Why Life for Millions of Smallholder Farmers Rests on a New EU Directive

By Alan McClay, CEO of Better Cotton

This article was first published by the World Economic Forum on 7 November 2023

The ordered streets of Brussels may feel like a million miles from the cotton fields of India or the cocoa plantations of Ghana, but smallholder farmers in countries like these could stand to be majorly impacted by a pending directive from European policymakers.  

Ambitions of the European Union to improve human rights and the environmental impacts of large EU companies’ global value chains, hang on proposed changes to the much-anticipated Corporate Sustainability Due Diligence Directive (CSDDD).  

In particular, proposed amendments by the European Parliament could see smallholder farmers acquire the legal right to receive a “living income” for their role in production. Such a move would represent a hugely significant advancement in improving smallholder livelihoods.  

However, in the absence of this amendment, smallholders stand to be increasingly vulnerable in their role as suppliers, and their access to global markets could be at stake.  
 
The world’s 570 million smallholders play a fundamental role in today’s global agriculture systems and textile industries. For a crop like cotton, smallholders account for more than 90% of farmers, globally. This affords them a central role in the future of the global fashion sector, which is projected to post almost double digit growth over the coming years.   
 
Yet, low farm-gate prices coupled with systemic barriers to development, and increasing production challenges onset by climate change, prevent smallholders from being fairly rewarded. Many face economic precarity as a result, which, as well as being a manifold injustice, jeopardises the growth prospects of the sectors in which they play such a critical role.   

When set up for success, however, smallholder farming provides a pathway for communities to escape poverty. At the same time, societies accrue wider economic benefits, with climate-resilient smallholders holding the key to food security.  

Hence the importance of the proposed amendment that companies “be responsible for using their influence to contribute to an adequate standard of living in value chains”, including by ensuring a living income for farmers, in addition to the existing EU alignment on a living wage provision.  

Assuming the proposed amendments to CSDDD are passed in full, the key question moves to how its provisions can best be enacted. In particular, what does it mean for companies to use their “influence” to help address the structural poverty that lies behind smallholders’ livelihood struggles?    
 
Acknowledging that they have such influence is the first step. The procurement practices of companies carry huge implications for small producers. Because of the multitude of intermediaries in modern supply chains, however, these implications are often obscured or – in some cases – intentionally ignored. 

It is therefore vital to improve transparency so that in the future corporate buyers (and others) can have a more accurate picture of where their raw material purchases originate and the socio-economic conditions of the smallholders in question.   

So, once companies know who they are sourcing from, what can they do to ensure livelihoods are improved?  

The answer is ‘plenty’. Increasing smallholders’ human capital through education, training and skill development marks one major contribution. Others include assisting them in gaining access to affordable services, finance and resources, supporting their capacity for collective action and advocacy and, where necessary, helping smallholders to diversify. 

As the Living Income Roadmap from the Sustainable Trade Initiative (IDH) makes clear, the precise nature of these interventions will differ from context to context. The main issue curbing a Caribbean fruit farmer’s income may be lack of capital, for example, while for a corn producer in Somalia it could be the increased frequency of drought.  

Whatever the particular context, however, two overarching principles apply to all corporate living income strategies.  
 
The first is to take a clear-eyed view of where power lies. In the case of cotton, for instance, smallholder producers might be locked into a hyper-local system controlled by individual ginners. In other commodities, it could be a processor, wholesaler or farm-gate buyer. Once identified, companies need to find ways to work with these influential actors.  
 
The second principle follows a similar vein. Smallholders are one of many actors in a system, and their incomes are determined by how that system functions. Is data readily available, for instance? Are land tenures fairly administered? Are women or minority groups fully included? The more inclusive and equitable the system, the more beneficial the outcomes for all.  
 
Companies should therefore use their convening power to bring together as many players in the system as possible (think: regional or municipal governments, other buyers, technical experts, farmer groups, etc) to change how that system works. 
 
This collaborative approach goes as much for the local level as for the macro; so from helping identify living income gaps, and monitoring them, for example, right down to delivering practical income-enhancing ideas on the ground. 

As policymakers deliberate, meanwhile, responsible companies should bring their voices to bear and actively advocate in favour of a living income for smallholders. Not only that, it behoves them to demonstrate how responsible procurement can realise such an outcome in practice. That starts with placing smallholder rights at the centre of the process – whatever language lawmakers in Brussels do or don’t adopt.     

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