Connecting farmers with markets

Value Chains

Connecting farmers with markets

Damyad Rumagam's family has grown nutmeg for generations. As they make connections with global buyers, the price they earn for the spice has increased.

Growing nutmeg on a small plantation on an island in Indonesia has supported Damyad Rumagam's family for generations. But over the past few years, the Rumagams haven't been earning a decent price for their crop and their meager income has dropped dangerously low--so low that Damyad is worried he won't earn enough during the next season to feed his kids.

The problem, Damyad explains, is local traders won't pay more for his nutmeg than they pay to any other farmer, and there's no price differential for degrees of quality within his crop.

"The crops in our area are of a very high quality," he said. "But if the quality is better and the price is the same, that means there’s a loss."

Despite growing a highly valuable crop demanded by commercial culinary markets worldwide, 34 percent of Damyad's neighbors live in poverty, compared to 14 percent elsewhere in Indonesia.

Damyad is experiencing the frustration shared by farmers working small plots of land all over the world: isolation from global markets.

In places like Indonesia, Guatemala and Myanmar, this isolation means farmers can't earn enough from the sale of their bountiful fruits, vegetables and coffee beans to keep their families from going hungry. Meanwhile, multinational buyers are interested in new players joining their supply chain, and are willing to pay a good price for crops, as long as the availability is stable and the quality meets their standards.

And that's where the problem lies.

Farmers like Damyad want to meet those standards, but they don't know what they are or how to reach them. And they're often so far behind that it would be too expensive for them to catch up without a boost.

That boost can come from a nonprofit that prepares farmers to work with a larger buyer. In Indonesia, Mercy Corps and the Ford Foundation connected Damyad and 1,500 other farmers with agricultural extension workers who taught improved farming methods to produce good crops despite weather challenges. Farmers began increasing the quality of their spices and organizing into cooperatives to ensure a more stable supply--even if one farmer loses a harvest.

Dutch exporter PT Ollup took over from there, training the nutmeg and clove farmers to meet international quality standards and paying them fair prices. By guaranteeing the cooperatives a specific purchase price, Mercy Corps found that PT Ollup’s entrance into the spice market forced other traders to meet their price increase, raising the overall price of clove and nutmeg in the region by 4 percent to 13 percent. In a village near Damyad's, a cooperative of 50 nutmeg farmers is using its earnings to invest in a new storage facility, which will, in turn, allow it to sell higher volumes.

This is a prime example of how a global development agency like Mercy Corps can play the role of convener between the private sector and farmers, bolstering the economy and improving lives in an entire community.

Similar connections are being made halfway across the globe.

In Guatemala, coffee and vegetable farmers are growing better quality crops because of relationships with Keurig Green Mountain and other private sector players. Since July 2011, farmers working with these companies have sold $2.9 million worth of potatoes, cabbage, broccoli and other crops. That's a drop in the bucket for the Guatemalan companies and multinationals purchasing the crops, but it represents 25 percent more profit per hectare for farmers.

To get farmers to this point, Mercy Corps worked with them on techniques to adapt to a changing climate, conserve soil and water, properly handle pesticides, manage waste, store crops, build greenhouses and rain catchment systems, and also trained women from the community in business practices.

"Food security, like climate change, clean water, and other pressing challenges, are too large for any single company to solve by itself," said Rick Peyser, director of supply chain and community outreach for Keurig Green Mountain. "A broader approach is called for, and collaboration that brings together a variety of players in and adjacent to the supply chain makes sense to us."

In Myanmar, Mercy Corps has been working with rice farmers to improve their harvests and increase commercial sales since Cyclone Nargis hit in 2008.

"The storm destroyed the embankments that hold back the sea water from our fields and the soil quality is much lower than before," said U Hla Tun, a rice farmer in the Laputta delta. 

Working with hundreds of farmers with tiny plots of land can be an administrative nightmare for a large company. By helping farmers organize and facilitate contractual agreements between groups of buyers and sellers, as well as processors in the middle, Mercy Corps has helped reduce risk, which introduces more stability for all players in the supply chain.

"Working with Mercy Corps, our farmers' group received agricultural training and gained access to improved seed, farming equipment, fertilizer and financing," U Hla Tun continued. "The variety of rice we grow here can get a good price if we can grow enough of it to sell."

Connecting farmers to the tools they need to produce for global commercial markets is a long road, but one that has far-reaching benefits.

"All the market actors--millers, input suppliers, buyers--depend on the production of farmers," said U Aung Chan Sein, founder of an agribusiness in the Laputta delta. "When the farmers benefit, the whole value chain benefits."

Learn more about connecting farmers with markets:

Video: Farmers in Myanmar grow and sell more rice 
Interview: Keurig Green Mountain shares its partnership model in Guatemala
Video: How spice farmers in Indonesia earn more profit

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