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Transforming Agricultural Supply ChainsLessons learned in unlocking long-term value – from farmer to retailer

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Shell Foundation is an independent charitable foundation which was established in 2000 and is funded by Royal Dutch Shell PLC*. The views and opinions set out in this paper are those of Shell Foundation and not of any other person including Royal Dutch Shell PLC.

*The companies in which Royal Dutch Petroleum Company and the ‘Shell’ Transport and Trading Company, p.l.c, directly or indirectly own investments are separate and distinct entities. But in this paper the collective expression ‘Shell’ is used for convenience in contexts where reference is made to the companies of Royal Dutch Shell PLC. Those expressions are also used where no useful purpose is served by identifying a particular company or companies.

© Shell Foundation 2012

All rights reserved. This publication is copyright, but may be reproduced by any method without fee for education and communication purposes, but not for resale. The copyright holder requests that all such use be registered with them for impact assessment purposes. For copying in any other circumstances, or for re-use in other publications, or for translation or adaptation, prior written permission must be obtained from the publisher.

Copies of this report and more information are available to download at www.shellfoundation.org

Shell Foundation is a UK registered charity (no. 1080999).

This report was written by Alison Rodwell with input from the following contributors to whom we are most grateful:

Abbi Buxton, Andrew Wanliss-Orlebar, Anuradha Bhavnani, Bill Vorley, Chris West, David Bent, David Carrington, Fiona Gooch, Jeroen Blum, Jo Chandler, Katie Critchlow, LaRhea Pepper, Larry Bush, Mark Sumner, Mike Barry, Pauline Burrows, Phil Chamberlain, Richard Gomes, Roger Ong, Rosanne Gray, Sean Allam, Steve Wormald, Victoria Morton.

We would also like to thank Shell’s Creative Services team for the design and creation of this report.

Contents

Executive Summary i

1 Introduction 1

2 The Problem 2

3 The Need for New Enterprises 7

Case Study: The Better Trading Company 11

Case Study: CottonConnect 14

4 Role of Shell Foundation 18

5 Learnings and Challenges 21

Case Study: Bright Futures at Haygrove Heaven 26

Case Study: Flowers 29

6 Where Next? 31

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Executive Summary

Forty per cent of the world – over 2.8 billion people – make their living through agriculture, a figure that rises to 80% in some parts of Africa and Asia. Issues of poverty, economic growth, urbanisation, climate change and food security are intrinsically linked to this sector, and are set to become ever more pressing as the world’s population rises. This means agriculture embodies some of the most urgent and significant challenges to sustainable development of our time.

One of the greatest challenges faced by developing world farmers is that of accessing markets. For over 10 years, Shell Foundation has been working to improve the livelihoods of farmers at scale by applying market-based thinking to the mechanics of global supply chains. Like many organisations, our early interventions focused solely on providing support to the farmers themselves; an approach that offered little opportunity to generate social or environmental outcomes on a global level. But by working in partnership with farmers, retailers and intermediary organisations across supply chains, and by learning from successes and failures over that time, we believe a holistic model built on genuine business drivers has emerged that can deliver large-scale benefits to developing world producers in ways that are ultimately independent of grant funding.

This report charts that journey, the key lessons from our partnerships over this time and how this learning has led to the creation of a new type of enterprise that we refer to as a ‘Supply Chain Connector’ – to catalyse more sustainable retail supply chains and deliver widespread change on the ground. We will review the common characteristics of these new entities and consider the impacts that they generate, the challenges they face and how these models might be applied to new markets and taken to scale for global impact.

A new approach

Back in 2002, Shell Foundation set out to catalyse sustainable solutions to global development challenges that could deliver outcomes at scale. Like most, we started by thinking about the issue from a farmer point of view and supporting programmes designed to meet their needs – for example addressing the agricultural skills gaps (i.e. growing a high quality product reliably) which prevent entry to markets and keep subsistence farmers trapped in the poverty cycle.

In the three years that followed, these partnerships across different markets and geographies delivered some positive local benefits. But it became clear that backing time-specific individual projects was never going to achieve change at the scale we desired, no matter how many we supported. We were forced to think through our experience and come up with a new way to understand the challenge.

Turning the problem on its head, we decided to initiate a series of long-term strategic partnerships between 2005 and 2008 with major retailers such as Marks and Spencer (M&S), Woolworths South Africa and European retailer, C&A, to understand their business drivers and the challenges they face to make their product supply chains more sustainable.

This work led to the first of two pivotal moments in our journey: the realisation that major market failures exist across agricultural supply chains. Retailers themselves face significant challenges in mitigating social and environmental risk, securing supply and sourcing new products for their customers; and typical supply chains are large, complex and difficult to trace (at the most complex they can involve a mix of farmers, aggregators, traders, processors, manufacturers, import agents and high street retailers, across several countries).

In this context, any sustainable market-based solution would need to respond to commercial drivers at every level. This meant analysing the problem from the perspective of the whole supply chain, working backwards down to the farmer and establishing strong supply chain partnerships in the process.

Limitations in the current landscape

Impressive work from a range of actors including NGOs, governments, trade bodies and retailers themselves has led to many improvements in agricultural supply chains, particularly over the last three to four years – with several industry initiatives and pilot projects to establish pre-competitive collaboration, standards and certification across a range of agricultural markets.

However our experience, and those of our partners, suggest that two critical challenges to addressing these market failures at scale remain: how to connect fragmented supply chains and implement best practice to deliver change on the ground; and how to meet the needs of the retailer and the supply chain, not just of the farmer, in order to create sustainable change.

Shell Foundation began to explore ways to tackle these problems alongside retailers, starting with a three-year strategic partnership with M&S in 2005. Having committed US$1 million to design and implement programmes to support producers in the M&S supply chain, we unearthed several win-win solutions. M&S became the first UK retailer to sell products made from Fairtrade cotton (mitigating risks and serving ethically-minded customers) and sourced new products such as Fynbos flowers from disadvantaged communities in South Africa that are still on the shelves today.

A similar partnership with C&A and Textile Exchange (formerly Organic Exchange) to understand the European retailer’s cotton supply chain and develop capacity-building programmes in local producer countries helped them sell over 32 million organic cotton garments in 2011 (from zero in 2005) benefiting many thousands of Indian farmers in the process.

Yet these types of one-to-one engagements were also restricted in scope. Individual retailers and donors were unable to establish the capacity needed to implement programmes at scale after the initial partnership had ended – or to replicate them for the benefit of others in the industry.

This resulted in a second realisation: that dedicated enterprises were required to take the lead in connecting the chain on an ongoing basis, as a prerequisite to implementation at scale over the long-term.

Supply Chain Connectors – a new type of businessSpecialist organisations were needed to build supply chain linkages where they previously didn’t exist. They would play a key role to design and deliver market-based supply chain solutions for retailers that simultaneously improve the livelihoods of developing world farmers.

To do this, these organisations would need to play a connecting role, linking markets to farmers by creating strong partnerships throughout the supply chain. They would also need to build the infrastructure and capability to replicate pilot projects, expand and operate at scale in multiple countries.

■■ For the retailer, this solution helps to mitigate risk, secure supply, deliver efficiency gains, innovate and differentiate to stay competitive through creating transparency and direct relationships

■■ For the farmer, it helps to remove barriers to entry into international markets and create jobs and improve livelihoods by developing the technical, business and life skills to secure contracts, increase yields and reduce costs

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In 2008 we called these innovative new enterprises ‘ethical agents’. However, perhaps a better description is ’Supply Chain Connectors’ as they unlock long-term value by connecting the chain from retailer to farmer.

There may be others in the supply chain who can fulfil this role, at least in part, but in our experience, in many cases – especially those chains with high complexity and large numbers of actors − these services are best offered by a separate enterprise whose sole focus is the task of delivering this change at scale in the most efficient way. The new enterprise would target financial viability through earned income to break a long-term reliance on subsidy.

From 2007 to date, Shell Foundation has co-created several Supply Chain Connectors to demonstrate the potential impacts that these models can deliver. These reflect a broad range of crops and structures in agricultural supply chains. While clearly there is no one-size-fits-all solution, the same model can be modified to benefit smallholder growers of commodity crops, or high value/low volume crops, or workers on commercial farms who are arguably more vulnerable.

Over this time SF has worked with several partners to design solutions to reflect this diversity of crops and structures in agricultural supply chains. These include:

Two of the three solutions have now been taken to the stage of forming dedicated Supply Chain Connectors and are now operating across many countries and delivering impact at scale. While each model is different, we see three important common characteristics:

i) Supply Chain Connectors design and deliver a new package of services to the existing supply chain which are designed to meet the needs of both farmer and retailer;

ii) Supply Chain Connectors connect the chain from retailer to farmer, building strong supply chain partnerships and linkages to facilitate implementation; and

iii) Supply Chain Connectors provide tailored services to meet the changing needs of the supply chain over of a period of several years. This is a key element to unlocking long-term value – too many interventions are short-term and lack the continuity of support that is required for farmers to be successful. There are no quick fixes to these complex challenges.

Building global Supply Chain Connectors

Organisations that can meet all these requirements do not typically exist, and cannot easily be retrofitted within existing organisations. We found ourselves having to co-create entirely new businesses that target environmental and social return in addition to the financial return necessary to fund their operations and growth.

Our partnerships are still ongoing, with many challenges still to be overcome, but we have noted several common lessons from building Supply Chain Connectors that may be relevant for others in the sector. These resonate with our experience in creating and growing social enterprises in a range of different sectors.

1) Partner selection is key. The new enterprise is designed to be capable of operating at scale over time, expanding operations to multiple customers, geographical locations and/or products. In order for all this to be achieved, both entrepreneurs and their early-stage supporters must share the same vision for scale, blended returns and financial viability – plus complementary skillsets to deliver this successfully.

