When we are analysing the value chain in food industry, we will always come across the middle man. He or she is an integral part of our idea on how the world wide food producing system works: bargaining for a good price, giving purchase guarantees and facilitating access to market, the middle man is a critical link in a strategically complex market situation. And for that, he usually claims a big chunk out of the pie, outperforming the food producers who remain a weakened and dependent chain link in an already tough buyer’s market.

But it gets worse. Not only does the food trade of price-sensitive raw materials such as cocoa, coffee or grain put food producers in developing countries under pressure, it also becomes virtually impossible for the people in those poor regions of the world to afford purchases on their very own local food markets. Because as the imported tomato from Spain (of course traded on the world market) clocks in at one third of the price for which a Cameroonian farmer needs to sell in order to still be economically viable, it is clear who’s tomato the local customer will end up buying. Could we blame him for his decision? Of course not. His action (which of course is exacerbating this vicious circle) is understandable when we look at the percentage of his budgetary expenditures that go to the purchase of food: it is a whopping 45.9 % (where as Americans and Brits for instance spend about 6.6% and  9.1% respectively (IAASTD report, 2016). The third world food producers are caught in a price trap and put under pressure by world market prices that are heavily being influenced by trading activities. And what do those traders do? Well, in 1996, at least 88% of the world wide crop traders had actually been trading crops. However, since then that share has dropped down to 35% in 2008. What is the business of the remaining 65% of those traders? They are in the business of speculating on hunger!

In our field, we already know that it is not a question on whether the food supply chain system needs to change or not, but rather on how we want to shape it for a more sustainable, safer and economically fair future for everyone. In the current system, we are looking at 1.3 billion tonnes of food waste and 40% of the world’s population suffering hunger – we are overproducing and underfeeding the world, that is common knowledge and we have gotten used to it. On top of that, according to Gro Intelligence research, the capacity of our existing agriculture industry is about to reach a tipping point in about 9 years, which means that the food demand will not be covered while at the same time the price pressure will continue to intensify.

So the question is, how can we become better, fairer and more sustainable at what we are doing? I have talked to Meindert Don, Founder, CEO and Board Member at Livingstone, where he is in the business of innovating the way we are thinking about the food industry and trying to transfer new ideas to the people who do business. According to Don, the key lies in strengthening the position of the farmers by generating a higher return for them. I could not agree more, having witnessed the struggles of cocoa producers due to the lack of access to market in Ghana myself. The farmers need money, knowledge and technology in order to become strong and successful business partners. And we on the other hand need reliable, educated and healthy raw material producers, who trust us and want to do business with us. The challenges that come with our increasing population, i.e. feeding the world and reaching our climate goals, can for sure only be realized when not only our big players in the food market but also our partners in the procurement markets are strengthened. This is kind of a no-brainer. However, of course it does not come without extra costs, so the question is where can we either create more value or allocate value differently? You have probably already guessed it: the big chunk that is still going to the middle man as you are reading this, seems like the right place to go and get it. So let’s have a look at how and why Livingstone thinks that they could do just that, and why they are maybe more than just a replacement of the middle man that we would like to avoid:

Livingstone is providing state of the art horticulture technology, consulting, education and support in the realisation of applied knowledge for food producers in developing countries. They have kicked off in 2012 with the development of a Foodhub concept with sustainable energy supply options such as solar, wind, geothermal and ocean thermal. Furthermore, they facilitate an R&D Lab, blockchain-enabled Track & Trace IT system and provide co-financing for their partners, and all that for a fraction of the usual middle man’s fee. So where is the catch, and why is not everyone doing this yet?

Obviously, it is easier said than done. First and foremost, you need of course passionate and qualified experts as well as financial resources. Livingstone is providing this and taking on the fight to re-think the food trading system, which reveals a historically developed asymmetry when it comes to the distribution of power in terms of knowledge, infrastructure and access to market. This bloody concept of the middle man is very well established, hard to avoid and it is obscure, which makes it so hard to overcome! Because what does the farmer have to do in order to sell his crop? Lots of them sure do and still will want to continue going to the middle man, because it’s the only system that they know. Somebody always knows someone that can buy, and the middle man has all the connections to make the deal, so how crazy does a farmer have to get to risk botching it with this powerful middle man? It’s tough, and this status quo is in fact tricky to overcome for everyone, but especially for the farmer, because it goes hand in hand with his justified fear of dropping out of business. Change is always a hard thing to do, and at the end of the day, it is the farmers who are working and living under excruciating pressure. That is why it is up to us as food engineers, technologists, innovators and entrepreneurs to strengthen them. In a competitive world market, we need our business partners strong and reliable, and we need them to share our visions and ideas. We need them to prosper together with us. That is why we have to re-think the way we are sourcing our raw materials and producing food, and a promising way to do that seems to be the elimination of the trading power and the empowerment and integration of our raw material producers. Only by doing business with them, they can get back on their feet. When we are looking at the whole system, the middle man is an obsolete and unfair chain link that we might want to replace. We have to take the power back and be in charge of our food industry!

 

Image source: https://me.me/

Author: Philippe Weibel