Income Position Statement
The Current Situation
There are approximately 500 million smallholder farms worldwide and more than 2 billion people depend on them for their livelihoods (IFAD). An estimated 200 million of those smallholders are connected formally or informally to supply chains. (World Bank, 2017) The unfortunate reality is that a majority of these smallholders are living in poverty; in fact an estimated 63% of the world’s extreme poor work in agriculture (World Bank, 2013).
The consequences of this poverty are that people are leaving farming and discouraging their children from entering the farming industry when they grow up. For some crops, the remaining farmers can find themselves in poverty, unable to afford food for their family and often going hungry. This persistent hunger leads to poor farm productivity, contributing to the devastating cycle of low yields, household hunger and further exacerbating poverty (Food and Agriculture Organization).
Poverty is the first Sustainable Development Goal (SDG) for a reason – it is the root cause of many other social and environmental issues. Agriculture alone will not eliminate poverty, but “it has proven to be uniquely powerful for that task” states the World Bank in their 2008 Agriculture for Development report, “Agriculture continues to be a fundamental instrument for sustainable development and poverty reduction”. A focus on agriculture and agri-business is essential to eradicate poverty and achieve SDG1 – No Poverty. Assisting women farmers is also a particularly effective way to reduce poverty and enhance food security (Food and Agriculture Organization of the United Nations, 2011).
It’s time for deeper action
Mars buys a range of raw materials from suppliers who in turn source these materials from an estimated 500,000 smallholder farmers worldwide. The majority of these smallholder farmers are from West Africa or Asia, with fewer from Central and South America. These farmers grow crops like cocoa, rice and mint. Each supply chain provides a unique context and different set of challenges.
Many smallholder farms are family businesses and, like Mars as a family-owned business, we want those farming businesses to be successful for generations to come. Many are not thriving today and although Mars typically does not purchase raw materials directly from smallholder farms, we want to do our part to lift the people who work on them out of poverty. Our decision to engage and act on this issue is based on both principles and business needs.
Workers who are not paid a decent wage and farmers who do not earn a decent standard of living will not be efficient, productive or engaged in their critical role at the start of the supply chain and raw material quality may suffer. Anyone living in poverty is likely to look for alternative forms of income and move away from farming, including growing the raw materials which are essential to our business. On top of this, smallholder farmers’ children are highly unlikely to want to farm when they grow up, given the anticipated hard work and low returns.
Improving farmer income will also help Mars deliver against the other areas of impact and focus for our company: Climate Action, Land Management, Water Stewardship and Respect for Human Rights.
Unfortunately, there are few examples of successful business strategies for significantly increasing incomes of smallholder farmers at scale in globally-traded agricultural supply chains. Most engagement today is based on activities rather than impact, and is not designed to deliver the extent of change required.
We need to generate systemic change at scale, and this means transforming the way we, as well as our suppliers, who buy from farmers, and the other actors in our supply chains operate.
Our Long-Term Ambition
At Mars, we believe everyone working within our extended supply chains should earn sufficient income to maintain a decent standard of living.
We must play our role, alongside the other critical actors including governments, suppliers, supply chain partners and the farmers themselves, in achieving this ambition.
In the long-run, our vision is for business to be built on high-quality and highly-efficient supply chains where people are thriving, engaged and motivated, and where all parties earn a decent standard of living. This ambition applies to everyone in our supply chain, but our first priorities are those within our operations and those who are most vulnerable: farmers and farm workers. Within our operations we continue to monitor compensation for our 85,000 Associates.
Lifting smallholder farmers and farm workers out of poverty on its own will not ensure long-term supply security for critical raw materials. Our ultimate ambition is for people working in our supply chain to have sufficient income to provide a decent standard of living and to want to keep growing the crops we use. We start by first focussing on smallholder farmers.
This win-win approach is in the DNA of our company and was first expressed more than 70 years ago by Forrest Mars when he described the purpose of the company as creating mutual benefits for all our stakeholders. This is our principle of Mutuality.