2) It takes considerable time and levels of funding to create a Supply Chain Connector. Co-creating new business models that operate in difficult, unchartered territory is a high-risk, high-reward process. It requires sustained financial support over a number of years, to trial new models, refine them, start a business and then to reach viability – after which additional sources of finance will be more readily available. Shell Foundation has invested over US$13 million in seeking to transform agricultural and craft supply chains over the last 10 years.

3) A wide range of business support is required to build the necessary capacity to operate at scale. We have had to take a very active hands-on role to provide this. This includes helping our partners develop sound business plans and performance metrics to target financial sustainability and scale of impact; building the capacity to operate across multiple regions (e.g. recruiting high calibre talent, creating back office systems and risk controls); supporting the transition from grant to earned income; helping to secure commercial financing when appropriate and continuing to play a governance role long after any grant relationship has ended.

■■ CottonConnect, a social business that works with leading retailers and brands to enable them to create more sustainable cotton supply chains. Established in 2009, CottonConnect has already improved over 250,000 livelihoods in India and China through its work with several high-street brands including C&A and John Lewis. www.cottonconnect.org

■■ The Better Trading Company, an enterprise that nurtures horticultural and agricultural entrepreneurs in southern and east Africa, providing training and business support, and brokers supply contracts with leading retailers and international markets. Established in 2007, The Better Trading Company has improved 24,000 livelihoods and has secured contracts with major European supermarkets and McIlhenny Company, the makers of Tabasco® sauce. www.thebettertradingcompany.com

■■ Haygrove Heaven’s Bright Futures programme, a pilot Programme to enable farm labourers at a South African berry farm to learn entrepreneurial skills and spin-off their own businesses (while increasing supply of a high-value product for local and export markets). Still in its infancy, the multi-year programme has delivered life-changing training to 50 participants, several of whom now run their own business. www.haygrove.co.uk/haygrove-development/current-projects/bright-futures Chillis grown by smallholder farmers in Zimbabwe for use

in Tabasco® sauce

A farmer training session conducted by CottonConnect in India

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4) The pathway to scale and sustainability is not linear or predictable. In short, this work is not easy. Any new enterprise is fragile and vulnerable in the early years – and our partners often meet obstacles that take considerable effort and collaboration to overcome. Again this illustrates the high risks associated with this work – even if you make all the right decisions things may not go as planned.

With regard to this last point, we discuss several of these challenges and failures in this report for two reasons. First, we see failure as integral to learning and continuous improvement. Second, we see risk as a natural feature of a disruptive, catalytic approach – and we believe this approach is necessary to pursue impact on a global scale. We take every step possible to mitigate these risks (and have a high success rate as a consequence) but sometimes failure is unavoidable.

For example, one partner, The Better Flower Company (TBFC), an independent Supply Chain Connector for the flower industry that we co-created between 2007 and 2011 exemplifies this. TBFC was established on the back of the successful sale of South African Fynbos flowers to M&S and UK-retailer Waitrose – a specialist international broker that would offer a range of training and expertise to flower farmers across Asia and Africa. Over the course of four years, Shell Foundation helped TBFC to steadily grow its business. In 2011, with a need for working capital to expand the UK import agent handling capabilities to pave the way for higher volumes and new products (such as gerbera and roses from India) to meet a big new retailer order that would take them to break-even, TBFC sought a US$700,000 loan from Charity Bank (with Shell Foundation acting as guarantor).

However, just months after this, a number of factors such as delays in new customers placing orders, operational challenges with taking on a new supply base on a new continent and intense competition with existing suppliers, meant that TBFC encountered major cashflow issues and were forced to liquidate the business.

From this we learned that there are inherent risks involved when small entities sell direct to multinational retailers – exposing them to significant and unpredictable fluctuations in price, quantity of

orders and delays. We would, with the benefit of hindsight, suggest choosing a lower risk business model initially, (without the high overheads of a UK-based import facility), such as partnering with an aligned existing import agent. That said, we believe that TBFC was the right business to back to test a direct selling model in order to increase benefits to producers, as they had the right product and strong market demand. If these variables had gone slightly differently, or had not all occurred at once, TBFC may have reached break-even and secured a permanent place in the market.

But while there can be limitations of this kind with a market-based approach applied to agricultural supply chains (i.e. where significant environmental or social externalities exist or if prices of agricultural products are artificially kept low with subsidies), we still find compelling evidence for the impact that Supply Chain Connectors can generate. When these models work you have a vehicle with the capacity to deliver substantial social and environmental benefits on a global level, and in a way that is financially viable over the long-term.

Transforming agricultural supply chains: three routes to scale

Through our partnerships and experiences we see three distinct models of Supply Chain Connectors emerging which can be adapted or even blended depending on the principal characteristics of the supply chain, be it commodity, high-value crop or contracted labour. In 2011, Shell Foundation and Forum for the Future launched a comprehensive review to see if any of these models could have applicability in other supply chains and to identify these sectors. The exercise revealed three potential routes to achieve scale:

i) Grow existing Supply Chain Connectors.

ii) Replicate Supply Chain Connectors in other industries or geographies or situations with common social/cultural challenges.

iii) Engage enablers of scale i.e. entrepreneurs (e.g. through business schools), organisations that could support them (industry bodies or development organisations) and potential early adopters (retailer/brand customers).

■■ The commodity model illustrated by CottonConnect could be applied to other products with long supply chains with a lack of transparency, many smallholders, high risk sustainability issues and difficulty implementing standards at scale (e.g. cocoa, tea or even palm oil).

■■ The high value crop model illustrated by TBTC might be attractive for brands needing traceability and a ’story of origin’ for one of their key products or for markets struggling to source sufficient volume of product.

■■ The contracted labour model illustrated by Bright Futures could be applied to other commercial farms growing high value export crops with expanding markets (such as certain vegetables, flowers or wine).

Together we established a series of tests to determine if a Supply Chain Connector would be well suited to a particular agricultural sector, and these are described in the report. Using this methodology we identified several sectors that could potentially benefit from this approach, for example:

We also identified several sectors outside agriculture that faced similar challenges. For example, the commodity model could be applicable to mining or electronics where supply chains are long and the sustainability issues are predominantly at the start of the chain.

1. Entrepreneurs with a vision for scale and blended financial, social and environmental return.

2. Donors, investors, governments and philanthropists who can share risk and provide finance and critical business support over the long-term.

3. Early-mover retailers or high street brands that are prepared to become initial anchor customers in order to build momentum.

Greater collaboration

Our experience suggests a need for multiple Supply Chain Connectors in different sectors to set up the necessary infrastructure to transform supply chains at scale. Yet very few of these organisations exist. In order to create them, we will need a far deeper interaction and longer-term collaboration between three sets of partners:

These would be supported by key intermediary and implementation partners, build on the relevant industry initiatives and use established accreditations where appropriate.

Our experience has shown that Supply Chain Connectors are complex to create but – with no quick fix at hand – we need to think differently to create hundreds of these organisations and to help them deliver impact at scale.

If we are serious about moving beyond successful pilot projects, about unlocking long-term value from farmer to retailer and about reaching billions, not millions, of people then we need catalytic organisations to refine, incubate and scale these models. Shell Foundation stands ready to work with and learn from others to try to make this happen.

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We have pioneered an enterprise-based approach which was new at the time and several aspects of this approach emerged from a review of success and failure which are equally applicable to our work in agricultural supply chains.1 This is essential as a market-based approach is the route to achieving scale and sustainability, given limited availability of grant funding.

To highlight the most significant, Shell Foundation (SF) firstly selects a development issue where a market-based approach can have an impact, before selecting a new partner who shares an aligned vision of scale. We then work to support this partner to create an enterprise with a business model which has the potential to become sustainable itself e.g. pioneering a new package of services which haven’t been combined before in that sector. A strong market-based approach underpins the design of the business model which targets earning income and reduces grant dependency in order to become financially viable over time. Our experience showed that it might be 5-7 years before financial viability is reached and SF continues to play an active role supporting the enterprise both with considerable investment and what we refer to as ’more than money’2 assistance during this period.

However, one individual enterprise reaching scale is not in itself enough – we need wider industry replication before we can have a significant impact on the particular development issue in question and we have taken some tentative steps in this direction. Our approach in itself is evolving as we

are learning how we can best act as a catalyst in a range of development sectors.

This report is an in-depth study of how we applied this approach to one global development challenge in particular – the challenges faced by developing world farmers accessing global markets

Why agriculture?

We selected agriculture given its pre-eminence as a global development issue both socially and environmentally. 40% of the world makes their living through agriculture, rising to up to 80% in parts of Africa and Asia, and 13.5%3 of global greenhouse gas emissions (GHGs) are attributable to agriculture. It also significantly impacts the nitrogen cycle and is an area of increasing importance given the interconnected challenges of land, energy and water use. In addition, a rising global population and increasing middle class consumption aspirations further increase the demands on agriculture. It was also seen as an opportunity for SF to apply a market-based approach using its understanding of global supply chains to address market failures affecting one of the most significant development issues.

1 This review was shared in detail in our 10th Anniversary Report in 2010 ‘Enterprise Solutions to Scale – Lessons learned in catalysing sustainable solutions to global development challenges’ available at www.shellfoundation.org

2 See Section 4 for further information about our ‘more than money’ approach

3 IPCC Report http://www.ipcc.ch/pdf/assessment-report/ar4/wg3/ar4-wg3-ts.pdf

Introduction The Problem

Shell Foundation’s objective when it was founded in 2000 was to catalyse scaleable and sustainable solutions to global development challenges.

