ANALYTICAL FRAMEWORK AND CASE STUDY QUESTIONS

The basic framework for the analysis of innovation leading to greater inclusion is as follows:


 * Strategies of agri-processors and food retailers operating in restructured markets result in specialisation of wholesalers, centralisation of distribution, consolidation of preferred suppliers and more stringent private grades and standards, and in certain cases internationalisation of procurement.


 * The emergence and continuous restructuring of these markets provides concrete incentives (evolution of the attributes of the product and of the conditions of the commercial transaction) to suppliers -including small-scale farmers and rural SMEs- to undertake successive and never-ending changes in the areas of technology, management and inter-firm organization, all of which have significant financial implications.


 * The capacity of small-scale farmers and rural SMEs to keep up with this continuous stream of changes defines their inclusion or exclusion in the evolving supply chain and, thus, the restructured market.


 * Public policy, private business models, collective action by smallholders and/or intervention by development agencies can change the set of incentives facing the small-scale farmers and/ or strengthen the farmers’ capacities in facing these incentives.


 * Inclusion can take different forms, from mere participation as individual suppliers of raw material, to collective action with other suppliers to meet basic demands for volume and consistency of supply, to becoming a specialized supplier on the basis of value-adding activities, to becoming co-owner of a supply chain or one of its segments.

Against this framework each case study will analyze one specific ‘innovation’ or a set of closely-linked ‘innovations’. These innovations are specific arrangements build on public policies, business models, collective action strategies by small-scale farmers, or strategies and methods of development agencies that appear to have played a positive role in supporting greater inclusion.

We term these ‘innovations’ because they countervail the tendency that small-scale farmers and rural SMEs become excluded from markets as supply chains evolve in complexity. They represent a departure from the context-specific status quo, i.e., the conventional way of thinking and/or acting in relation to the participation of small-scale farmers and rural SMEs in dynamic markets.

The innovation can lead to inclusion either because it changes the specific forms or evolution of the dynamic supply chain development, and/or because it strengthens the capacity of small-scale producers and rural SMEs to operate successfully in this difficult environment. That is, the innovations under study can promote inclusion either through changes in the set of incentives facing small-scale producers and rural SMEs, and/or in the set of capacities of these actors to respond to these incentives.

In this framework, inclusion or exclusion are not defined in terms of the farmers’ situation at a single point in time, but rather in terms of the capacity of small-scale producers and rural SMEs to sustain their participation in a given supply chain and restructured market as it evolves and becomes ever more challenging and competitive. Hence, it is necessary to analyze the problem from an evolutionary or ‘innovation history’ perspective. The case studies should provide a simultaneous, “side-by-side” analysis of a supply chain and an innovation, as they evolve together through time. This is a key concept.

In addition, ‘inclusion’ or ‘exclusion’ in this framework does not indicate per se any differences in welfare outcomes: It is not automatic that a group of small-scale producers who are ‘included’ will be better off than those who are ‘excluded’, in terms of net income or net assets, exposure to risk, or autonomy in decision-making. That inclusion leads to significant welfare gains is a hypothesis to be critically examined by the case studies by providing empirical evidence on costs and benefits associated with the inclusion.

Using this framework, the case studies will seek to answer six sets of questions:


 * 1) The context: What is the level of restructuring of the markets in the specific context of the innovation and to what extent does it trigger exclusion of small-scale farmers? What are the incentives faced by small-scale farmers in this context in participating in restructured markets? What are their major needs, risks and opportunities?
 * 2) The innovation: What are the main characteristics of the innovation, both at the level of the supply chain and of directly relevant meso and macro trends, policies and institutions? Who are the actors driving the innovation and their strategies? What are the relationships among farmers participating in the innovation and with farmers not participating?
 * 3) Evolution: How did the innovation emerge over time, what triggered the development of the innovation and how did its evolution lead to greater inclusion of small farmers and/or rural SMEs? What were the critical stages and the critical factors in the evolution of the innovation? How did the innovation change the incentives faced by farmers and their capacity to respond to them? How did the strategies of the different actors involved in the innovation evolve? How did the relationships among farmers evolved?
 * 4) Evidence of inclusion: What are the costs and benefits of the innovation with regard to the status quo situation, and how are they distributed across different actors in the supply chain? What did the small farmers and/or rural SMEs gain or lose? Are these results sustainable?
 * 5) Drivers: What explains the greater degree of inclusion? What were the key drivers in terms of policy principles, business models, collective action and support systems? Did the drivers for inclusion change over time?
 * 6) And now what...? What is the potential for upscaling and/or replication? What are the key challenges?

The next section will examine in further detail each of the elements of the analytical framework so as to suggest a methodological approach for answering the case study questions.