Our Theory of Change
We must take an impacts-based approach, based on evidence that follows a logical framework where investment drives the right activities, creating the right outcomes and the desired impacts. This ensures we activate the correct levers for change. For example, counting farmers trained isn't enough, we need to understand whether farmers are adopting the practices learned and improving their yield, and whether the rest of the system is tracking in the right direction to lead to an increase in smallholder farmers’ incomes.
Globalized raw material sourcing has left branded goods manufacturers at least two and often five steps removed from farmers. To understand where our raw materials come from and the situations farmers face, we are first mapping our direct and indirect supply chains, partnering with our suppliers, and carrying out baseline assessments. Then we can identify the most effective strategies for change.
Increasing productivity is key – access to the best planting material, good agricultural practices and appropriate farm inputs can double or triple smallholder yields. However, given the scale of change required, productivity, while vital, is not the only lever that needs to shift. Other levers include increasing income from secondary crops, farm size, farm gate and market price, and in some cases including further value adding activities, such as crop processing. Reducing costs such as inputs, taxes, loan interest, storage, equipment and transportation also plays a role. In addition, factors such as women’s empowerment, access to finance and financial literacy are fundamental to improving long-term household income and resilience, supported by deeper relationships with our suppliers and farmers.
We believe that highly-efficient interventions in these areas are crucial. They must be based on the best science, strong monitoring and evaluation, shared risk with supply partners, and delivery by leading implementation partners. Any income related interventions must also work within an ecosystem of environmental stewardship and respect for human rights to ensure the long-term viability of the farming system.
These interventions can take time, typically 5 to 10 years, which requires deep and long-term relationships across multiple actors, to provide the necessary support until farmers are self-sufficient and truly sustainable. This will require support of longer-term contractual commitments.
To encourage efficiency and ensure our investment and resources drive impact, rather than spend disproportionately on monitoring and evaluation, we need to measure in a standardized manner and share with others what does and doesn’t work. This will require technological innovation and agreement on measurement methodologies.
This is an incredibly complex problem. A farmer’s household income is made up of revenue and costs. Some aspects are within our control, some are within our sphere of influence and some are neither. For example, we may have limited influence when the crop we buy from a supplier is only a small, if important, percentage of a farmer’s household income. Similarly, as the World Bank measures poverty per capita, the more children a farmer has the more they need to earn to lift their family out of poverty. This is completely beyond our control.
Companies cannot guarantee overall household income levels, as we can’t control all the variables. But we absolutely can play a critical role, using an evidence-based and principles-led approach.
Consequently, all of this will only be successful if all actors play their correct role, each shifting the levers they can best affect. For example, origin governments must play their role in creating a supportive environment through infrastructure and agricultural investment, and policy development.
Sustainable sourcing is a system, based on nature and people. We believe the system can and should be redesigned, so all businesses based on agriculture throughout the supply chain, including farmers, can thrive.
Short Term Actions
Our sustainable sourcing income strategy has two pillars of work. These were developed following a deep strategic review including a rigorous assessment of our supply chains. This included supply chain mapping to origin country, or in some cases farms, for our 23 priority raw materials. Then we estimated at a macro level the numbers of farmers in poverty within each country and commodity. We also carried out deeper dives on the biggest numbers, evaluating current income levels, carrying out living income benchmarks and modelling the most effective strategies to deliver the change required.
1. Supply chain transformation, starting with cocoa, mint and rice, focussing first on farmers, to significantly increase their incomes towards a decent standard of living.
We must play our critical role in achieving SDG 1 and driving towards our long-term ambition. We will target the raw materials with the most people estimated to be living in poverty, and focus on strategies to significantly improve farmer incomes for the crops we purchase.
This builds on what we’ve delivered and learned so far. Significant work is already underway in each of these raw materials, including investment in agricultural science research, technology transfer, certification, and co-founding the Livelihoods Fund for Family Farming.
For example our Cocoa for Generations strategy includes:
- Conducting breakthrough research in collaboration with the University of California Davis aimed at improving cocoa breeding, farming methods and protection against pests and disease, including unlocking the cocoa genome. We also support farm rehabilitation activities at community and farmer household level.
- Ensuring 100% of our cocoa is responsibly sourced and traceable by 2025
- Increasing premium transparency
- Defining and piloting additional models for increasing productivity and diversifying household income through other cash crops and non-farm earnings, supported amongst others by our CARE Village Savings & Loans Associations program.
