Smallholder farming remains a key livelihood in developing countries, yet many small-scale producers are unable to find lucrative and reliable markets for their produce. Local markets in many developing countries are increasingly flooded by cheaper, imported produce from Asia and the West, leaving local farmers struggling to compete. Poor, small-scale producers who turn to international markets are often powerless to get a fair deal.
Recognising the disadvantaged position of smallholder farmers in today’s global produce markets, NGOs and development agencies have begun to devise initiatives to help them access, and improve their positions within, international markets. Development practitioners have become business advisors, striving to make markets work for the poor (M4P), and make value chains work for development (VC4D).
Academic literature on global value chains provides useful notions of governance and power within chains. The idea of governance is that a particular actor in a chain (made up of farmers or producers, traders, processing firms, buyers and retailers) takes control of the flow of goods and information along a chain. This may be to ensure efficiency of production, processing and transactions, or may be a way for the governor to dominate other actors, setting rules and making decisions to its own benefit. It is widely acknowledged that today’s agro-commodity chains, where production often originates in smallholder farms in developing countries, chain governor roles are played by powerful global retailers, which sell processed, packaged and branded goods to consumers. These chain governing companies are referred to as lead firms.
Having worked on a cotton value chain development project in Senegal myself, I was inspired to explore the effects of VC4D projects on power relations within global value chains from an academic perspective. Taking the idea that lead firms govern chains by setting rules and making decisions – for example about what to produce, how to process products, which codes and standards to follow, and which actors to include in a particular value chain, I have carried out a desk-based study to explore whether NGOs and development agencies can be considered to be taking on chain governance roles themselves through their VC4D interventions. Conceptualisations of such non-firm actors in value chain governance models (which tend to focus on lead firms) are currently lacking.
After exploring theoretical literature on value chain governance, I examined a dozen or so NGO and development agency practitioner manuals on how to carry out value chain development. Approaches vary, yet organisations typically select chains to support based on an analysis of the potential for improving the positions, and in turn livelihoods, of poor producers. Support (termed value chain facilitation) typically involves providing market information and technical training, facilitating the building of relationships between chain actors, assisting with product marketing, and advising on how to meet social and environmental standards such as organic and fair trade. Even in cases where organisations which do not advocate working within fair trade certification systems, aims tend to closely reflect many of the principles of the fair trade movement. For example, development organisations are aiming to establish higher (and fairer) prices for producers, transparency both up and down the value chain, long-term trading relationships including secure contracts, and ongoing capacity building.
Finally, I reviewed a broad range of recent empirical studies on VC4D projects throughout Asia, Latin America and sub-Saharan Africa, in order to analyse what some of the real effects of non-firm interventions in agro-commodity chains are. Firstly, I use evidence from a number of cases to argue that NGOs and development agencies are indeed becoming value chain governors. In some cases, NGOs are seen to be setting rules, monitoring and applying sanctions. They are even deciding which actors to include or exclude from a particular chain. Some become intermediaries within the value chain itself, negotiating contracts on behalf of producers, or physically handling products as they pass from producer group to processing firm. While VC4D practitioner manuals state that interventions should be temporary, and there should always be a clear exit strategy, it seems that more often than not, value chain actors are becoming dependent on the non-firm actors’ support and guidance. However, NGOs and development agencies do not always possess sufficient business expertise to be able to justify taking on such roles that go far beyond value chain facilitation.
While NGOs and development agencies are attempting to use their new-found positions in value chains to curtail lead firm power, and empower poor producers, there is little evidence that this is being achieved. NGOs are unable to significantly change power relations between small producer cooperatives and international brands, whom they rely on for good market access and sustained demand. It seems lead firms are willing to allow NGOs to gain a certain level power in value chains, as the NGOs are relieving them of some coordination tasks, and are introducing social and environmental standards which can mean access to value-added markets for retailers. Yet lead firms still maintain the right to terminate contracts and switch suppliers if their quality and speed demands are not met.
The effects of NGO and development agency VC4D interventions on chain governance are clearly varied and complex. It is also clear that practitioners would benefit from further research and reflection on best practice for VC4D projects, taking into account the effects they are having on power relations in value chains, and also taking into account the views of different value chain actors. However, while these non-firm interventions may not yet be achieving producer empowerment goals, this does not mean their actions to tackle lead firm dominance of chains are not legitimate. Indeed it can be argued that the decline in state involvement in global trade following the introduction of neoliberal policy over the past few decades has left a governance gap, which NGOs and development agencies are attempting to fill.
If global retailer power in value chains is inevitable, it may be that NGOs and development agencies move towards finding ways to co-govern value chains, alongside these lead firms. There could be potential for power in a value chain to be shared between an efficiency and profit-driven firm, and a non-firm actor striving for greater fairness in global trade.
This research is presented and discussed in more detail in the JWI Working Paper ‘The effects of non-firm actors’ interventions in agro-commodity value chains on chain governance: the case of NGOs and development agencies’.
University of Edinburgh Fair Trade Coordinator