Innovative Practice South Africa: The inclusion and empowerment of farmers through partnerships

Joachim Ewert, Gary Eva and Johann Hamman

Summary

The case study of Thandi Fruit and Wine in South Africa shows that farmers were in need of support to meet the needs of the market. Vineyard and orchard skills were not enough to launch a successful farming operation. As a response, Thandi was built on a new business model based on empowerment through partnerships. It was started in 1996 by a farmer in the Elgin region of the Western Cape, Paul Clüver. The Thandi empowerment concept was based on an innovative business model. The fruit and wine were to be sold at the top end of the price ladder (as a brand) and in international markets. Although originated on empowerment farms, the products would have to stand or fall on the basis of their quality.

As the project unfolded, partnerships and corporate support services became increasingly important on sustaining it. A greater number of growers were necessary to secure volumes. New producers were selected to join the group. They had to meet specific criteria regarding quality of product and worker ownership. Firms had also to improve and establish international marketing networks. The target became mainly supermarkets in the UK and Europe. In 2005 more than 95% of all wine was exported and in mid-2006 approximately 90% of the Thandi fruits were exported.

Over a period of ten years the Thandi project has proved itself sustainable and a success. However, a number of challenges remain: 1) partnerships and shareholding arrangements are complex and not easy to grasp; 2) existing relationships with retailers have to be nurtured in such a way that producer and retailer perceive the relationship as mutually beneficial; 3) fair trade sales seem to be growing ‘horizontally', rather than in volume; 4) in the long term global warming and a water shortage may start to affect fruit and wine farming. Despite these challenges, Thandi keeps on up scaling its process and within the next two years Thandi Wine Company may acquire its own cellar. This decision may improve the competitiveness of Thandi, but it may also increase problems with partners.

What were the potentials and limitations of private business models in promoting smallholder participation?

Potentials:

• Economic empowerment through partnerships between existing farmers, farm workers and communities, between firms in the wine-making and fruit-distribution sector, between the state and retailers.
• Easier access to the market through the supermarkets in the UK and Europe.
• During the establishment of the Thandi empowerment process smallholders were not required to contribute any additional asset other than their labour. All land grants were invested in the farming operation. Once the business generates sufficient returns, consideration can be given to the smallholder to buy a cottage at the village.
• Smallholders included in the equity share arrangements on Thandi affiliated farms (i.e. Lebanon) have benefited significantly over the last ten years. All have acquired shares in a fruit and/or wine business.
• Since 2002 seven farms have joined the Thandi fruit stable. On all these farms workers receive wages, dividends and the fair trade social premium.
• In the fruit and wine regions of the Western Cape an increasing number of farm workers are making a living from meagre wages and irregular employment.
• The workers and communities at Lebanon village practically own 60% of a flourishing wine and fruit business. Former workers are now shareholders. Even those not directly involved in the Thandi business benefit from it.

Limitations:

• The empowerment innovation process embraced by Thandi is complicated and time consuming. It requires political will, partnerships, capital, know-how and patience.
• There are no fair trade retailers in South Africa, mainly because the whole chain has to be fair trade certified. Most firms are not ready for this yet.
• The relationship between producers and retailers has yet to be nurtured.
• The demand for Thandi fruit exceeds supply. The issue is being addressed by the program of the Capespan Foundation.
• There is a lot of uncertainty for fruit growers due to bad fruit years. Fruit sold under the Thandi label has declined from 500 000 cartons in 2000 to 70 000 in 2005. Deregulation of supply and the vagaries of the fair trade market are also accounted responsible for this.
• There is need for a sustainable land reform.

What were the enabling and hindering policies?

• So far, the government's market driven land reform policy has not been a great success. Although it does provide financial assistance in the form of a land grant, even the biggest grant is not sufficient to establish a sustainable wine or fruit operation.
• In the wake of government legislation, farmers have resorted to cutting labour costs by downsizing the core of permanent workers living on the farm, and making greater use of casual workers living off-farm.
• Under the government's BEE legislation 25% of the industry must be black-owned by 2010, and 35% by 2014.

What factors explain the inclusion of the smallholder producers in the market chain (while others are excluded)?

• The geographical location. Farmers who live in the Lebanon village and/or work in the De Rust and Lebanon farms are included.
• Production of high quality wine and fruits that meet the Thandi standards.

What are the costs and benefits of inclusion?

• In the wine chain, all those who became partners in 2005 had to incur costs.
• Although there is no regular, guaranteed annual income for all former wage workers, they are now co-owners of land and of a viable, ongoing business.
• The 10 workers who work the Lebanon farm on a full-time basis receive wages and bonuses on top of their dividends.
• The community benefits from the charitable trust and the ‘social premium' earned on fair trade wine and fruit. To date there have been two premium pay-outs.
• Capespan foundation had a relatively minor expense when it acquired the Thandi fruit brand in 2002.

What does this all mean for efforts to promote smallholder participation in dynamic markets?

Thandi achieved and maintained its success because of its complex network of partnerships. This network has been carefully woven and expanded over ten years. In the careful construction of this network, business experience, marketing knowledge and high quality products played a crucial role. Partnerships and arrangements between workers, farmers and businessmen were the appropriate route to empowerment.