Agricultural challenges came to our attention very early on. In common with many development organisations, we started by analysing the problems from a farmer point of view and funding solutions designed to meet their needs. This traditional development approach could be described as a ‘farmer-facing approach’.

Challenges from a farmer perspectiveAs we funded these projects, the broader challenges faced by developing world farmers became clearer. They are often excluded from organised markets, mainly due to a significant skills gap which prevents them delivering the product the market wants reliably, timely and in the right quantity. The skills gap is threefold:

In addition there are external factors (like climate change) which are especially important, as due to lack of access to irrigation systems, many farmers are dependent on rain fed agriculture. As well as this, common industry practices such as not procuring with contracts, lead to farmers often taking a disproportionate share of the risk for poor financial rewards. Coupled with the fact that landholdings are often very small (less than one hectare) because of the division of land over the generations, they are potentially not financially viable. This can often result in the disillusionment of the next generation who tend to view agriculture as an unattractive career and choose to move to cities, which in turn contributes to rapid urbanisation.

1. Agricultural skills, i.e. how to grow a quality product reliably, with the most cost-effective inputs, using less pesticides and water and the latest farming expertise, that will result in the best yield possible given their soil and climate conditions.

2. Business skills, i.e. an in-depth understanding of what the market values, such as a reliable, timely, quality product with certain technical attributes (which will command a higher price) and the relevant accreditations. As well as an ability to plan and financially analyse the alternative opportunities such as local versus export markets.

3. Life skills ranging from soft skills such as negotiation and communication, to hard skills such as computing.

Once sown, cotton seeds take two years to arrive on shelf

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Challenges of a project-based approachDespite some individual project successes4 and gaining a deeper understanding of the challenges faced by farmers, we realised that funding individual projects was not going to achieve the change at scale that we were targeting, no matter how many projects we funded. We would remain in ‘project mentality’ with benefits limited to the initial beneficiaries and the projects themselves at pilot stage with no means of replication once the initial funding had run out. There was also the risk of distorting the market.

Therefore in 2005 SF began to analyse the problem from the perspective of the whole supply chain, rather than simply that of the farmer.

The number of steps in each supply chain varies and may span several countries, but as an example typically farmers may sell to aggregators who may sell to a trader. The trader then sells to a processor or manufacturer before exporting to an import agent who in turn sells to the high street brand or retailer. Any solutions designed at farm level need to take this into account, ensuring the sustainability of the supply chain as a whole. SF’s next step was to understand the challenges at the consumer facing end of the supply chain – the retail market − and then work backwards down the supply chain to the farmer, establishing strong supply chain partnerships in the process.

Challenges from a retailer perspectiveBy working in partnership over 3-4 years with several retailers including M&S, Woolworths South Africa and C&A, the environmental and social challenges from their perspective also became clearer. Retailers buy products from their manufacturers but there are often environmental and social issues at the start of the supply chain at farm level. These range from the incorrect use of pesticides and fertilisers, to what is often culturally accepted child labour. This then creates a reputational risk which is difficult to mitigate, in addition to actually working towards the necessary

improvements on-the-ground. External factors such as climate change and water scarcity in a context of growing global demand for products also mean there will be challenges to secure supply of some key crops in future − crops that are critical to the ongoing viability of their business.

In addition, when the retailer tries to intervene, this opens up a further set of challenges for them and their supply chain partners operating in very different contexts and cultures (these are discussed further in Section 3). These challenges do however also provide opportunities to innovate and differentiate from the competition.

The supply chain contextIf you look closely at the middle of the supply chain it is often fragmented in addition to the defining features of length and complexity which vary by product. This results in a lack of visibility and transparency and makes the origins of the agricultural product unknown, resulting in communication challenges along the chain. As Diagram 1 illustrates, power is often in the hands of a few buyers and traders. This often results in an inequitable sharing of financial rewards which do not reflect the risks taken by each player. The farmer often takes a disproportionate amount of risk – such as operating with no contracts and therefore having to plant crops months in advance without knowing what the market will want and pay at the time of harvest − which he is the least best placed to manage. There are

“For me it was a fundamental turning point when we decided to start working with retailers and understanding their challenges in order to design solutions to best support their producers.” Chris West, Director Shell Foundation.

4 During this time we worked with some excellent organisations in Africa and India such as Agrocel, the Indian farm services provider (who we continued to work with) and Fruits of the Nile, the Ugandan dried fruit supplier in partnership with Tropical Wholefoods.

also significant environmental and social externalities resulting in artificially low prices of agricultural products, a lack of sustainability and unsustainable consumption (this is discussed further in Section 5).

Having considered the challenges faced by farmers, retailers and the broader supply chain context, it is also helpful to consider the response from others to these challenges.

“The most significant challenges faced by M&S sourcing agricultural products from the developing world are firstly traceability, i.e. making sure you know what you are buying from where; secondly the need for one common sustainability standard for each product; thirdly, the challenge of practically working on-the-ground with hundreds of thousands of smallholders to help them all achieve best practice; and lastly the structure of the supply chains themselves e.g. the more middle men in the chain the harder it is to achieve a sustainability outcome at farm level.”

Mike Barry, Head of Sustainable Business, Marks & Spencer.

Diagram 1 Supply Chain Structure in Europe

Source: H Grievink (2003), The Supply Chain ‘Bottleneck’ in Europe

Consumers:

Customers:

Outlets:

Supermarket formats:

Buying desks:

Manufacturers:

Semi-manufacturers:

Suppliers:

Farmers/producers:

160,000,000

89,000,000

170,000

600

110

8,600

80,000

160,000

3,200,000

160,000,000

3,200,000

110

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How have others responded?There have been many initiatives which have particularly gathered pace in the last 3-4 years. The ‘Supply Chain Initiatives’ box gives examples of the most significant of these. Pre-competitive collaboration leading to standards and voluntary indices have helped to define what best practice actually is both environmentally and socially. Whilst individual brand targets and third party certification with on-product labels have helped communicate with the consumer and raise awareness of the issues, in addition to contributing to the momentum for change.

Supply Chain Initiatives

This gives some examples of the most significant types of initiatives which have been led or strongly supported by the supply chain itself. As discussed in Section 2, each has brought its own unique contribution and they are important to include in any gap analysis.

■■ Pre-competitive collaboration has an important role to play such as roundtables and industry bodies (e.g. Textile Exchange, Sustainable Apparel Coalition, Sustainability Consortium, Global Social Compliance Programme (GSCP)). These have enabled brands to come together to agree priorities. For example, the Nike-developed Sustainability Index has been adopted by the Sustainable Apparel Coalition which already represents an estimated 30% of the global apparel market. This enables a common supply base to have clarity as to where they should focus their efforts.

■■ Setting standards: industry initiatives generally focus on setting baseline standards − e.g. BCI (Better Cotton Initiative) and RSPO (Round Table on Sustainable Palm Oil).

■■ Certification systems such as Organic, Fairtrade, and Rainforest Alliance are typically more stringent and focus on addressing a particular issue such as “a better deal for developing world farmers” (Fairtrade). These have often been created with donor grants, and certification costs are subsidised for the poorest farmers. The challenge is to achieve sufficient market penetration for a tipping point to be reached within the industry. Examples of Product Certification systems with good market penetration are wood, with over 40% Forest Stewardship Council (FSC) certified in Europe and North America, and Fish, with over 11% Marine Stewardship Council5 (MSC) certified or in full assessment worldwide.

■■ Individual retailers and brands have set their own internal targets such as M&S’s Plan A and Unilever’s Sustainable Living Plan combined with a range of supporting pilots. In addition, brands have made specific commitments to smallholder inclusion in their supply chains, such as Unilever and Walmart. Individual brands have also set up their initiatives, often where the commodity is key to the success of the brand e.g. Starbucks’ CAFÉ practices which enable the farmer to improve quality and hence also income. These targets and initiatives increase competition and help to increase the momentum for change at an industry level.

5 http://www.msc.org/business-support/key-facts-about-msc

6 http://gftn.panda.org7 http://www.dfid.gov.uk/work-with-us/funding-opportunities/business/frich/8 See ‘Fair Miles – Recharting the Food Miles Map’, an IIED Publication in association with Oxfam, Kelly Rae Chi, James

MacGregor and Richard King for a discussion of one of the related sustainable consumption issues of transporting product from Africa http://pubs.iied.org/15516IIED.html?k=fair miles

“What retailers want is a supply chain they can trust with products they can trust, information they can trust, and a story they are proud of, at low cost.” Andrew Wanliss-Orlebar, Sustainability Innovation Expert.

Broader challenges the industry faces

There are many trends and issues, often at global level, which impact upon agricultural supply chains. Any solutions we support need to take these issues into account in order to address the long-term sustainability of the supply chains, whilst at the same time focusing on those factors which are actually within the control of the supply chain – where we can have a measurable impact.

So solutions supported by our partners may focus on one aspect of an issue. For example, access to crop insurance or drip irrigation as a means of mitigating climate change, or improving the income and future prospects of farmers to ensure a living wage and reduce the drive to urbanisation.

These are some examples of the broader issues:

■■ Increasing urbanisation: the young are leaving the land which is resulting in greater food insecurity;

■■ Climate change;

■■ Country-specific legal issues such as land rights;

■■ Government subsidies distorting markets;

■■ Legislated labour rights, for example ensuring a living wage for contracted and seasonal labour and childcare for women;

■■ Sustainable consumption, given context of a growing global population with aspirations of a more resource-intensive diet and purchase patterns8.

Looking outside the supply chain, donors have typically focused on funding farmer training (’extension work’), creating co-operatives to empower farmers and supporting certification systems such as Fairtrade or Organic.

