Just how inclusive is ‘inclusive business’?

Article, 27 June 2011

The growing effort to make markets work for the poor has seen several initiatives and practices emerge, which claim to be more inclusive of smallholders and poor workers. But how far such initiatives genuinely reduce poverty and empower small-scale producers remains open for debate.

Discussion at the latest of the IIED-Hivos ‘provocations’ in Brussels last week (22 June) suggests that the first step in assessing how ‘pro-poor’ business contributes to development and smallholder empowerment, is to understand what we mean by the word ‘inclusive’.

There does seem to be an authentic appetite from the private sector to build relationships with small-scale farmers, as seen at last month’s provocation in Manchester and through initiatives such as the Alliance for Inclusive Business.

But are these relationships truly ‘inclusive’? At the provocation, which was hosted by Richard Howitt MEP in association with Vredeseilanden and the UN Research Institute for Social Development (UNRISD), participants asked inclusive for whom and in what way? Miguel Mendez, the SNV Country Representative for Nicaragua, defined ‘inclusive business’ as a model where a business with a profit motive includes poor farmers in a fair way.

“Not all relationships between businesses and producers are inclusive,” he said. He shared a set of criteria for his understanding of inclusive business. For a start, it has a strong business focus. “It’s not philanthropy or self-promotion,” said Mendez . It is part of a company’s core business strategy and responds to a genuine market opportunity. “Trust (between companies and smallholders) is vital too”, said Mendez. As is capital investment — investment for technical assistance, improved productivity and access to credit.

For Mendez, this type of business leads to empowerment by building the capacity of small-scale farmers to produce a better quality product at a better price. And from improving coffee in Nicaragua to boosting domestic maize production in Ecuador, he cited many examples of inclusive business in action.

Beyond quality and price

But many participants at the Brussels provocation felt that real inclusiveness is about enabling smallholders to make their own choices and tackle their own problems — that is, it is also a political term. Karen Bahr from the Catholic University of Leuven argued that inclusive business also means allowing small-scale farmers to participate in building the model and how it works, rather than simply allowing them to operate within it.

Peter Utting, deputy director of the UN Research Institute for Social Development (UNRISD), told participants that as early as the 1970s his organisation defined ‘empowerment’ as increasing bargaining power and gaining control and exerting claims. “Empowerment means being better able to negotiate our products and have a better position in the market,” agreed Merlin Preza, coordinator of Fairtrade Small Producers in Latin America and the Caribbean.

And for many at the provocation this idea of empowerment — improving the capacity of small-scale farmers to negotiate with the private sector — is a defining characteristic of inclusive business.

How do you achieve it? As in previous provocations, participants seemed to agree that the key lies in supporting organisation. “If you don’t have organisation, you won’t get very far,” said Preza.

Sanjeev Asthana, from the National Skills Foundation for India, agreed with the importance of organisation, adding that “creating the institutional structure where [small-scale farmers] can stand on their own two feet will be the most sustainable solution to this whole debate.”

No miracle cure

Some participants argued that strategies claiming to be inclusive often do little to address this problem. Johan Declerq from Max Havelaar Belgium, for example, complained that under the banner of ‘inclusive business’, Dutch strategies for international cooperation are redirecting support from smallholders to big farmers and industry.

Preza agreed, saying it is not only the Netherlands that is to blame. “Over the past two years, models for support and cooperation have changed and they are supporting big companies.” And Chris Bacon, professor of environmental politics and policy at Santa Clara University, asked whether the new donor focus on inclusive business was in fact “subsidising inequality”.

Other participants questioned who it is who is doing the ‘including’. Alberto Monterrosso, who has long worked with connecting smallholders to markets in Guatemala, said that the biggest problem for his farmers is the delay in payment, which can take up to 60 days. In this scenario, it is the producer who bears all the risks, not the multinational. “We (small-scale producers) are the ones who are including big companies and supermarkets... because we are the ones financing the trade,” he argued.

At the end of the day, as Utting said in summing up the discussion, development is very complex and very multi-faceted. “It’s about empowerment, finance, price, environment, social services, health and education, and many other things”. This means that making a long-lasting impact through the private sector is not easy: it requires a long-term perspective, real engagement with all stakeholders and the flexibility to respond to local and regional context. It may be cliché, but in the world of pro-poor business, there’s no miracle cure and one size most definitely does not fit all.