Linking Supply Chains, Farmers and Sustainability : A New Rainforest Alliance report analyzes the financing needs for investing in sustainable supply chains
Farming is under pressure globally—from climate change, water scarcity, soil erosion—as well as from increasing demand caused by a growing and more affluent population. In response, the past few years have seen an explosion of demand for sustainably farmed products by consumer goods brands such as Kraft, Mars, Unilever and Caribou Coffee and retailers such as Whole Foods, Walmart, and Marks and Spencer who are trying to reduce risk in their supply chains – meaning that farmers must increasingly embrace and implement sustainable practices.
There are many barriers to scaling up sustainable practices at the field level, including: poor agricultural practices and seed stock; poor quality soil, insufficient and/or contaminated water; insufficient labor and poor labor practices; changing weather patterns; lack of extension and training; counterproductive government policy and incentives and insufficient or poorly aligned financial resources (to invest in improvements, labor etc.).
Various development agencies, private sector actors and NGOs such as the Rainforest Alliance are working with farmers globally to help them adapt their farming to the needs of the 21st century. However, the financial sector, with some exceptions, has been behind the curve. With support from The Citi Foundation and Rabobank, the Rainforest Alliance has launched a sustainable finance initiative focused injecting sustainability into supply chain finance as well as increasing financial investment into sustainable operations. As part of this initiative, The Citi Foundation and Rainforest Alliance recently published a report Sustainability As A Key Factor For Migrating Risk in Agricultural Supply Chain Finance, which summarizes the findings of a workshop of supply chain actors analyzing the financing needs for investing in sustainable supply chains. (Click here to check out a post on the workshop).
The consensus of the participants, which included consumer goods brands, traders, importers, banks, and NGOs, was that increased financing for agricultural supply chains would require improved enabling conditions for financing. Specifically:
- Small farmers need to be organized into groups (such as coops) in order to facilitate the effective delivery of technical and financial services.
- Effective financing will require uncommon collaboration among supply chain companies, civil society and different types of financial institutions.
- More data on the relationship between sustainable practices and agricultural and livelihood impacts need to be collected in order to demonstrate the business case for investing in sustainability.
- Technical assistance and training continue to be essential early-stage inputs and are grant funded, not financed. It would be helpful to link their provision to access to credit.
Looking ahead, we are advocating a series of next steps. (Several stakeholders have already started on this work):
1. Design and track risk metrics: Refine and implement a set of indicators that track financial performance and reduced risk related to sustainable practices. This work will synthesize and build on the work done by several institutions to design appropriate metrics to capture performance relevant to address financing risk.
2. Financial Profiling of Producers – Exploring the feasibility of technical assistance providers/certifiers collecting basic economic/financial data on producers. This data would not substitute for investment due diligence, but would help the sustainable development community better segment and characterize the stage of development of their producer partners, and begin to better understand the types and general scale of credit needs across categories.
3. Financial Literacy/Training: Review the existing financial education materials for farmers, to identify a set of critical core elements, leverage key learning from the training done and tailor materials to communities in key agricultural value chains.
4. Pilot projects: create alliances around specific supply chains to implement financing of sustainability practices, together with a comprehensive impact assessment and disseminate results.
As we have embarked upon this work at the Rainforest Alliance, we have been impressed by how many different organizations around the world are having similar conversations about the challenge and the opportunity. Those conversations have not yet moved the needle at a mainstream level, though there encouraging signs. We hope in five years time there will be a sea change in the mainstream financial sector’s appetite for investment in sustainability, in agricultural supply chains as well as across other sectors. The scale of the problem requires it.
Tensie Whelan serves as the president of the Rainforest Alliance.