- Using an evidence-based and principles-led approach alongside other critical actors, including governments, suppliers, supply chain partners, the Farmer Income Lab and the farmers themselves, to achieve our ambition of thriving people.
- Supporting the Living Income Differential of $400 per metric ton announced by the governments of Côte d’Ivoire and Ghana in July 2019 to help improve farmers’ income, and in doing so bring our direct suppliers with us.
Over 20,000 farmers in India work hard every day to grow the mint we need for our products. Through the AdvanceMint program in India, over the next five years, we’re training more than 20,000 smallholder farmers in Uttar Pradesh in good agricultural practices. By 2025 we aim to improve productivity, reduce water consumption by 30% and improve the smallholder farmer’s incomes.
Our sustainable rice program works with rice farmers in Asia and includes technical support for increasing yields and reducing input costs, including water efficiency methods. We’re a leading member of the Sustainable Rice Platform (SRP), a global multi-stakeholder alliance led by the United Nations Environmental Program and the International Rice Research Institute. This platform includes members such as government agencies, research institutions and non-governmental organizations including World Wildlife Fund and Oxfam.
Supply chain transformation requires collaboration, innovation and efficiency. To fuel this we co-founded the Livelihoods Fund for Family Farming with Danone in 2015. This €120million investment fund plans to develop 40 sustainable agriculture programs within 10 years, from which Mars, Danone and potentially others can source. This is an innovative implementation and learning vehicle, enabling learning across multiple programs and companies, including suppliers.
2. Launching the Farmer Income Lab
The Farmer Income Lab is a collaborative “think-do tank” here to establish and address the critical questions we need to answer in order to improve farmers’ incomes within our supply chains to the extent required.
The idea for the Farmer Income Lab arose while developing our Income strategy where we noticed crucial differences compared to other sustainability impacts (climate, land, water and human rights).
For climate change and Human Rights, there are fundamentals in place that provide a framework for developing effective policies and implementation programs. For example, the Greenhouse Gas Protocol sets a standard way to calculate and report our emissions and the work of the Intergovernmental Panel on Climate Change and the Planetary Boundaries framework informs what our emissions reduction targets should be. The UN Declaration of Human Rights also provides an aligned commitment, and the UN Guiding Principles on Business and Human Rights outline the roles and responsibilities of business with regard to human rights.
With farmer income these frameworks and fundamentals are missing. For example there's no alignment on targets, metrics and measurement approaches, or the roles and responsibilities of supply chain actors. This lack of clarity creates real barriers to driving impact on the ground, at scale, for Mars and others.
The Farmer Income Lab’s primary objective is to generate these fundamental missing insights needed to inform Mars policy development, sustainable sourcing implementation and advocacy, with the aim of driving faster and more effective impact at scale. To deliver efficient and effective strategies, we need to answer critical questions relevant to all raw materials where improving farmer incomes is a priority. We will amplify our impact by sharing our insights externally.
Our approach will be both evidence-based and collaborative. The Farmer Income Lab will invest in answering these important questions through two methods, research (primarily by synthesising and analysing the data and research that already exists) and stakeholder discussions to collect expert opinion.
Examples of the questions could include: What are the fundamental enabling factors required? (for example farm size) Or What drives higher farmer adoption rates? Or What is the role of a company like Mars in improving wider household income beyond the crop we purchase?
This is not just research for research’s sake. It is action-focused and will produce practical insights that we can implement in our sustainable sourcing and advocacy strategies, creating a continuous feedback loop between research, action and advocacy. The Livelihoods Fund for Family Farming, as well as our programs in cocoa, mint and rice will provide a means of testing the insights and implementing efficient models for dramatically improving farmer incomes.
Our small, but crucial advisory council of leading experts (from academia, non-profit and intergovernmental organizations) will help shape and guide our collective vision and ensure our research delivers the action required. The advisory council will be launched in Q4 2017.
We will communicate regularly about the progress being made as well as the challenges we face through the Farmer Income Lab website (www.farmerincomelab.com) and the annual Principles in Action Summary.