NGOs such as WWF have spearheaded roundtables to promote pre-competitive collaboration, and networks such as The Global Forest and Trade Network (GFTN)6 in order to make the necessary market linkages to implement the agreed standards. Others have focused on advocacy and lobbied governments for appropriate regulation for the standards to become mandatory. There have also been UK Department for International Development (DFID) challenge funds such as the Food Retail Industry Challenge Fund (FRICH)7, which are more opportunistic in nature, matching funding of projects by retail and supply chain partners. Other approaches include use of intellectual property, branding and farmer ownership in order to re-distribute more value to the farmer e.g. Divine Chocolate.

Common obstaclesMany of these responses have hit common obstacles in implementation at scale. Who actually connect the supply chains from retailer to farmer and then

implements the standard with the farmers once it has been set? Who creates infrastructure to do this recognising that each supply chain may touch millions of farmers? We will consider these questions in the next section.

We recognise that we are viewing the problem through a particular lens – the supply chain lens – with the primary goal of improving the lives of the farmers. There are many broader global challenges which impact on, and are impacted by, agricultural supply chains that we are not able to address fully, for example those associated with climate change. Broader challengers the industry faces box outlines these further.

“the biggest challenge is youth turning their back on growing food staples...” Bill Vorley, Principal Researcher, IIED.

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SF started funding pilots in order to gain understanding of what works in practice, starting with farmer focused projects (2000-2005) and then progressing to retailer focused pilots (2005-2008). These were then evaluated in terms of social and environmental impact, financial sustainability, replicability and potential for scale. Win-win supply chain solutions were found, for example as a result of the SF/M&S Partnership. This was the first SF retailer partnership launched in 2005 after a rigorous selection process, with SF committing US$1m to invest in producers in the retailer’s supply chain. For SF it was part of its vision to see global development challenges successfully tackled through the widespread application of business thinking and business approaches. For M&S, it was an opportunity to support developing country producers and deliver exciting, new products to its customers.

Through the three year partnership, M&S became the first major UK retailer to sell products made from Fairtrade cotton, improving the livelihoods of more than 1500 Indian farmers by 2008. This was in partnership with India farm services provider Agrocel and existing M&S textile supply chain players. A new product – in partnership with Flower Valley Conservation Trust and its newly created commercial arm Fynsa − was also brought to M&S’s customers via a new supply chain.

More than a million bouquets of flowers, harvested and packed by workers from poor communities in South Africa, were sold by 2008, creating more than 135 sustainable jobs and helping to protect 30,000 hectares of biodiversity-rich land. This product is still on the shelves today.9

9 The Fresh Report, a joint SF–M&S publication – outlined the learnings of the three year partnership. It can be downloaded from www.shellfoundation.org. The partnership also identified eight key practical lessons which were tailored and applied to different players – donors and NGOs, retailers and commercial agents, developing world producers and ‘Ethical Agents’.

Developments in transforming agricultural supply chains have moved on very quickly over the last 3-4 years, with pre-competitive collaboration, standard setting and successful pilots all contributing significantly. However, two key challenges remain. How to actually implement change on-the-ground at scale connecting the often disconnected supply chain process and how to bring sustainable change that meets the needs of the retailer and the supply chain, not just of the farmer.

Connecting the chain

In each case we identified a need for a separate dedicated enterprise in order for this to be replicated. That is to establish the necessary capacity to both replicate and implement at scale, long after the initial partnership had ended, temporary teams had been disbanded and key individuals had moved on. It was also necessary to replicate the changes in the next retailer’s supply chains or with a different product. This was reinforced by learnings from our other retailer partnerships and we will shortly look at some examples.

We realised that building the supply chain linkages where they previously didn’t exist and creating new on-the-ground partnerships was key, so too was developing understanding of the issues amongst the supply chain partners. To illustrate, some buyers had been purchasing for 10, 20 even 30 years yet had never visited the farmers growing the raw materials. This meant they were not able to gain insights into their own challenges whilst farmers didn’t understand why quality was so important because they didn’t know what happened to their crop after the middleman purchased it. We recognised the need for someone to take the lead in connecting the chain on an ongoing basis as a prerequisite to implementation at scale.

In each case the new enterprise may look significantly different but has a similar role:

Who can play this role?

There may be others in the supply chain who can fulfil this role, at least in part, but in our experience – especially in cases of high complexity − these services are best offered by a separate enterprise whose sole focus is the task of delivering this change at scale, in the most efficient way.

Retailers and high street brands can commit significant time to ensure pilots can be successful, given the business case, but often do not have the in-house resources to do this at scale. There are also a range of challenges unique to implementation which one is faced with – traceability, language, cultural differences such as timeliness of communication − that require much time and patience, which is often not possible with the tight deadlines of running a retail business. As well as this, retailers may not want to become involved so closely in the lives of farmers, committing to purchase product which they then may not be able to source due to market fluctuations.

■■ Firstly designing and delivering market-based supply chain solutions for the retailer, which also improves the livelihoods of developing world farmers. For the retailer this solution may help to mitigate risk, secure supply and innovate and differentiate to stay competitive through creating transparency and direct relationships. Whilst for the farmer it may help to remove barriers to entry into international markets and create jobs and improve livelihoods through developing technical, business and life skills.

■■ Secondly playing a connecting role, by linking markets to farmers through creating strong partnerships throughout the supply chain.

■■ Lastly it has the infrastructure and capability to replicate pilot projects, expand and operate at scale in multiple countries.

3The Need for New Enterprises

9 10

Also, farmer-facing support organisations may decide to retain the focus of their expertise in specifically meeting the farmers’ needs and not aspire to recruit the skill-sets to build the necessary strong relationships further up the chain (like sales, marketing, planning and finance). Similarly, donor funded extension services primary focus is also at the farm level and usually has a project focus with a contracted timeline.

Those in the middle of the chain are usually profit maximising enterprises and not best placed to consider the long-term needs of the farmers, which is what charities typically focus on without the broader remit to consider the markets needs.

‘Supply Chain Connectors’At the time of the SF/M&S Partnership report ‘Fresh’ in 2008, SF called these innovative new enterprises ‘Ethical Agents’. We are aware it is an imperfect term, which can be confused with a traditional supply chain agent, but some find it useful nonetheless. Other descriptions could include social enterprises as they typically maximise social and environmental impact whilst targeting sufficient earned income to become financially viable over time. However perhaps a better description is ’Supply Chain Connectors’, as they design and deliver market-based supply chain solutions to unlock long-term value, connecting the chain from retailer to farmer.

Designed for a range of agricultural supply chains

Agriculture is diverse, with development solutions often focusing on smallholder growers of commodity crops, but there are many opportunities in high value-low volume crops as well as challenges for workers on commercial farms.

Wage labour on commercial farms arguably is more vulnerable, has fewer opportunities than smallholders and is predominantly women. They are often only offered seasonal work and migrate for harvest. Commercial farms are easier to identify in retailers’ supply chains, hence there are many opportunities to work with wage labour.

Similarly there are opportunities in high value crops which have sometimes been overlooked, given the focus on finding solutions for commodities. High value crops are however more complex. They often need investments in irrigation and cold chains, and require very specific inputs but often require less land to be economically viable. They also require a more highly skilled workforce, but there is higher potential income for farmers with opportunities for processing and further value addition at source. Additionally, they may provide opportunities for rural youth to find a more aspirational career in farming.

SF has now developed three models to illustrate how Supply Chain Connectors can work in very different parts of the agriculture sector. In Section 5 we will consider two case studies of Supply Chain Connectors – CottonConnect (creating sustainable cotton supply chains in the commodity sector) and The Better Trading Company (TBTC) (connecting retailers with agricultural entrepreneurs growing high value crops) − and consider Bright Futures (based on a commercial farm) which is still at pilot level. These have been developed from our learnings post 2008 and have been designed to reflect the diversity of crops and structures in the agricultural supply chains. Diagram 2 illustrates their relative positioning.

“If you outsource it to specialists who don’t have competing demands on their time you are more likely to get it done.” David Bent, Forum for the Future.

“Wage labourers are often more marginalised than smallholder farmers (particularly female labourers) and yet are rarely the focus of agriculture development interventions.” Abbi Buxton, Researcher, IIED.

Defining features of the Supply Chain Connectors

The case studies of CottonConnect and TBTC case studies that follow, illustrate some of the defining features of these new enterprises. For example they design and deliver a new package of services to the existing supply chain (which typically hadn’t been combined before) which are designed to meet the needs of both farmer and retailer, creating a market-based supply chain solution. They connect the chain from retailer to farmer, building strong supply chain partnerships and linkages to facilitate implementation. The services offered are tailored to meet the needs of the supply chain as they change and progress over of a period of several years as there are no quick fixes to these complex challenges. This is one of the keys to unlocking long-term value, as so often interventions are short-term and there isn’t the continuity of support that is required for the farmers to be successful.

We will discuss Shell Foundation’s role in detail in the next section, but would highlight here that we target the initial grant money to put foundations in place for financial sustainability and scale e.g. recruiting the necessary high calibre talent, creating the back office infrastructure (i.e. finance, legal, HR etc). The enterprise’s business model targets earned income which enables it to reduce dependence on grant and become financially sustainable over time. Alongside the financial return, an environmental and social return is similarly targeted, most importantly at farm level. The new enterprise is designed to be capable of operating at scale over time, expanding operations to multiple customers, multiple geographical locations and/or products. In order for all this to be achieved, the enterprise must be run by entrepreneurs with aligned vision of scale and social and environmental impact in addition to the skill set to deliver this successfully.

