This past week, the Wall Street Journal published an article called Weaving Africa’s Breadbasket which discussed the announcement by the Gates Foundation and the Howard Buffett Foundation that they will be subsidizing trials in 13 African and 4 Central American countries to help small farmers become suppliers to UN’s World Food Program (WFP). To date, the WFP, which buys about $1B worth of food each year, has only purchased from large suppliers who can meet their processing, quality and standardized packaging requirements. These trials involve the WFP making a 3 year commitment to purchase from up to 350,000 small farmers who participate in 21 countries including some small loans (essentially microfinance) to help with the investment to meet their standards.

As I discussed in my previous post titled Microfinance 3.0, this is an example of a growing number of attempts to provide supply aggregation services to further participation of the poor in the global economy. It is not uncommon for small farmers to receive as little as 1/3 of the retail price for their crop. This is due to multiple factors including minimal/no cold storage (enabling farmer some control over timing of sale for best price), poor transportation infrastructure (from field to market increasing cost) and inefficient (or predatory) trading middlemen who have the upper hand in dictating prices. The idea is to use the large buying power of a socially concerned buyer (WFP) to drive the investment to support modernization of the supply chain. A reliable buyer with higher guaranteed prices will encourage more farmers to buy into the system/model generating more food grown within the country encouraging more infrastructure and system improvements … continuing in a virtuous cycle … creating more economic development and self-sustainability.

Gates Foundation has been a tireless advocate for improving the economic opportunity for small farmers through implementation of better seeds and techniques. They are seeking to encourage a green revolution in Africa which has so hugely benefited Asia even though they have many critics taking pot shots at them despite not having any scalable practical alternatives. This is a logical next step to help farmers increase their income based on their investments.

I applaud Gates (and the Buffetts) for taking the lead in this interesting approach to bootstrap this new sector. I’m hoping that they can rapidly demonstrate a path to sustainability (or at least reduced subsidy) which will encourage less adventurous social capital (and possibly commercial capital) to support dramatic expansion of these programs.