Poverty has been reduced globally, but a large proportion of the remaining one billion people in extreme poverty face extreme isolation, preventing them moving out of poverty using existing supply chains. Poor farmers can take ownership of retail brands, control of supply chains and improved positioning. Better positioning of cooperative or commercial business from remote regions can add $2,200 million extra income per year.
Light Years IP has helped millions of African producers of finest quality export products to achieve better positioning that increases income and improve the long term stability of that income.
Positioning is an adaptation of business best practice applicable to hundreds of millions of African farmers through their cooperatives and businesses, designed by Ashoka Fellow Ron Layton, founder of Light Years IP. The method enables producers to earn a greater share of the retail value generated by their distinctive exports in wealthy retail markets globally.
To global consumers, these products are distinctive from basic commodities in superior taste, aroma, efficacy, reputation or other elements, so that consumers pay premiums for the distinctive products. Fine coffee farmers gained $101 million additional income for Ethiopia’s three most famous fine coffee exports in 2008.
Light Years projects that better positioning by 200-250 empowered groups of Sub-Saharan Africa producers of distinctive exports is likely to add $20-25 billion per year for about 100 million producers and their families. Economic multipliers indicate that over 500 million of the last billion in extreme poverty will rise above poverty through this method being widely applied.
Problem #1: Isolation from International Markets
Millions of African producers of distinctive products suffer the severe economic consequences of extreme isolation from ports and therefore, from developed country consumer markets. There are 15 landlocked countries in Africa, with a total population of over 300 million.
If we consider this map of Africa, those living in the yellow area are 500 or more miles from the coast, and the purple are 250 miles or more from the coast. Given the transport costs, it can cost an East African producer of high quality shea butter more to transport her butter to port than the current commodity price paid at the port.
The good news is that opportunities exist NOW to bring an estimated $100,000,000 increased income per year.
A Fair Trade premium of 10% on the commodity price does not overcome the cost of transport to the port for the majority of isolated African farmers and producers.
Better positioning has potential to return a total $25,000,000,000 per year if 200 opportunities are implemented.
Unlike other approaches, Positioning focuses on a fundamental and permanent change to the power balance in the supply chain, through producer ownership of retail brands and control of the entire supply chain.
Problem #2: An Imbalance of Power
Millions of farmers, producers and artisans across Africa create highly distinctive products that are sold in wealthy foreign markets. The distinctive nature of these products is the result of a heritage of quality built up over hundreds of years, unique growing conditions or the hard work and expertise of the farmers or producers. Intangible value is the higher retail prices of superior, gourmet or distinctive export products paid by consumers in the final foreign markets. Currently very little of that intangible value is returned to the poor producers.. A Light Years IP study across 20 distinctive African products found that on average, producers and exporters receive only 2.9% of the retail price.
This low producer and exporter share of the retail price is due to a fundamental imbalance of power at the export-import part of the supply chain. African producers typically have little information about the final retail markets or the supply chain, do not operate in a unified manner, have little or no access to the end consumer, and do not use intellectual property as a source of negotiating power. Light Years IP helped Ethiopia take ownership of three popular retail brands of fine coffee. As soon as the brands were owned, Ethiopia had the power to grant licenses to sell coffee under the brands or refuse permission. This improved the negotiating power of the fine coffee sector immediately.
Breaking the current power imbalance solves several other problems:
1) When farm gate prices reflect the retail value of the product, farmers have incentives to increase quality.
2) Improved stability of farm gate prices linked to stable retail prices is as important as increased income to improving lives in Africa. Stability means families can plan production improvements and necessary gains in health and education. and 3) Long term, systemic poverty can be permanently replaced by vibrant exporting..
This long term solution is achieved by large groups of producers, farmers and artisans taking power to deliver what consumers want without supply chain manipulation. This is the core of the positioning method pioneered by Light Years IP.
Why Intellectual Property enables a Business strategy
Fifty years ago, 50% of the retail price of most goods was represented by the physical value (materials and production costs) and most of the rest went to the distribution margin. In contrast, today’s physical and production costs typically make up only about 5% of the retail price, while 95% goes to rewards for the design or brand (intangible value) and the distribution margin.
For producers, artisans, and farmers in the developing world to capture a larger share of the final retail price, they must own intangible value, rather than just the physical commodity value they receive now. That is why IP business strategies are better than Fair Trade that aimed at small increases of lower priced commodity products, and did not establish ownership of IP for poor people.
- Africa is rich with distinctive products
- These products create substantial Intangible Value paid by retail consumers
- To capture some of the intangible value, farmers and producers need to control supply chains via import company ownership and excellent positioning of farmer-owned retail brands.
- This process can overcome some of the most challenging poverty of those who are too isolated to live on commodity pricing.
All of Light Years IP work includes training African trainers capable of transforming lives for other farmers and producers.
That poor people farm and produce extraordinary products is not new. That they earn oftentimes 3-5% of the retail value of those products is not new. That Intellectual Property generates negotiating power is not new. They are fundamental to almost every successful western business.
What is new is that Africans can change the power balance that has forced them to accept low commodity prices for distinctive products.
Dr. Meg Brindle, Director of Education and Training, Light Years IP
Ron Layton, Founder and CEO, Light Years IP