12/07/2011 05:40 pm ET | Updated Feb 06, 2012

Calling on the Food and Beverage Industry to Help Reduce Poverty

If a beer maker needs hops for a brewery in South Sudan, should it import those hops from Australia when Sudanese farmers can grow a similar crop? This is a critical question that is driving the global discussion on hunger today.

While governments and non-profits have a critical role to play in reducing poverty and hunger around the world, it is becoming clear that the global food and beverage companies may have an even stronger hand to play.

The sector is powerful and highly concentrated with a just a few companies controlling thousands of brands around the world. Nestle, once a mere chocolate company, is now the world's largest food and beverage company with 6000 brands including coffee (Nescafe), breakfast cereals (Cheerios), and nutrition bars (PowerBar). Kraft Foods sells snacks in 170 countries, including brands such as Nabisco and Cadbury. PepsiCo is now a larger "food" company than a "beverage" company with global brands like Frito-Lay and Quaker Oats.

These global companies are buying the ingredients (corn, rice, wheat, cocoa, etc.) for food products on an enormous scale, but not from small farmers in the developing world who make up the majority of the world's poor. They turn, instead, to farmers in Australia, South Africa or the U.S. -- rather than their counterparts in Ethiopia, Haiti or South Sudan. Thus, poor farmers lack dependable buyers that could give them fair prices and a consistent market, helping them and their families out of poverty. Given that subsistence farmers comprise 70 percent of the world's poor, improving their income is our best strategy for reducing global poverty.

In the past, the quality from small farmers in the developing world was poor, or the output was too low, or the supply chain was simply inefficient and unreliable.

However, the tide is starting to turn.

Subsistence farmers with the help of governments, non-profits, and companies are gaining access to better training, fertilizer, seed and storage systems. Poor farmers in countries like Kenya and Mozambique are starting to aggregate their grain to earn heftier prices. Innovative government policies, including the U.S. 'Feed the Future" program, are spurring change. The UN World Food Program, thanks to the support of the Bill and Melinda Gates Foundation and the Howard G. Buffett Foundation, is now contracting with small farmers in 21 developing countries to buy their grain -- as long as the crop meets WFP's quality standard.

And the corporate sector is starting to come around -- realizing that they can earn a profit, while also having a positive social impact.

PepsiCo, for example, is working with small farmers in Ethiopia right now, in a partnership with Strauss foods, to buy chickpeas to make into hummus. Coca Cola is buying Haitian mangoes for its Odwalla brand juice, providing a predictable market for small fruit farmers in the economically-depressed island. Even Wal-Mart is promising to buy agricultural products from 1 million small- and medium-sized farmers around the world by 2015, particularly in Latin America. Wal-Mart will also provide the training and inputs (fertilizers, seed, and storage) to small farmers to improve the quality of the harvests.

These are important developments. When small farmers have a predictable market, they can plan for their future and increase their own income and ability to eat. In the developing world, subsistence farmers often sell their meager crop right at harvest to traders in pick-up trucks driving by with an immediate offer -- and a low price. If a poor farmer has the tools to store their grain beyond the harvest season, they can take advantage of higher prices and increase their income by 20-30%.

While the global food and beverage sector has tip-toed into these markets, it is still not doing enough with its tremendous power and influence. Some companies are instituting 'sustainable agriculture' projects around the globe, but the pace is too slow, the projects are too small, and key decisions makers -- the CEOs -- are still treating 'local sourcing' as a philanthropic endeavor (to be funded from their company foundation) rather than a core business activity.

Most significantly, the purchasing power of these global food and beverage giants dwarfs what non-profits can do with their relatively small budgets.

Cargill, for example -- which sources wheat, corn, sorghum and barley from around the world -- has annual revenues of $120 billion. Nestle earns $110 billion annually, while PepsiCo ($58 billion), Kraft ($49 billion), Coca Cola ($35 billion), and General Mills ($15 billion) all have enormous purchasing power that could directly benefit subsistence farmers.

Companies need to scale up efforts, leveraging their global purchasing power to incorporate small farmers into their supply chain. And, they need to invest in the training, technology, and relationships to assist these poor farmers in growing quality crops, ready to be sold at fair prices.

SABMiller, the world's second largest brewer with brands like Miller and Peroni, announced earlier this year that it is making an additional $15 million investment in its brewery in Juba, South Sudan. Rather than using hops imported from Australia, they will use locally grown cassava, produced by 2000 small local farmers -- with a guaranteed purchase price.

The sourcing decisions that major food and beverage companies make on a daily basis can help improve the lives of the world's smallest and poorest farmers in the developing world. When good governance and smart national policies are included, we have the basics for reducing hunger and poverty around the world.

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