Smallholders

Commercial Farms

High Value Crops Bulk Commodity Crops

BrightFutures

Diagram 2 Range of Agricultural Supply Chains

11 12

Identifies potential sourcing areas and producers

Agrees price and volumeupfront with farmer

Conducts a baseline studyto identify needs

Provides agricultural and business support

Partners with import agentsand identifies demand

Provides feedback toThe Better Trading Company

Aggregator Processor/Value Addition Export Agent Import Agent Consumers Retailer/

Brand

Performs quality control(& outsources value addition)

and export

CASE STUDY: The Better Trading Company

The Better Trading Company (TBTC) aims to create a dynamic enterprise to connect leading retailers and markets with exceptional horticultural and agricultural entrepreneurs in southern and east Africa.

BUSINESS MODEL

TBTC10 partner with the market to identify their product requirements, which is the starting point. Using their local and agricultural knowledge they then identify suitable sourcing areas and producers, both small-scale and commercial. For small-scale farmers they provide extensive agricultural training − from planting to harvesting and access to high quality inputs − and build their capacity to develop their farming as a business, rather than subsistence farming.

TBTC provide a guaranteed market at a price agreed upfront to the producers with complete transparency in costings and on how the margin is shared. They also conduct a baseline study with interviews to identify farmers’ needs and put in place action plans. These help to identify simple actions like helping to open bank accounts to ensure women’s earnings are safe. TBTC also seek out value addition opportunities like drying and packshed facilities, to ensure the right quality for export. Diagram 3 illustrates further how it works.

Diagram 3 Business Model

10 www.thebettertradingcompany.com

CRITICAL SUCCESS FACTORS

These include TBTC’s market driven model, i.e. starting with demand and then matching supply. In this way there is a clear value proposition to both the market and the farmers. It is also critical to form strong partnerships with aligned developed world sourcing and import agents to connect the chain.

The team has extensive export business, agriculture and on-the-ground African experience. This enables them to target holistic and effective intervention throughout the supply chain, from production to harvesting and exporting. There is also a continuity of support from season to season.

SHELL FOUNDATION’S ROLE

SF’s role is discussed in-depth in Section 4. Aspects to highlight here include:

SF grantees provide quarterly reporting which mirrors that required to run their business, including financials, Key Performance Indicators and traffic light style reporting against action plans with key milestones. The emphasis of SF’s role has changed over time towards a governance role, specifically supporting longer-term financial planning and helping TBTC progress to the next phase of financing – post grant.

AMOUNT INVESTED: US$3.3m over 5–6 years

From field... ...to factory... ...to kitchen.

■■ SF’s initial support for the development of the business plan and financial projections which are required as the main part of grant application process;

■■ linkages to potential partners, financiers and retailers, for example through the M&S partnership; and

■■ input to strategy − for example hosting a Business Plan Challenge Session with external business experts to help refine the business model as it evolved over a 2-3 year period.

RESULTS:

■■ 4750 people with direct increased incomes; 24,000 livelihoods improved.

■■ Over US$1.1m of co-funding leveraged including a Technoserve Prize, DFID-FRICH fund award, a USAID award, a Root Capital loan and a customer loan.

■■ Products in a range of supermarkets including ASDA, Albert Heijn, Carrefour, Dansk Supermarked, REWE and ICA.

■■ Strong partnership developed with SafariFresh, a European sourcing agent with an aligned vision.

■■ Chilli peppers sourced from Zimbabwe for Tabasco® sauce.

13 14

WHERE NEXT?

TBTC plan to grow to sustainable levels of volumes with existing customers, continuing to demonstrate added value to both customers and farmers, seeking out new markets and sourcing other high value crops. For example, as a component of TBTC’s strategy to develop new key accounts this coming agricultural season TBTC will be supplying Nandos with African Birdseye Chillies. Should the 2013 season prove successful, both TBTC and Nandos will look to explore additional smallholder sourcing opportunities that may exist within the Nandos’ supply chain.

There is also the potential for the model to be replicated in other high value crops in other geographies. The challenge is finding opportunities that both generate net gross margin and realise an impact with smallholder farmers. In practice, TBTC have needed to balance product from commercial farmers with smallholders in order to create a financially viable business as there is insufficient margin in the chain to pay for the necessary smallholder training and support. Co-funding can play a role. The question remains as to whether this is available long-term and if donors processes can match agricultural planting timescales in order not to miss market opportunities.

“Introductions to M&S, that’s more than money, networks, connections, personal input by SF people, it wasn’t “here’s your money and I need a report relationship”, far from it!.” Steve Wormald, TBTC Managing Director.

“Farmers in Nyakomba are very excited with the amount of money that they are realising from the sale of the Tabasco® chilli. Some are already buying agricultural implements using the income. Sheila Mupanga who received a net income of US$268. 47 purchased an ox-drawn plough which cost US$185.00 The purchase was made from a local hardware shop so the impact of our project is already beginning to be felt by the community – through employment creation and reviving the local economy through promoting local businesses through purchase of agricultural inputs and groceries etc as the farmers have more disposable income.” Priscilla Dembetembe, Economic Recoveryand Development Coordinator, International Rescue Committee, Zimbabwe.

CASE STUDY: CottonConnect

BUSINESS MODEL

CottonConnect firstly develop and build cotton strategies with the retailer/apparel brand, who purchase finished garments and often do not know how much cotton they actually procure. This is the starting point to set targets. They map their customer’s cotton supply chain in country to understand where the cotton they source actually comes from and identify farmers in their supply chain (see Diagram 4 overleaf).

The next step is to build farmer capacity through specially designed training, delivered by the farm team in partnership with quality local service providers. The farmers apply their learning and grow cotton more sustainably during the next season. CottonConnect then works in partnership to connect the whole supply chain. Finally they monitor and evaluate the social and environmental impacts, enabling the retailers to tell the story of their cotton and the farmers who grew it. They also develop community investment programmes for retailers, such as C&A’s drip irrigation programme.

CottonConnect11 aims to create a pioneering company with a social purpose, delivering business benefits to retailers and brands by creating more sustainable cotton supply chains.

WHY COTTON?

Overall, 16% of the world’s pesticides are used in growing cotton; it can take up to 2600 litres of water to make one t-shirt and hazardous chemicals used can cause adverse effects such as acute poisoning. In India there are over four million smallholder farmers who produce cotton on less than one hectare, and farmers often run up huge debts to purchase pesticides and fertilisers in order to protect their crops.

In addition to the issues at farm level, the complexity of the cotton supply chain itself and lack of transparency means much of the risk remains invisible to the retailer. It is a long supply chain – farmer, ginner, spinner, weaver, dyer, manufacturer, retailer, consumer – with retailers typically purchasing from the manufacturer.

CottonConnect was created in 2009 by a unique collaboration between leading European retailer C&A, Textile Exchange (formerly Organic Exchange) and Shell Foundation.

11 www.cottonconnect.org

15 16

CONSUMERS

RETAILERS

MANUFACTURERS

DESIGN

DYERS

WEAVERS

SPINNERS

GINNERS

CottonConnect is contracted byretailers/brands to work with them on their sustainable cotton journey

1 Social, economic & environmentalimpacts are monitored and evaluated enabling the retailer to tell their story

4c

CottonConnect providesprocurement support and connectsstakeholders to create connectedand committed supply chains

4b

Enrolled farmers create moresustainable cotton fibre

4a

CottonConnect can then map supply chains in country and identify farmers/ginners/spinners in their supply chains, or engage new ones in required areas

2

On-the-ground teams build farmer capacity in partnershipwith other local organisations

3

FARMERS

Diagram 4 Business Model

CRITICAL SUCCESS FACTORS

CottonConnect works across the entire supply chain and all the cotton standards with on-the-ground implementation capacity in south Asia and China − the two key cotton growing and manufacturing regions. They have expertise across the whole supply chain: farm experts, textile

experts, brand management experts, business experts and social and environmental experts. This is essential in such a long complex non-transparent chain. Finally CottonConnect works to benefit both the retailers/brands and the farmers, as well as operating as a sustainable business itself.

“CottonConnect has definitely enabled us to increase the transparency in the early parts of our cotton supply chain. They have helped us to identify how to get the fibre into our supply chain, and to track it throughout our supply chain.” Phil Chamberlain, Head of Sustainable Development, C&A.

“Because of the training provided by CottonConnect I have learnt to use the waste produced on my farm, reducing the costs of my inputs as well as the amount of fertiliser I use. The health of my crop is even improving slowly!.” Dinesh Bhai, Morbi district, Gujarat.

SHELL FOUNDATION’S ROLE

SF’s role is discussed in-depth in Section 4. Aspects to highlight here include SF’s initial strategic input to the business model design and linkages to the founding partners Textile Exchange and C&A, and support for the initial recruitment process to find the entrepreneurs. SF supported the development of the initial business plan and financial projections – which are required as the main part of grant application process – and quarterly reporting which mirrors that required to run the business, including financials, Key Performance Indicators and traffic light reporting against action plans with key milestones.

SF’s role always evolves over time, with an increasing focus on governance matters, but in this case we took a more active governance role from the start, including chairing the Board with the other founding partners. SF also leveraged pro

bono support from Shell Group in areas such as strategic human resources, intellectual property and expert input to design fit-for-purpose management information. We hosted a Business Challenge Session with external experts to help to refine the business model as it evolves over time – moving from grant dependence to earned income.

From training...

Phot

o co

urte

sy o

f Cot

tonC

onne

ct.

...ready to start processing...

Phot

o co

urte

sy o

f Cot

tonC

onne

ct.

...to sowing...

Phot

o co

urte

sy o

f Cot

tonC

onne

ct.

...before the long journey to shelf.

“CottonConnect has done a great job. Finding credible and competent partners around the world is critical and they’ve ticked that box for us.” Sean Allam, Director of Commercial Operations, John Lewis.

17 18

AMOUNT INVESTED: US$3.4m globally over 6-7 years

WHERE NEXT?

