Operational Guidance on:
Smallholder Inclusion in Ethical Supply Chains
Purpose & Summary
This Operational Guidance elaborates several of the Accountability Framework’s Core Principles on how companies can effectively engage smallholders in ethical supply chains in a mutually beneficial manner – that is, providing benefits and positive incentives to smallholders while enabling companies to fulfill their supply chain commitments and secure adequate volumes of responsibly produced commodities.
Smallholders produce a high percentage of many major forest-risk commodities, such as cocoa, coffee, palm oil, and rubber. As such, they form an integral part of the supply chains for many companies dealing in these commodities. For smallholders, participation in supply chains covered by companies’ ethical supply chain commitments can provide an opportunity to increase the stability and sustainability of their livelihoods while avoiding deforestation and improving labour practices.
The Accountability Framework does not provide a recommendation regarding the scope or content of company commitments related to smallholder inclusion, as the appropriate approach is highly context-specific. Rather, the Framework aims to facilitate smallholder inclusion in ethical supply chains by clarifying how the implementation of company supply chain commitments can be adapted to smallholder contexts.
This guidance addresses:
- Definition and characteristics of smallholder producers
- Risk assessment and traceability in supply chains that include smallholders
- The role of smallholder groups in responsible supply chains
- Expectations for company engagement and support of smallholders
- Considerations for addressing non-compliance and retention of smallholder producers
Topics in this Guidance
Smallholders play a critical role in the production of many agricultural and forestry commodities. Inclusion of these producers in ethical supply chains is essential to help support livelihoods in rural communities, increase agricultural productivity, avoid displacement of social and environmental impacts, and secure stable commodity supplies. However, there are challenges to ensuring that smallholders adhere to company commitments related to the protection of natural ecosystems and respect for human rights. These include insecure land tenure, insufficient access to inputs and finance, political disenfranchisement, poor access to markets and information, lack of training and support, and lack of economies of scale.
As a result, companies sometimes exclude smallholders from their supply chains due to higher costs of ensuring compliance as well as higher transaction costs and overall levels of risk. However, this exclusion may limit the effectiveness of supply chain commitments, increase the risk of displacing negative impacts to areas outside company control, and carry additional reputational or legal risks. The AFi therefore aims to facilitate smallholder inclusion in ethical supply chains by clarifying how supply chain commitments can be effectively implemented and monitored in smallholder contexts in a manner that is beneficial to smallholders themselves.
To facilitate smallholder inclusion, companies may provide special consideration to smallholders when implementing commitments addressing deforestation, land conversion, and human rights. These considerations include:
- Contextualized implementation of environmental and human rights related commitments for smallholders, which may include smallholder-appropriate guidelines for the level of traceability required, engagement and retention of non-compliant suppliers, and degree of involvement in remedy of past environmental harms
- Support for smallholder producers, including enabling access to financial services, agricultural inputs, providing training and technical assistance, support for land titling, and other support programmes
1.1 Defining smallholders
The term “smallholder” is defined in different ways in different contexts and by different people and organizations. The Accountability Framework defines this term for the specific purpose of determining when companies may need to develop smallholder-specific policies, practices, or support related to their supply chain commitments.
Smallholders are small-scale agricultural or forest products producers that are distinct from larger-scale producers found in similar contexts by virtue of many or all of the following characteristics:
- The operation has a high degree of dependence on family labour
- Profits accrue primarily to the owner of the farm or forest and to his or her family
- The farm or forest provides a primary source of income for the smallholder
- Production units have a relatively small land footprint (relative to the range of production unit sizes for the given commodity and region)
- Household resources are allocated to both food crops and cash crops
- Agricultural producers use relatively low levels of agricultural inputs and have comparatively low yields (relative to the range of yields for the given commodity and context)
- Producers face significant economic constraints, such as lack of capital assets and low access to finance
- Producers face significant information constraints, including lack of technical knowledge and low access to market information
Producers with these characteristics are likely to be in a position both to warrant and to benefit from company support or contextualized implementation of company commitments.
