as an enormous positive.”
Demographic shifts bring other benefits, too, he says. As rural residents move to cities, a consolidation of land takes place. Farmers move from one-hectare subsistence farming to a more productive three or four hectares as they acquire land from departing neighbours.
“It’s an opportunity both for the food companies that deliver those products and in the rural areas, where it will take the pressure off this uneconomic, non-commercial landscape,” he says. “The guy in the city gets a job making an exportable product and sends his money back to the countryside through his purchases.”
So while, for Page, the smallholder remains critical to global food supply chains, being a little larger – and a lot more productive – would be no bad thing. “We’re not talking about big John Deere tractors here,” he says. “We’re talking about modest mechanisation – but in percentage terms, when you go from one hectare to three or four, it’s huge.”
THE GOOD STUFF
Here, I invite my interviewees to name a favourite charity and – in the spirit of Mixing It Up – a favourite cocktail.
Charity: Big Brothers, Big Sisters
Cocktail: Jack Daniels. “I am a single-ingredient person. I have this chart about the marginal use value of different commodities and the highest and greatest use to which corn can be put is Jack Daniels and the other would be ethanol – they’re molecularly the same thing. So when we’re down to one sheaf of corn what are we doing to do with it? I’d argue for making Jack Daniels.”
How we met: I spoke to Greg Page before the opening of the CECP’s 2014 Board of Boards CEO Roundtable.