Inclusive business models in agri-food value chains: What safeguards for whom?
This article published in the Journal of African Business describes the way in which inclusive business models are promoted as unique opportunities to combine profitability for firms needing reliable supply from small-scale farmers with market inclusion for those farmers. In environments with weak public institutions, such agreements may be conducive to sustainable income, yet costly or even impossible to enforce. They rely on firms willing to provide investment while being exposed to high appropriability hazards. This paper explores the relationship between investments, appropriability hazards, and safeguards based on ten African case studies. Results suggest that in environments in which commitments are hard to secure, the business model chosen is largely determined by safeguarding against side-selling. When alternative markets are present, opportunities for side-selling push firms implementing IBMs either to make very limited investments or to implement tight control through diversified safeguards. The former situation prevails when farmers are already familiar with the product and the product is of relatively low value. The latter dominates if products have high value and there exist a local market. When alternative markets are absent, appropriability hazards fall substantially and investments increase accordingly, conditional to products requiring such investments. Thus, ideally, more efficient public enforcement mechanisms, such as well-defined property rights, contract law, and efficient courts, should provide adequate safeguards. However, building adequate institutions is a long-term, costly, and uncertain process. In the short term, the success of inclusive business models will continue to depend on the ability of parties to develop cost-effective modalities of governance with mutually acceptable ‘private’ safeguard mechanisms. At this stage, the most important role for the public sector may therefore lie in facilitating the effective dissemination of information on best practices.