Dearest Vincent,

                                     one successful sourcing strategies for sustainable smallholder supply is the out-grower schemes which are carried out according to an agreement between a buyer or Food and Agribusiness Multinational Enterprises and smallholder farmers. Developing out-grower nucleus schemes is the sure way to increase agriculture productivity of small-scale farmers by Food and Agribusiness Multinational Enterprises. This strategy may reduce competition and increase market share by using economies of scale. Typically, the farmer agrees to supply established quantities of a specific agricultural product, meeting the quality standards and delivery schedule set by the Food and Agribusiness Multinational Enterprises. In turn, the Food and Agribusiness Multinational Enterprises commits to purchase the product, often at a predetermined price. In some cases, the Food and Agribusiness Multinational Enterprises also commits to support production through, for example, training, supplying farm inputs, land preparation, providing technical advice and arranging transport of produce to the Food and Agribusiness Multinational Enterprises premises. With this scheme, farmers often have improved access to assured markets and prices (lower risks) with relatively higher returns Initially, the relationships fared well. Eventually, however, when performance and growth lagged, as a result of the Food and Agribusiness Multinational Enterprises using their bargaining clout to their financial advantage, out-growers became uneasy with the relationships and began to interpret every move by the the Food and Agribusiness Multinational Enterprises as potentially (or actually) injurious to their interests. Common contractual problems include farmer supply to a new buyer other than the one to whom the farmer is contracted (side selling or extra-contractual marketing); the result was the downward spiral of both parties' interests.

Strategies

This structure points out how narrow-minded local activity, with the best of intentions, can lead to an overall limiting development of the global system and actually inhibit local development as well. Food and Agribusiness Multinational Enterprises and out-growers need to determine whether it is really better to be partners in creating the future or competitors and focus on the goal of their relationship. An out-grower receives a range of potential benefits through partnerships with Food and Agribusiness Multinational Enterprises. While some Food and Agribusiness Multinational Enterprises offer out-growers a guaranteed market for their products—either at fixed, indexed or market prices—other Food and Agribusiness Multinational Enterprises promote partnerships with the additional benefit of a percentage share of the produce at harvest. Other arrangements offer employment or contribute to community development (e.g. funds for school or health facilities) or agricultural improvements. On the whole, contractual agreements to out-grower partnerships can be a mechanism for addressing several important issues for sustainable agricultural production. However, out-grower partnerships require consideration of how farmers can make use of the gains in agricultural production, against the loss in production. Typically, farmers need a regular alternate source of income to avoid cash-flow difficulties during production so as to avoid dependence on loans. Out-grower arrangements that cause farmers to displace food crops with fruit-tree production can jeopardize food security and force households to generate higher incomes to purchase food—all of which can expose households to greater socio-economic risk.

For more information, read this paper: Using System Archetypes to Identify Drivers and Barriers for Sustainable Agriculture in Africa: A Case Study in Ghana