THE CASE FOR MOVING BEYOND LIVING INCOME DISCOURSE FOR FARMERS TO GROW THEIR BUSINESS OUT OF POVERTY

For decades the living income ambition for smallholder farmers has been the talk of the town; but its impact is barely visible in rural villages. The truth is that market prices remain low and ‘true pricing’ targets are often insufficient and rarely achieved. Moreover, fair premiums paid on top of market prices seldom reflect what is urgently needed, but rather what is seen as achievable. We need to set our sights on an entrepreneurial income that allows farmers to grow their business out of poverty.

Current sustainability trends are focused on making the living income approach more successful, but these superficial judgements deceive. It’s true, a living income represents a big step forward for farmers, but we need more ambitious steps to shift from questionable calculations and weak implementation to an ‘entrepreneurial income’.

The urgency is clear from the fact that the poorest 60 percent of humanity receive only 5 percent of all income generated by global growth. From a business perspective, an entrepreneurial income should be seen as a precondition for the structural changes needed to effectively end rural poverty . Once farmers surpass the stage of survival, it’s obvious that a profit margin is crucial for direct investments and for becoming bankable. Only then can we move from farming by default to entrepreneurial farming that strengthens the entire supply chain.?

Why we need a new way to measure farmer income?

Historically, the living income debate has been tied to the debate on ending poverty across all categories: the jobless, hired workers, small enterprises, farmers without a further specification to migrant laborers, gender issues or age. It began as a value driven debate on human rights, inclusion and justice, on advocating for a social rights-based approach.

Let’s explore the history of definitions for a better understanding.?

Decades after the World Bank first set the International Poverty Line (IPL) at $1 per day, people still reference this figure. In reality the one dollar baseline was updated in 2005 to a level of $1.25, in 2011 to $ 1.90; and recently the number increased to $2.15 in September 2022. Roughly 648 million people globally live below this level. A lot of them are smallholder farmers, producing for wealthy markets.?

From day one, the concept of a poverty line was debated based on the view that there are other essential deprivations besides low income that can make someone poor.?

Moreover, there was a debate about the fact that poverty may fall more heavily on some members of a household than others. There was also pressure to include the gender perspective. Or the fact that households comprise three generations dependent on a single earner, including the perspectives of children, and eldery family members without a pension.?

This debate resulted in two new sets of poverty lines, intended to complement the original one dollar mark, from now defined as the extreme poverty line. Higher poverty lines were fixed at $3.20 and $5.50 per day, reflecting national poverty thresholds in low- and middle-income countries.?

The distinction between the poverty line and the extreme poverty line led to the realization that more people are poor than originally indicated. Moreover, poverty began to be measured at the household level, recognizing inequalities within households. This acknowledges that there are probably people living in poverty in non-poor households and or non-poor individuals living in poor households. It also recognized how gender differences in poverty are largest during the reproductive years, when care and domestic responsibilities overlap and conflict with productive activities.

At that time, it was interesting to see the widely shared dissatisfaction that rose up again from the simple exercise of defining a poverty line. Just escaping poverty is not a sufficiently satisfying exercise or ambitious social purpose. The world community had to develop a higher standard; a decency standard, wherein people thrive, not only survive. This led to a new, more ambitious debate about the basic human conditions for well-being.?

Both the concepts of a living wage for workers and a living income for entrepreneurs were born. This moved us beyond consumption or income poverty by adding non-monetary dimensions. Access to education, health, electricity, water, sanitation, and physical and environmental security, all are critical for well-being.

For sure, it was a hopeful development, but what happened? The more ambitious target of a living income turned out to be a demanding and costly journey. So in spite of all of the nice words, no one wanted to commit to paying for this far reaching ambition.?

Defining a so-called more ‘realistic’ living income line became political. Realism was advocated for by many – mainly the wealthy, who generally have a clear, more demanding understanding of their own living income – living in the metropoles of the developed world.

In high-income countries, living income calculations show an average figure of $30 to $40 a day for net incomes as an absolute minimum income, based on legal minimum wage baselines and social security baselines in developed countries. Starting from these figures three deductions are used to calculate what is seen as more realistic figures for low and middle income countries. These include:

1. Purchasing power parities between countries measuring the differences in cost of living;?
2. Urban and rural differences between cost structures;?
3. Non-monetary characteristics of the dominant rural context of farming, like benefits from unpaid family labour and kitchen gardens.?

Not surprisingly, small-farmer realities fall into the lowest income category of all. For them ambitions are lowered, and then never met.?

The three deductions from the higher Western standards define two separate ranges for living income: $6.50 a day for low income countries and $9.50 a day for middle income countries. Some opportunistic scientists, politicians and lapdog NGO’s compromise themselves by calculating even lower levels, justifying the continued acceptance of standards far below basic human conditions for well-being. The debate about inappropriate income thresholds and weak implementation continues.?

More importantly, there is a growing consensus that a new chapter must be added that reflects the urgent need for incomes high enough for farmers to invest in and support sectoral transformation. This is an entrepreneurial income and the discussion is gaining momentum.

Towards an entrepreneurial income?

A living income is an increase in payment for hard work already done to survive in a challenging farming context; entrepreneurial income is future oriented, adding that crucial margin of profit needed for investments. If farmers lack savings for capital investments, the transition toward a sustainable, resilient agricultural sector moves quickly out of reach. A farmer has to be capitalized and capacitated to make solid investment decisions. Even a social problem, like child work, can only be eradicated if farmers can afford hired labor and provide jobs that support a living wage. Financial inclusion is a crucial component of any solution.?

Entrepreneurial income is future oriented, adding that crucial margin of profit needed for investments. If farmers lack savings for capital investments, the transition toward a sustainable, resilient agricultural sector moves quickly out of reach.

A profit margin will make farmers bankable, avoiding the debt trap while funding innovations at farm level. The only path forward is by combining substantial private and public financial resources through improved payments to shift from subsistence agriculture to entrepreneurial farming. The more farmers can see agriculture as a business, the more it can promote development and improve people's lives. Firsthand experience shows that a viable business model requires average multi-annual investments of $700 to $1,500 per year on an average cocoa or coffee farm.?

The typical 0.5 percent of turnover per annum spent on sustainability programs by the food industry will need to be increased to a minimum of 5 percent. In the public domain, a similar level of investment has to be made. Matching these two sources of income could pry open the urgently needed investment space for farmers.?

Seven interventions?

Solving these issues revolves around in-depth knowledge of system characteristics, understanding of roles of different actors, and the time horizons for solutions. It is about defining a comprehensive strategy, bringing stakeholders together, and holding them accountable for each part of the solution.

There is a growing common understanding of the structural reforms needed. At least seven interventions have been defined that offer an integrated approach combining issues related to good agricultural, purchasing and governance practices.?

Each intervention focuses on specific actors and requires comprehensive programming. So, there is no smart chronology of preferred interventions: all stakeholders have to act and unless all innovations are successful, there will be no lasting results.?

The smart way forward is to look for synergies rather than prioritizing one intervention over another. On all dimensions, there are already lessons learned from the last decades of programming as practices are critically evaluated and renewed.?

We now know better what works and what does not. Farmers, who have the least, have already done a lot. Ironically it’s Western actors – businesses and governments – that have been unsuccessful in making markets and policies work for the poor.

Nico Roozen