Agricultural ventures in communities dependent upon subsistence farming carry plenty of risks and potentially unpleasant surprises. Crops can turn out disappointingly skimpy or low quality, sometimes because the farmers are completely inexperienced with growing the crop or producing quantities large enough for the international market, says Stanford supply-chain expert Hau Lee. Or, companies might fail to win the support of the government and might not earn the trust of enough farmers and others in local communities. Or, other countries growing the same crop as the venture could boost their production, flooding the market and depressing prices.
Given these potential problems, it has been difficult for governments and nonprofit organizations to achieve social and environmental goals while making a profit. Mountain Hazelnuts, in the Kingdom of Bhutan, is a for-profit company taking up that challenge. Run by Stanford graduates and others, the company plans to give 10 million hazelnut seedlings over the next few years to 15,000 farmers to plant on their own land. Farm households, who now average cash income of less than $500 a year in this landlocked country between India and China, agree to sell their future crops to the company, which has set its sights on a triple bottom line: financial gains for investors, alleviating poverty among farm families, and restoration of an eroded landscape.
Professor Lee, the faculty director of the new Stanford Institute for Innovation in Developing Economies at Stanford GSB, wrote a case study of Mountain Hazelnuts in 2011 with Dave Hoyt. In the case, Lee and Hoyt describe company practices that increase the odds of success. For example, from the start the leaders pinpointed a variety of hazelnut trees that can be cultivated in large numbers and produce big quantities of nuts. They also took pains to build trust and credibility with government officials and people in the villages. Cofounder Daniel Spitzer, who speaks Tibetan and has worked in Asia for more than 25 years, and others at the company spent months in discussions with about 100 Bhutanese government officials.
Seeking a full collaboration, Spitzer, cofounder Teresa Law, and managing director Justin Finnegan, MBA '09, worked with government experts on agricultural studies, land surveys, and training programs for the farmers. Public officials continue to help spread the word about the company to prospective farmers. "That partnership we built with the government enables us to get things done quickly and more efficiently," Finnegan says.
Adds Lee: "Daniel recognized you can't have a sustainable business unless you establish good relationships with local communities. "You have to get local governments to be willing to trust you. It's not simple. We often underestimate that task."
As part of its social mission, the company has pledged 20% of its future free cash flow, after expenses, to a Bhutanese fund targeting poverty alleviation and environmental rehabilitation.
The project's environmental benefits center on the eastern part of the country, where farmers will plant the trees on hilly, fallow land, will help to reduce erosion and boost forest cover.
Bhutan "is a place with a carefully designed approach to development, which includes the economy but also respect for the environment, cultural continuity, and social equity," says Spitzer, a 1982 graduate of the Stanford School of Education's international development program.
For Mountain Hazelnuts, the Stanford GSB has already proven a valuable resource. Through the school's Global Management Immersion Experience (GMIX) program, three recent alumni have interned at the company.
"Having potential partners here, advocates as well as advisors, to help us create something that can be replicable around the world is exciting," says Finnegan.