Q&A on Livelihoods
In this section Chris Brett, Olam’s Global Head of Corporate Responsibility and Sustainability, talks through our 2015 goals and 2016 focus areas for improving livelihoods.
(1) It’s great that Olam has managed to embrace almost 345,000 smallholders under the Olam Livelihood Charter but wasn’t your target 450,000 by the end of the 2015?
Correct. However, there are several reasons why we did not hit this target:
Change in business strategy.
Over the past few years we have been executing on our business strategy to grow in prioritised platforms while reducing volumes or exiting lower-margin businesses. This impacted on the aspiration we had set in 2010. As a result we have revised our 2020 figure – see our Goals in this Report. However, the initiatives continue to expand including the addition of hazelnut farmers in Turkey and 6 new initiatives for coffee in Cameroon, Colombia, India, Indonesia, Tanzania and Uganda. And there are many more nascent programmes.
Stringent OLC criteria.
We pride ourselves on being a trusted partner, so have always insisted that as a flagship sustainability programme, all 8 OLC principles must be fulfilled for an initiative to qualify. This is because we believe that a truly holistic approach, addressing social, environmental and economic factors, is required for long-term change. Reasons not to include certain programmes in the OLC in 2015 included:
- Decision not to provide finance due to high risk of farmers choosing to sell to others (Latin America). Here, the risk might be that we pay up to 30% upfront for the crop but the farmer decides to sell his crop elsewhere if he can get a slightly higher price. We call this fidelity risk – will the farmer stay loyal given the investment we are making in him? In 2015, under the OLC, we provided US$177.2 million in credit for crop purchase, crop production and farm assets so it is a significant risk if we feel that farmers are not going to stay loyal.
In 2016 we will look at how to support farmers and cooperatives in Latin America to become more ‘bankable’ through training and by organising meetings with bank representatives. After all, it’s not really the job of an agri-business to provide microfinance. We do it because banks have
traditionally been unwilling to provide credit to smallholders. This is now starting to change, especially thanks to mobile banking. By facilitating these partnerships we help improve access to finance without risk to our bottom line.
- Lack of social investment. In 2015, 3 interested initiatives, with farmers in Tanzania, Republic of Congo and Guatemala, did not qualify for the OLC, as the social investment criteria was not quite fulfilled in the timeframe, although they will do so in 2016.
It’s also important to remember that social investment projects often need to be maintained on an ongoing basis so need careful consideration. Imagine you are an Olam manager and you know you have to keep costs down, find efficiencies while implementing all of the supportive mechanisms behind the OLC – the microfinance, the road repairs, the training modules, the storage facilities to be built, the free seedlings.
Based on discussions with the community, the most beneficial social investment might be a school. However, it’s not just about building a school – who is going to be the teacher? Who will pay the teacher? A future-proofed partnership with government is needed. All of this takes considerable time and resource to set up. In 2016, we will therefore put more focus on identifying partners to help us deliver on impactful social investments.
(2) Do you think you will meet your target of 800,000 farmers in the Olam Livelihood Charter by 2020?
Based on our current business structure, most of the products with the greatest potential (cashew, cocoa, coffee and cotton) are already buying heavily from OLC farmers and don’t have the resource to expand further. Other products have a lower potential because there are simply fewer farmers in those supply chains.
Since we first set our aspirations in 2010, we now believe that we are probably looking at only incremental increases in OLC farmer numbers year-on-year. We have therefore revised our 2020 objective to focus on the overall impact being made by the OLC principles, namely to 1 million hectares, which is likely to be 500,000 farmers. See our Goals for more detail.
At the same time however, we will continue to help reach those farmers not embraced by sustainability programmes, primarily through public and private sector partnerships to enhance their access to basic crop production requirements. This is why in 2015 we initiated a benchmark study, carried out by the World Business Council for Sustainable Development (WBCSD) as a neutral knowledge partner, to assess (with their agreement) the activities of the principal private sector players in the food chain, measured specifically against the objectives of the UN Sustainable Development Goals. The resulting non-attributed and aggregated report will identify a world map of ‘hotspots’ of under-investment at regional and sector level, as well as identifying areas that are on track to meet the SDG ambitions. With this shared knowledge, the agri-sector can identify projects that will unlock value for them and smallholder farmers.
(3) What is the difference between the Olam Livelihood Charter and certification?