Consistent with the criteria and parameters outlined in the above definition, numerous governments, international agencies, policies, and sector initiatives provide more specific and quantitative definitions of smallholders, which may differ depending on location, land use type, and commodity. Globally, smallholders are often defined as cultivating less than two hectares (ha) of land, although some definitions set thresholds of 5 or 10 ha, and in certain production systems (e.g., livestock raising) significantly larger production units may be considered as smallholdings. Many initiatives, including certification programmes, provide specific definitions or eligibility criteria to identify smallholder producers, while others have generic definitions subject to national interpretation. For instance, the Roundtable on Sustainable Palm Oil’s (RSPO) standard provides that smallholder farms may be defined as up to 50 ha subject to national interpretation; the Indonesian interpretation has set this threshold size at 25 ha, while interpretations for Ghana and Malaysia specify 40 ha.
Where companies participate in certification programmes, sector programmes, or jurisdictional initiatives that define smallholder production, they may adopt definitions appropriate for the given context if they align with the characteristics described above. Where such context-specific definitions are not available, national definitions may be used when congruent with the above criteria in the given context. Where none of these exist, the above characteristics may be interpreted for each context according to these same considerations.
As a final note, there is wide variation in the extent to which smallholders are integrated into commodity markets. Some smallholders produce food and other products subsistence consumption or informal trade only; others sell a portion of their production into more formal local or regional markets; and still others are fully integrated into regional or global commodity supply chains. Company supply chain commitments – and therefore the scope of the AFi – generally address only smallholders engaged in the production of commodities that are traded regionally or globally and who are, or could potentially become, suppliers to company supply chains. In practice, however, companies will likely need to engage with smallholders who carry out multiple types of production. This includes commodity-supplying smallholders who also produce subsistence crops, as well as smallholders in the surrounding area whose production may be directly or indirectly affected by company operations or sourcing activities.
 “High degree” does not mean exclusive dependence on family labour, as smallholders may employ casual or even permanent labour or engage in reciprocal exchanges involving labour. See Box 2 for further discussion of labour rights in the smallholder context.
1.2 Independent versus company-affiliated smallholders
This Operational Guidance applies most directly to smallholders that are fully or largely independent of the buyers and aggregators to whom they sell. While independent smallholders can have long-term purchase arrangements with their buyers, buyers generally do not provide these smallholders with regular or long-term support (e.g., farm inputs or technical assistance), nor do they prescribe specific types of agronomic or land management practices that the smallholders must follow. For these reasons, independent smallholders are largely autonomous in their decision-making, but may lack the resources and knowledge to identify or implement the responsible practices congruent with company supply chain commitments.
In contrast to independent smallholders, company-affiliated smallholders (variously referred to as “scheme smallholders,” “plasma smallholders,” “outgrowers,” or by other terms) typically have a long-term or permanent selling relationship with a given buyer and receive significant levels of inputs, support, and/or requirements or mandates from that buyer. In some cases, smallholders are absentee landowners whose land is managed entirely by plantation companies. In these scenarios, the company with whom the smallholder is affiliated has a significant level of influence over how the smallholder’s land is managed.
Because of the company’s higher degree of influence and/or support in “affiliated” scenarios, affiliated smallholders are generally expected to comply with the same standards as the larger-scale operations of that company. By contrast, independent smallholders are more likely to experience constraints in knowledge, inputs, access to capital, or economic position that hinder their ability to understand and fulfill all elements of company supply chain commitments. This Operational Guidance therefore applies primarily to independent smallholders and is intended to clarify appropriate pathways for fulfilling or progressing toward commitments in view of the constraints that these smallholders may face.
 Terms for different kinds of company-affiliated smallholders (such as “outgrower”) may be used in different ways in different contexts. For the purpose of this Operational Guidance, company-affiliated smallholders are those who have a long-term selling relationship with a given buyer and receive significant levels of inputs, support, and/or requirements or mandates from that buyer, irrespective of the name used for these smallholders in the given context.