Industries in Depth

Why life for millions of smallholder farmers rests on a new EU directive

The world’s 570 million smallholders play a fundamental role in today’s global agriculture systems and textile industries.

The world’s 570 million smallholders play a fundamental role in today’s global agriculture systems and textile industries. Image: Better Cotton/Vibhor Yadav

Alan McClay
CEO, Better Cotton
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  • The EU's new Corporate Sustainability Due Diligence Directive may contain a clause giving smallholder farmers a legal right to a 'living income'.
  • Obliging companies to ensure suppliers, such as smallholders, benefit from an adequate standard of living would diminish global poverty and provide wider economic benefits.
  • Beyond legal stipulations, companies can take their own measures to actively advocate for smallholders.

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 policy-makers. 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, without 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.

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Yet low farm-gate prices, coupled with systemic barriers to development and increasing production challenges caused by climate change, prevent smallholders from being fairly rewarded. Many face economic precarity as a result – which, as well as being a manifest injustice, jeopardizes 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. Clearly, as with a living wage for workers, a living income represents the minimum commitment for the rights of individual farmers and their families. But it also establishes a founding principle for a fair and sustainable agricultural sector at large.

The power of influence

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.

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.

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As the Living Income Roadmap from 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, 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.

Company-level clout

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 and monitor living income gaps, for example, right down to delivering practical income-enhancing strategies on the ground.

Including the right to a living income in the European Directive is critical to meeting the legislation’s core intent. Its omission would only serve to shift even greater responsibility onto smallholders and potentially reduce their access to global markets, or even in future – weakening their livelihoods and, as a consequence, the sectors that depend on their production.

As policy-makers 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 realize such an outcome in practice. That starts with placing smallholder rights at the centre of the process – whatever language law-makers in Brussels do or don’t adopt.

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The views expressed in this article are those of the author alone and not the World Economic Forum.

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Industries in DepthGeographies in DepthEquity, Diversity and Inclusion
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