CottonConnect will continue to expand in China and south Asia. They have 2015 targets of one million acres of land under sustainable cotton cultivation, working with 500,000 farmers and their families and creating 500 million sustainable cotton garments.

The CottonConnect model is potentially the most widely applicable of the models both within and outside agriculture, where ever there is a long complex supply chain with lack of transparency and social/environmental sustainability issues and difficulty in implementation at scale due to fragmentation of the supply chain. (This is discussed further in Sections 5 & 6).

RESULTS

■■ CottonConnect has rapidly established an excellent organisation on-the-ground in India and China, able to deliver farm training to global brands.

■■ Over 250,000 livelihoods improved; 140 million of garments made from sustainable cotton; US$2.5m of funds leveraged.

■■ Stories from farmers illustrate the impacts on-the-ground: Dinesh Bhai from Gujarat attended CottonConnect’s training and learnt about the necessity of micronutrients for his crop as well as for the soil. CottonConnect not only educated him about the benefits of micronutrients, but also helped him source them for his field. His crop has now become an example to others in his village because of the improved quality of the cotton and Dinesh intends to continue applying micronutrients and decrease his consumption of other fertilisers.

■■ CottonConnect is now working with over 15 brands, including C&A, John Lewis, Marks (of Canada) and Inditex.

“Having the start up investment from Shell Foundation enabled us to bring in the right resources and expertise at a senior level in our team before we had the customer revenues to cover these costs. SF’s investment is a huge benefit and important for our scale up.” Rosanne Gray, CEO, CottonConnect.

The financial investment is still important (SF has committed US$8.7m over the last six years) but so too is the longevity of support, with financial and business support sustained over many years. We have recognised this need through our experience working with entrepreneurs across all sectors, not only agricultural supply chains.

Shell Foundation plays a very active role in supporting these new enterprises. In our experience, both within and outside of the agricultural sector, building pioneers takes considerable time, much patience, investment and more than grant money.

Firstly we select an entrepreneur with an aligned vision and aspiration of scale. These individuals are frequently found through our networks, less frequently through recruitment agents. They need to have the right skill set which are predominantly business skills combined with a strong desire to address the environmental and social issues at hand. This is one of the most critical and also difficult steps.

The initial business idea is developed into a business plan with full financials which form the start up proposal to SF for funding. This plan outlines the new market-based business model which will be tested to allow the enterprise to move from grant income to earned income over time, whilst also achieving the environmental and social aims. SF target the initial grant money to put foundations in place for financial sustainability and scale e.g. recruiting the necessary high calibre talent, creating the back office infrastructure (i.e. finance, legal, HR etc). Once approved, reporting to SF is the same reporting that one would need to manage the business, i.e. typically quarterly financials combined with reporting against Key Performance Indicators and business milestones.

“What does SF bring? Commercial oversight, a real focus on impact, ability to scale, realism around big business challenges and experience in doing this in other sectors.” Andrew Wanliss-Orlebar, Sustainability Innovation expert.

Role of Shell Foundation

“SF’s flexible investment-led approach to working with us has meant we can have open discussions about how grant money is used as circumstances change over 3-4 years.” Rosanne Gray, CEO, CottonConnect.

4

19 20

Given we start with unproven business models, then these will be refined by the enterprise over time with the benefit of operating experience. SF also sponsor Business Plan Challenge Sessions at critical points in business model development, bringing in external business and venture capital experts. This allows for a rigorous review of the business model both incorporating initial learnings and adapting to any changes in the external business environment in order to support the transition from grant to earned income and commercial financing as appropriate. The Monitor Report ’From Blueprint to Scale: The Case for Philanthropy in Impact Investing’12 refers to a similar four step model − Blueprint, Validate, Prepare, Scale − by which this process of preparation for scale takes place.

The businesses typically start with a Shell Foundation grant for initial operating costs with SF supporting other applications for co-funding. In terms of longer-term financial planning, other instruments such as guarantees can act as a stepping stone towards loan finance and financial independence as the proportion of earned income grows. (The ‘Flowers’ Case Study in the next section gives an example of a guarantee being used in this way.)

Business Directors at SF (themselves from business backgrounds) provided tailored support for example in the areas of strategy, planning, communications, financial planning, legal and HR, leveraging support through networks including access to Shell’s top talent. Other examples of SF’s ’more than money’ approach including access to networks, introductions to markets (for example retailer partnerships), and the credibility of SF brand, has been found to be helpful for small start-up enterprises in establishing their own brand. The role of SF and the Business Director can be seen as akin to that of an ‘Angel Investor’ initially providing finance, business input, networks and challenge. This relationship moves towards governance and strategic support as time passes.

Sustained non-financial support is a critical success factor as timescales are long, 5-7 years, with support required well after grant funding is disbursed (See Diagram 5). TBTC and CottonConnect are no different to other SF strategic partners in this respect and we are only four years into that journey. SF continue to play a governance role long after any grant relationship has ended. For example SF may take a non-executive board position with a governance relationship more like that of an investor rather than a donor.

“The SF brand has been massive as we were nobodies and we told people were in partnership with you which allowed us to box above our weight and gave us credibility”. Steve Wormald, MD, TBTC.

12 The Monitor Report ‘From Blueprint to Scale: The Case for Philanthropy in Impact Investing’, Harvey Koh, Ashish Karamchandani, Robert Katz, April 2012. http://www.mim.monitor.com/blueprinttoscale.html

Diagram 5 Shell Foundation’s typical partner life-cycle

Pilot Scale-up Global

$

Expense

Revenue

7-10 years

Incubate

3 LEVERAGING INVESTMENT

2 BUILDING ‘SOCIAL ENTERPRISE’ PARTNERS� business skills � smart (patient) grant funding � access to market linkages

1 DISRUPTIVE CATALYST

However when it does work, you have created a vehicle that has the capacity to bring about change at scale over the long-term, in a financially viable way no longer dependent on short-term grant funding.

21 22

We have found that understanding the challenges of the retailer in addition to those of the farmer and analysing the supply chain as a whole has enabled us to focus on finding and funding solutions which will be sustainable in the long-term. CottonConnect is now working with multiple high street brands and retailers with operations on-the-ground in India and China, whilst TBTC is working with multiple products and producers from Africa.

One size doesn’t fit all agricultural supply chainsIt has also led us to consider a broader range of agricultural supply chains than simply smallholders (as illustrated earlier in Diagram 4 in Section 3) and also pilot solutions to the challenges faced by labourers on commercial farms. SF funded a pilot project called Bright Futures with a leading commercial farm, Haygrove Heaven, in South Africa growing a high value crop (fresh berries) as part of the SF/M&S Partnership. This has enabled farm workers to make the immense transition to becoming successful entrepreneurs in their own right, co-owning their own berry business four years later (see Case Study later in report).

We see three distinct models emerging which can be adapted or even blended depending on the principal characteristics of the supply chain, be it commodity, high value crop or contracted labour. In order to identify if any of these models may have applicability in other supply chains, Shell Foundation worked together with Forum for the Future to analyse the business models and identify the features and critical success factors of each. The table overleaf – Comparison of the Three Business Models − shows some of the results of this analysis. We also developed a Toolkit13 to help explore these questions further and identify opportunities for replication within Forum for the Future’s own network (see Section 6).

In order to decide if there is a need for a new Supply Chain Connector we have found it helpful to ask certain key questions to begin with, such as:

■■ Is this crop critical to your business in some way or will it provide a new business opportunity?

■■ Is the supply chain fragmented/is there a disconnect between retailer and farmer?

■■ Are there challenges with on-the-ground implementation at scale within the industry?13 The Toolkit can be downloaded from http://www.

forumforthefuture.org/project/scaling-success/more/ethical-agents-new and the accompanying video from http://www.youtube.com/watch?v=kD7sCaQm1-U&feature=player_embedded

Learnings and Challenges

We would like to share some of our learnings from taking what we have described as a market-based ’supply chain approach’. We discuss what has worked across different supply chains and hence has the potential for replication as well as some of the challenges we are still working on.

Comparison of the Three Business Models

Model Commodity High Value Crop Contracted Labour

Case Study CottonConnect TBTC, (see also Craft and Flowers)

Bright Futures Pilot

Key Issues Long complex supply chains

Lack of supply chain transparency

Environmental and social challenges

Standards exist but difficult for brands and retailers to implement at scale

Retailer/brand unable to access product

Farmer unable to access market information or market

Complex crop to grow

Pool of under developed talent

Industry needs to create entrepreneurs of the future

Commercial or Smallholder?

Predominantly smallholder Smallholder or Commercial Commercial

Crops Commodity or High Value High Value High Value

Critical Success Factors

Expertise across the entire supply chain

On-the-ground implementation capability

Supply chain partnerships

On-the-ground implementation capability

Supply chain partnerships

Owners & managers commitment

Dedicated (part-time) project resource

Facilitated by? Geographical concentration of sourcing as well as ability to operate globally

Growing demand and/ or requirement for goods of known origin

Opportunities for value addition

Growing demand

Results Greater transparency and traceability of fibre

Risk mitigation

Environmental improvements

Farmer livelihoods improved

(New) products on shelf with story of origin

Incomes improved & jobs created

Individuals become entrepreneurs

Independent businesses created around a central hub

If the answer to these is “yes” the next step is to consider what supply chain initiatives are already in place and whether you can you meet your long-term sustainability goals through these.

If not, a new Supply Chain Connector may be the answer, working in collaboration with supply chain partners, existing standards and industry initiatives.

5

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For those interested in exploring other organisations who play a similar connection and implementation role in other sectors, listed below are several. For example, Tropical Wholefoods, an intermediary whose Ugandan supplier Fruits of the Nile was a former Shell Foundation grantee and has

similarities with TBTC. Another example is found in the IIED-Asda flowers project report ’The Ethical Agent: Fresh Flowers in Kenya’14, with industry and development experts coming together to play this role on a temporary basis.

