Supply Chain
Walmart's Smallholder Food Sourcing in China, Nicaragua Offer Multiple Lessons for Stakeholders

Policymakers can learn about how the transformation of agricultural markets is likely to affect the poor in the developing world by studying Walmart, says a new report from the Global Food and Agriculture Program at the Chicago Council on Global Affairs.

Small Farmers, Big Retailers: Are New Sourcing Strategies a Path to Inclusion? examines Walmart’s food sourcing strategies in two markets — China and Nicaragua — to draw lessons for governments, nongovernmental organizations (NGOs) and companies trying to meet the growing demand for food from rapidly growing urban populations.

“Walmart’s supply chain decisions have huge global influence,” said Alesha Black, director of the Global Food and Agriculture Program at the Council. “Studying their efforts to source food closer to the farm to generate a social return — farmer income — while still protecting their bottom line provides a great case study. We can learn a lot about the opportunities and limits of similar strategies across the private sector.”

The report found that new agricultural marketing systems with more direct sourcing can mean higher incomes for participating farmers, more resources for farm investment in new technologies and assets and a pathway out of poverty. However, amid the demonstrated and potential benefits, issues emerge — such as the sustainability of new supply chains and the unequal ability of different farmers to participate in such arrangements — which need to be further examined and considered in policy decisions.

“The growing need for food as urban populations grow offers an opportunity to benefit small farmers as food systems adapt to meet that demand,” said professor Hope Michelson, non-resident fellow at the Chicago Council on Global Affairs and author of the report. “Not all farmers will benefit from these new market opportunities, however, and policies implemented at an early stage can affect who the winners and losers are likely to be.”

The study contributes to this year’s theme of the Council’s annual global food security report, released each year at its Global Food Security Symposium, which will convene April 26 in Washington, D.C. to focus on the challenge of feeding cities as the world’s population becomes increasingly urban.

Working with information from Walmart case studies in China and Nicaragua, the report provides the following lessons for governments, companies and NGOs for increasing food security and reducing rural poverty:

For governments:

• Road access and water supplies for agricultural production are critical determinants of farmer participation in new supply chains, a fact which may exacerbate rural inequality.
• Infrastructure development can facilitate greater supply chain participation among small farmers.
• Maintaining small farmer access to land and credit is vital for ensuring that small farmers, especially women, participate in new markets.
• Investments in the traditional market system can also help improve small farmer outcomes. These investments can include expanding credit opportunities for rural traders or investing in traditional wholesale and wet markets by improving the condition of market buildings, storage and water and sanitation.

For companies:

• By paying farmers a purchase price between a specified minimum and maximum, companies can provide farmers with a measure of protection against the price volatility that vexes the traditional horticulture market.
• Price stabilization/insurance afforded to small farmers by supermarket buyers has been associated with increased small farmer investment in production scale and farm assets.
• Firms should be aware of opportunities to design sourcing strategies that encourage the participation of women in supply chains. For example, employing female extension officers or buyers can be a valid, impactful way to involve more women farmers.

For NGOs:

• Projects designed to build farmer marketing capacity may prove to be a zero-sum game if supermarkets or other supermarket supply chain buyers follow NGO projects (and NGO supply chain subsidies) when the NGO relocates to a new region or a new group of farmers.
• Farmer investment in productive assets during the supply relationship is likely to improve household welfare outcomes in lasting ways, especially once the supply relationship ends.
• Given high rates of exit from supply chains, NGOs should consider the implications for small farmers of an abrupt cessation to a retail-led supply relationship.
• Water and road access are critical for participation. Investments by NGOs may bring more marginal farmers into the retail-led supply chain, but these farmers may struggle to continue to participate in the market without NGO support and subvention.

While food production already has the largest environmental impacts globally of any human activity, it needs to roughly double by 2050 to meet net demand; a sustainable future food system depends on producing more with less land, water and other key inputs. To explore this, a number of stakeholders in multiple sectors and industries are convening to explore strategies: In June, as part of its Creator Space tour, BASF hosted a symposium of academics and thought leaders from a variety of disciplines to discuss the challenge of sustaining global food production; WWF last week launched the Markets Institute, a dedicated platform working with stakeholders — particularly the private sector — to increase the speed and scale of market-based approaches to help optimize global food sector sustainability; and recent competitions from the Biomimicry Institute, Real Food Media and the Barilla Center for Food & Nutrition, among others, have sought innovations aimed at global food sustainability.