A certification programme, such as Rainforest Alliance or Fairtrade carries a specific marketing label that brands can put on their products to prove to the consumer that a key ingredient has been sustainably sourced and verified. Olam works with all of the different certifying bodies and we share our expertise to advance the programmes.
The OLC does not have a marketing label. But thanks to its robust framework, it does give customers who do not wish to pay for one, the confidence that their ingredient is sustainably sourced.
Nearly all certified programmes are included under the OLC as they meet all 8 of the OLC principles. This means that of the 2015 OLC tonnage, 25% is classed as certified.
(4) Is the OLC tonnage externally verified?
In 2015, the cocoa programmes in Côte d’Ivoire were externally verified by Intertek against the OLC principles. We are considering whether to take this further based on customer demand versus cost.
(5) Wouldn’t it be better if you just paid smallholders more money?
This question isn’t as simple as it looks. Prices are set in the market place – what someone is willing to pay for a commodity. If there is a supply glut, prices are low. If there is limited supply then prices start to rise.
In some commodities, such as cocoa, individual governments set the price (Côte d’Ivoire and Ghana). This helps to protect the farmer from world market prices going down but it also means they miss out should prices go up. Only if the farmer has taken extra measures, can we pay a premium (an additional payment over and above the normal price), rewarding an additional attribute such as quality or sustainability. In 2015, we paid more than US$24.04 million in premiums to smallholders, a 16% increase on 2014.
Where governments don’t set the price, Olam is absolutely committed to paying fair and transparent open market prices – it is an OLC principle. In many cases we pay higher than our competitors to ensure farmer loyalty.
However, we have to make sure that we can manage that cost back through our operations. If we pay more, will customers be willing to factor that into the price they pay to Olam? In turn, customers will want to see if they can pass that cost onto consumers – who typically do not want to pay more….
Also, you have to think about long-term economic impacts. If one company starts to pay much more than the market price, farmers of other crops may decide to switch to get a better deal. They invest in the trees and seeds etc., but then there’s a huge surplus because everyone had the same idea and actually prices go through the floor, this can be seen within the rubber supply chain.
Rather than trying to artificially set prices, we strongly believe in tackling the problem by helping farmers to improve yields and quality. More and more, we are also helping farmers to diversify incomes.
(6) How are you measuring impact? Can you be sure the investment is well spent?
Each initiative has specific recording systems in place to monitor impact levels. One of the most obvious areas of focus is yield and income. However, we also have to make sure that we are not giving our customers, donors and other partners, information taken out of context.
So, for example, low global supplies of cotton might mean that a cotton farmer with a lot to sell has a fantastic year in terms of income. Or, if the weather has been exceptionally good, yields might be higher than a typical year. We therefore review data very carefully before we make claims. The case studies in this section give a good indication of the type of improvements we are seeing.
The Olam Farmer Information System (OFIS) will help us to assess impact even further. All of the farmer survey data we are collating can now be analysed. We can start to view the yield of a particular farmer against his neighbours, or look at how much impact certain training has had on a farmer group versus those who haven’t yet received it. Importantly, we can progressively get a more detailed understanding of the true economics of being a smallholder.
It sounds obvious, but collecting all of the data on hundreds of thousands of farmers in extremely remote areas is a Herculean task. But once we have that data our helicopter view of what’s happening on the ground quickly turns into something much more scientific and focused.
(7) What will be your main focus areas for 2016?
We have updated our Livelihood targets for 2016 – 2020 as detailed above but they can be summarised as follows:
- Continue to improve farmer productivity by improving our services to smallholders. This includes ongoing development of training modules, especially training for cooperatives, and child labour awareness
- Develop further partnerships to bring in technical (and financial) resources to improve the quality of our farmer services and social support for farming communities
- Factor in more nutrition training and crop diversification (also see the ‘Food Security’ section of this Report)
- Expand the OLC to additional businesses and origins, particularly in South America and Asia
- Put a greater focus on Climate-Smart Agriculture, both in our own operations and through our Co-Chair role with the Low Carbon Technology Partnership initiative launched by the World Business Council for Sustainable Development in 2015. A key component of this work is to focus on the community landscape to increase productivity to ensure the elimination of any further deforestation. To read more see the ‘Climate Change’ section of this Report.
- Continue improving gender training modules and strategies
- Help farmers and cooperatives to become ‘bankable’ through training, organising meetings with banks and encouraging formal registration to build their respective credit histories.