14 ‘The Ethical Agent: Fresh Flowers in Kenya’, Abbi Buxton and Bill Vorley http://pubs.iied.org/16037IIED.html 15 We are pleased to report that L’Afrique Authentique went on to secure further funding from Comic Relief to continue to develop

their organisation.

Organisation Sector Website

Suminter Organics Organic produce http://www.suminterindiaorganics.com

TFT Forestry http://www.tft-forests.org

Traidcraft Exchange and Traidcraft PLC

Food and craft http://www.traidcraft.co.uk

Tropical Wholefoods Dried fruit, nuts and snacks http://www.tropicalwholefoods.com

SF tried to replicate the Supply Chain Connector model in craft products

Lessons from the craft sector

SF tried to replicate the Supply Chain Connector model in handmade products or ’craft’ − another area of potential to improve livelihoods in the developing world, (especially those of women) where we had also worked since our inception. The aim was to create an enterprise to enable access to the mainstream high street market for small-scale producers of craft. However in our experience, (after working in seven countries with different partners over a period of eight years in total), the earned income potential of the enterprises were insufficient to become financially viable over time. This was due to the high cost associated with preparing a comparatively low volume product for market and incorporating fast changing trends and seasonality. In addition, margins for the sale of the product itself in the high street were not feasible as competing with cheap replica goods from countries such as China and using grant money to subsidise commercial margins is not appropriate or sustainable.

We did see success of individual projects. For example our grantee L’Afrique Authentique has a very high end, quality product with a financially viable margin and supply chain. This unfortunately didn’t meet SF’s criteria for scale but clearly had good potential to replicate if combined with charitable producer support and design.15

We also can also see the potential for a hybrid model illustrated by the success of organisations such as Traidcraft Exchange (a not-for-profit) and Traidcraft PLC working in partnership, providing additional support to small and marginalised producers combined with their own direct sales channels.

Competition in the private sectorExperience has also shown pioneering new business models and creating for-profit enterprises is complex and high risk. Some of these challenges are due to creating fledgling for-profit enterprises who must, in some circumstances, compete with established players who are heavily capitalised. The ‘Flowers’ Case Study illustrates the challenges of quickly gaining scale to cover significant start-up investments in a highly competitive market.

The new business models we are testing can challenge vested interests along the supply chain and bring a level of transparency that some players are not yet ready for. Aligning interests, assessing intent and having clear partner selection criteria are also critical when dealing with social enterprises which are for-profits to ensure that the social and environmental aims are reached.

Limitations of a market-based approach when there are externalitiesWe also saw limitations of a market-based approach applied to agricultural supply chains where significant environmental or social externalities exist or in subsidised markets, where prices of agricultural products are currently artificially low.

As discussed in Section 2, there are many voluntary supply chain initiatives to address some of these environmental and social problems, however aid can distort the market further. If donor money usually pays for supply chain improvements whilst at pilot stage, these costs are not incorporated into the supply chain in a systemic manner. This makes it difficult to finance the move from pilot to scale as costs are often front loaded (e.g. smallholder training) whilst business benefits are not necessarily monetary and immediate as they are social and environmental –and often long-term. Coupled with this, mainstream consumers often won’t pay extra for sustainability and increases, especially in food prices, are also politically difficult. So we are left with the issue of how do you incorporate it into the margin particularly in economically difficult times?

If voluntary mechanisms to incorporate these externalities are struggling to succeed at scale we have to ask the question is regulation a way forward to create a level playing field so that all manufacturers and retailers incorporate the same standards into their supply chains with their associated costs? (see ‘Regulation’ box overleaf). However some forward thinking businesses do see incorporating sustainability into their supply chain as an opportunity for innovation rather than a cost, and essential for long-term security of supply. (Typically the raw material cost is a fraction of the final product price and sustainable practices and increased supply chain understanding can bring about their own efficiencies). And we still have the challenge of implementing the change at scale on-the-ground, whether the change is brought about through voluntary or regulatory mechanisms, which brings us back to where the Supply Chain Connectors can play a role and the question of who might incubate these.

16 See Forum for the Future’s website for more information on their work e.g. http://www.forumforthefuture.org/our-work/what-we-work/food/more-about-our-work-food-system

“...externalities are not priced in so people have got used to cheap food and campaign to their governments if prices go up, hence there is a misallocation of resources, but it is politically difficult to incorporate them.”16 David Bent, Deputy Director, Sustainable Business, Forum for the Future.

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How does regulation play a role?

Whilst SF partners comply with the relevant regulations, most of the supply chain improvements they work on are on a voluntary basis. SF is not an expert in the area of regulation and we are grateful for input to this section from our networks. Social issues and environmental Issues are quite different in nature, and this is reflected in the regulatory approach. Environmental issues are more quantitative and measurable, whilst with social issues the key is to enable the people affected to be empowered − to be active in any process, knowing their rights and able to access them.

There are two different approaches to improving corporate accountability:

■■ to focus on a specific environmental or social ‘good’ and put legislation in place specifically to cover this (an example would be chemical effluent levels in discharge water or banning the use of child labour); or

■■ to take a generic approach to accountability (e.g. under UK Company Law there is currently a Directors’ duty requirement which also covers consideration of a company’s impact on the environment, employees, community and supply chain).

There is an intention to update legislation to ensure environmental and social issues are addressed in a more strategic manner and require more detailed reporting in the annual accounting and reporting cycle.

The recently adopted UN guiding principles on business and human rights developed by John Ruggie, identified a gap in the access to justice for victims. We currently operate in a global legal context where victims are often unable to access justice in their own country where the violation occurs. Therefore even if a Code of Practice is in place at UK/European level there is no legal mechanism for the people affected to raise issues themselves or to gain recompense. A UK or European level mechanism is needed so that those impacted further down the chain by decisions made by UK/EU companies can raise a complaint.

There is also regulation which is sector specific. For example in the UK The Groceries Supply Code of Practice (GSCOP) came into effect in February 2010 and incorporates the principle that supply chain partners act with each other on the basis of ’fair dealing’ so the partners further down the chain are able to plan.17 This code will be more proactively enforced once a Groceries Code Adjudicator is established in 2012/2013 to receive anonymous complaints, undertake investigations, and enforce the code through a range of measures. There is similar process underway in Europe.

We see developments in both regulation and voluntary standards as a means to incentivise change at scale in the supply chain. Supply Chain Connectors are a way of implementing this change.

17 http://www.competition-commission.org.uk

“Be inspired, focus on innovation and on implementation, set long-terms goals and maintain the commitment. You have to know what you believe in, and where you plan to be years from now.” Phil Chamberlain, Head of Sustainable Business, C&A.

CASE STUDY: Bright Futures at Haygrove Heaven

The Bright Futures Programme at Haygrove Heaven aims to enable farm labourers to become successful entrepreneurs and spin off their own business whilst expanding production to meet market demand.

This pilot is designed specifically for high value crops in a commercial farm environment. Haygrove Heaven is a berry farm, located in South Africa, growing berries for both the local markets and export markets such as M&S.

BUSINESS MODEL

Bright Futures provides a unique mix of structured business, agriculture and life skills training provided by experienced training partners and Haygrove farm managers. This part-time training is carried out alongside on-the-job agricultural training. The teams are allocated their own dedicated fields which they learn to farm from field preparation right through to harvest. They also have access to a guaranteed market for their produce.

Haygrove staff apply to enrol in Bright Futures, initially at a Bronze level. Staff expectations are carefully managed in order to maintain motivation. There is a clear candidate selection process with transparent criteria upfront and then some immediate rewards such as clothing or insurance linked to initial performance. They then receive longer-term rewards linked to yield at harvest and financial performance of their fields. This leads on to a structured ladder of progress and rewards at Silver level, depending on proven ability at Bronze, and increasing responsibility and autonomy through Gold level, until they are ready to launch their own business at Platinum level. This business then effectively acts as an independent grower selling their berries into the commercial hub, Haygrove Heaven.

CRITICAL SUCCESS FACTORS

The success of Bright Futures depends on the owners and farm manager putting their full commitment behind the project and on finding a dedicated (part-time) project manager and mentor with the right skill set. The crop also needs to be profitable enough to make it a financially viable business on a small plot of land in order for access to land not to become a limiting factor.

The task to train farm labourers to become entrepreneurs in their own right cannot be underestimated and the right mix of training over 3-4 years is critical. In-depth life skills training from soft skills such as conflict management and work discipline, to tangible skills such as driving and computing, are all essential. Similarly, business training is key – from financial planning and creating spreadsheet budget forecasts to how to set up a co-operative, run an organisation and make money.

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SHELL FOUNDATION’S ROLE

This pilot was part of the SF/M&S Partnership, which ensured a guaranteed market for the produce and support for the project within M&S and the supply chain partners. For Bright Futures, SF provided strategic input to the design of the training programme and the overall business model, acting as a ’critical friend’.

SF INVESTMENT: US$250,000 over 3-4 years

WHERE NEXT?

Following the successful pilot, the model will be replicated on other local farms, without the need for further donor funds. In the future there is also the potential for a new dedicated entity which specialises in rolling out Bright Futures but they are currently at the stage of localised replication. This model is particularly relevant in the South African context where there are incentives for ’Black Economic Empowerment’ (BEE) and companies are scored depending on certain factors. What is exciting about Bright Futures is that it really does provide the tools, skills and context to empower people to become entrepreneurs and business owners in their own right. It is still however relevant outside South Africa, wherever there is a pool of under-developed talent.

