How to design inclusive value chains to improve livelihoods of smallholder farmers

Smallholder farming is a source of livelihood for more than two billion people globally, the vast majority of whom live in poverty. In Africa alone, 65% of the labour force lives on agriculture and a staggering 80% of farmers produce on plots of less than 2 hectares.

In recent years, agribusinesses have increased efforts to integrate smallholder farmers profitably into the modern economy by creating inclusive value chains. Yet, many of these efforts have been critiqued for providing superficial solutions that do not substantially improve the productivity or purchasing power of farmers.

In contrast, our research into the chilli value chain initiative of Nando’s, based on extensive fieldwork over five years, reveals a different narrative. Nando's is a multinational casual dining chain from South Africa that operates hundreds of restaurants around the world.

In 2012, the company launched a programme aimed at sourcing African bird’s eye (ABE) chilli from smallholder farmers in Sub-Saharan Africa. The goal was to take a hands-on approach to sourcing the ABE chilli, a critical ingredient deeply embedded in its brand, while also empowering farmers.

For 10 years now, the initiative has improved the living standards of more than 2,000 farmers in Zimbabwe, Malawi, and Mozambique and supplied 100% of Nando’s global ABE chilli demand.

Some of the key lessons from the Nando’s PERi-Farms project are transferable to other companies seeking to integrate smallholders into their value chains. Here are five practical insights identified in our research:

Building inclusive value chains can be time-consuming, often involving multiple learning loops. Value chain initiatives are more likely to enjoy sustained, corporate-wide backing when they are aligned to strategic objectives and not seen as solely philanthropic endeavours.

Nando’s Peri-Farms initiative has been successful in part because it focused on ensuring a reliable supply of ABE chilli – a raw material that is deeply intertwined with the company’s history and brand identity.

By sourcing ABE from African farmers, Nando's was able to build connections between its global brand, diverse workforce, and African roots. This has enabled the initiative to garner sustained support from the procurement, marketing and human resources teams of Nando’s, even in the face of complex challenges.

Nando’s collaborated with different partner organizations, which were carefully selected for their specialized expertise, context-relevant knowledge, and value alignment. For example, it collaborated closely with Impact Amplifier, a social innovation consultancy firm, to ensure that the initiative created sustainable livelihoods for participating farmers.

Nando’s also worked with implementing partners in Malawi, Mozambique and Zimbabwe. These organizations provided agronomic training to participating farmers, but also played a vital role in aggregating chilli harvests and coordinating post-harvest processes.

Smallholder farmers are often considered ill-suited for industrial-scale procurement because they generally lack robust quality control processes. Due to production and distributional inefficiencies, they also tend to be more expensive than commercial farmers.

To address these issues, Nando’s introduced a multi-pronged intervention that enabled smallholder farmers to compete with commercial growers and produce at an economically viable scale. This model included a guaranteed purchase of ABE chilli at a premium price, agricultural inputs on credit, technical support from agronomy experts to maximise farm yields, centralized post-harvest handling and traceability controls.

This combination of support made ABE chili a popular cash crop for smallholder farmers while meeting the quality control standards of Nando’s.

Many organizations that seek to create impact stop at measuring changes in income, in part because of the difficulty to quantify social impact. However, it is crucial to understand how farmers spend their extra income, and how this affects their basic needs, like education and healthcare.

In addition, identifying the income threshold required to generate specific impact domains, such as enhanced education or energy consumption, is essential. Impact Amplifier created tools to measure impact that to helped identify when “infrastructural ceilings” limit further progress.

This revealed that beyond a specific income level, improving livelihoods required changing local conditions or significantly increasing income. For example, while higher income enabled families to send their children to school, it did not change the quality of education. This underscores the importance of addressing broader community development issues to sustain positive impact in the long term.

While single interventions can be valuable, they generally do not suffice to provide a ladder out of poverty for smallholder farmers. The Peri-Farms initiative of Nando’s has provided its farmers with a new source of income which earns them 200% more than any other crop, fundamentally improving their basic human needs.

Yet, most of them are still considered poor, highlighting the difficulty of achieving a quick fix to poverty. The most significant achievement is that participating farmers now afford to send all their children to school; some even afford private school and university education. These new educational opportunities offer the capacity to break the cycle of poverty even if it takes a generation to realise it.

The experience of Nando’s demonstrates that inclusive value chains, while not a panacea, can go a long way toward improving the living standards of smallholder farmers.

This requires changing corporate systems, which takes significant commitment, time, and experience. It also requires sustained partnerships to develop new capabilities, secure local support, and build trust.

To create inclusive value chains that truly benefit smallholder farmers, companies need the willingness to focus on long-term impact goals, develop new capabilities, and re-evaluate how they define value.