RESULTS

■■ 56 total participants, 52 graduated at Bronze level, 24 started Silver training, 15 have graduated Silver, eight will be starting Gold level early in 2013 and most significantly, four years on, the first seven Platinum graduates are now running their own business ’Haygrove Valley Berries’. The second cohort already have plans for a processing business in addition to growing the berries.

■■ The results are not adequately reflected in numbers as the pilot is designed to go deep into lives of a few, unleashing potential and resulting in a paradigm shift in thinking, with a ripple effect into the local community.

■■ Another change has been seen amongst participants children who now see the importance of education and have new role models to emulate, raising the aspirations of young people to become entrepreneurial and see that there is a future in farming.

■■ For Haygrove this is a potentially lower risk mechanism of expanding business. It has increased staff motivation and loyalty and they have seen higher yields on the Bright Futures fields.

■■ For M&S this is a great source of berries that their customers want.

“[SF] were there as a sounding board when I needed you... non bureaucratic, minimal reporting was really appreciated.” Pauline Burrows, Bright Futures.

Fields dedicated to the Bright Futures project at Haygrove Heaven

From learning...

...to growing...

“Bright Futures is taking people from scratch, as farm workers, then teaching them new skills, opening minds, giving understanding about the business. I have worked so hard, feel proud of myself, now can go and do my own business... We used to work and get paid, go to town, spend all the money and wait for the next salary. Now we have a little bit of knowledge we now understand how to do a budget so we can now apply this at home, so achieve a lot of things at home too.” Witness Kayise, co-owner of Haygrove Valley Berries.

...to graduation.

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CASE STUDY: Flowers

BUSINESS MODEL

TBFC sourced other unique African and Indian flowers and expanded to new supermarkets in order to reach a critical volume to break even. They first identified products needed by the market and then provided technical, agricultural and marketing support to the developing world producers. In addition they acted as an import agent to ensure a direct relationship with the retailer and provide a better service and information flow to farmers on-the-ground. Given expected commerciality of the expansion, SF and the enterprise decided a further grant was not appropriate and it was time for TBFC to progress to debt finance. SF partnered with Charity Bank and provided a partial guarantee to back their loan.

CRITICAL SUCCESS FACTORS

From the commercial perspective, these included breaking into new markets quickly in order to reach the volume of flowers required to break even given high fixed costs of a UK import facility. Also, they needed to successfully compete in a highly competitive market against existing import agents with deep pockets.

SF INVESTMENT: US$1.3m grant plus a US$480,000 SF Guarantee against a US$700,000 (£450,000) Charity Bank loan.

SHELL FOUNDATION’S ROLE

SF’s aim was to see the enterprise move towards financial independence, both of earned income and finance provision. Banks generally will not provide loans to enterprises without sufficient collateral and track record so SF provided a partial guarantee to Charity Bank to enable TBFC to access a loan to enable scale-up, thus transitioning from grant dependence to earned income and commercial finance. (NB This role as a guarantor is in addition to the broader SF role discussed in Section 4).

The aims were to create an independent enterprise (The Better Flower Company – TBFC) dedicated to the flower business, to create more jobs and build on the success of South African Fynbos flower sales to M&S (see Section 3 and the overview of the ’Fresh’ Report) and Waitrose.

LEARNINGS

There are inherent risks involved when small entities sell direct to multinational retailers – exposing them to significant and unpredictable fluctuations in price, quantity of orders and delays. We would, with the benefit of hindsight, suggest choosing a lower risk business model initially, (without the high overheads of a UK based import facility), such as partnering with an aligned existing import agent. This is the strategy which The Better Trading Company have successfully employed, as did SF’s former grantee Fynsa who supply M&S with Fynbos. Similarly the IIED-ASDA flowers project took this approach with their ’ethical agent’ standing outside the supply chain and partnering with existing import agents.

That said, we believe that TBFC was the right business to back to test a direct selling model in order to increase benefits to producers, as they had the right product and strong market demand. If these variables had gone slightly differently, or had not all occurred at once, TBFC may have reached break-even and secured a permanent place in the market.

We would still recommend considering financial guarantees as the next step in an enterprise progressing from grants to debt finance, thus building their own financing track record and moving from grant dependence to earned income.

Change at scale has still been achieved: our former grantee Flower Valley Conservation Trust has successfully championed sustainable harvesting of wild Fynbos across the wider South African flower industry (www.flowervalley.org.za)

RESULTS

■■ After a promising start, delays in new customers placing orders, challenges with taking on a new unproven supply base on a new continent, intense competition with existing suppliers and unrealistic financial forecasts led to cashflow difficulties and sadly, finally, liquidation.

■■ The SF guarantee was called upon and paid in full to Charity Bank.

■■ Existing suppliers have successfully transferred to other import agents. For example South African flower suppliers have continued to supply Waitrose through a new agent and thus jobs were saved.

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By analysing the agricultural challenges from the perspective of the whole supply chain, not just the farmer, and understanding the drivers of value starting at the retail end, we have arrived at solutions which can deliver scale and sustainability. Our work over the last five years has led us to identify the need for a separate enterprise that can focus on delivering the services needed to achieve this at scale, in the most efficient way. We have called these new enterprises Supply Chain Connectors as they connect the chain from retailer to farmer.

By doing this we have also created vehicles that have the capacity to bring about change at scale over the long-term, in a financially viable way, no longer dependent on short-term grant funding. We have seen three distinct models emerging which can be adapted or even blended depending on the principal characteristics of the supply chain, be it commodity, high value crops or contracted labour.

In line with our wider approach, SF will continue to provide strategic and governance support to TBTC and CottonConnect, after the current funding is drawn down, to ensure that they continue to grow to scale and complete the transition from grant to earned income.

However we recognise that achieving scale is not enough. Industry replication is the target as no individual enterprise can shift a market sufficiently for widespread change. Our experience has shown the need for multiple Supply Chain Connectors in different supply chains if we are to reach the tipping

point and see sustainable practice incorporated at scale, resulting in widespread transformation. For this reason we think it is important to share our successes and learnings with the wider industry and invite others to apply these business models in other contexts in order to achieve wide scale impact. We invite those readers who focus on promoting change to add this model to their wider toolkit of supply chain solutions.

Routes to scale

As discussed in Section 5, SF partnered with Forum for the Future to analyse the business models of the Supply Chain Connectors and identify potential routes to scale. Three routes were identified:

■■ Grow the Supply Chain Connectors that already exist.

■■ Replicate Supply Chain Connectors in other industries, or geographies or situations with common social/cultural challenges.

■■ Engage enablers of scale − for example share the model with business schools, industry bodies and development organisations and target potential early adopters.

Where Next?

We are faced with the challenge of connecting and simplifying fragmented supply chains and implementing change at scale on-the-ground in agricultural supply chains in order to sustainably achieve the social and environmental transformation − something we are all working towards.

Identifying other supply chains We identified some initial sectors that could potentially benefit from a dedicated enterprise. For example:

We also identified sectors outside agriculture which faced similar challenges. The commodity model could be applied where supply chains are long and the sustainability issues are predominantly at the start of supply chain. Also if it is high risk due to lack of transparency and difficult to implement changes at scale, such as mining (e.g. gold) or electronics (including both components and end products such as mobile phones).

The contracted labour model could be applied where there is significant untapped potential in the low qualified workforce and potential to outsource segments of the business. It is also helpful where there is uncertainty as to the long-term sustainability of the business itself and hence additional value in creating a more resilient workforce of entrepreneurs who can apply their skills to other business opportunities when necessary. Examples could include tourism (large resorts), mining or, thinking out of the box, applying the model to a business opportunity for offenders nearing release from prison.

The three critical partnersIf new Supply Chain Connectors are to be created to achieve our goals of transforming supply chains, in our experience it is essential for three key partners to come together:

The should be supported by key supply chain and on-the-ground implementation partners building on the relevant industry initiatives, using established accreditations where appropriate. This is illustrated in Diagram 6.

Our partners and networks have a critical role to play, working together to incubate these enterprises. Our experience has shown that they are complex to create but there is no quick fix to transforming supply chains at the scale needed. Enterprise philanthropists have a catalytic role in making this happen and funding and incubating the enterprises.

■■ The commodity model illustrated by CottonConnect could be applied to other products with long supply chains with a lack of transparency, many smallholders, high risk sustainability issues and difficulty implementing standards at scale (e.g. cocoa, tea, even palm oil).

■■ The high value crop model illustrated by TBTC might be attractive for brands needing traceability and a ’story of origin’ for one of their key products or markets struggling to source sufficient product.

■■ The contracted labour model illustrated by Bright Futures could be applied to other commercial farms growing high value export crops with expanding markets (such as certain vegetables, flowers or wine).

■■ The entrepreneur with an aligned vision of scale and the blended financial, social and environmental return.

■■ The enterprise philanthropist and donor who will support both financially and with more than money in the long-term.

■■ The first anchor customer − the retailer or high street brand or supply chain partner.

6

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If we are serious about moving beyond successful pilot projects to social and environmental change at scale then we all need to work together to incubate the Supply Chain Connectors that are needed to meet today’s challenge and unlock long-term value from farmer to retailer.

Diagram 6 The Three Critical Partners

ENTREPRENEUREstablishes business & designs business model to meet marketneed and achieve social &

environmental impact

1

ENTERPRISE PHILANTHROPIST

& DONORProvides the structure to incubatethe new supply chain connector.

Provides funding, “more thanmoney” support

ANCHOR RETAILER

Industry leader who commitsto be the first customer willing to share learnings with wider

industry to acceleratebusiness benefits

SUPPLYCHAIN

CONNECTOR

2 3

ENABLING ENVIRONMENT� Supply chain partners

� On the ground implementation partners

� Industry bodies/initiatives

� Third party standards