By Lark Walters, Anna Ulbrich
Market systems and their specific value chains are a complex web of players, incentives, and behaviors. Looking closely at the relationships and rules that exist among market players and at the decisions they make in light of available choices, it’s important to ensure value chain actors and service providers adopt the right tools, technologies, or processes. The common goals across efforts are more income, household and community resilience, and food security arising from more trust, knowledge, and access to resources along the value chains. Implemented by Chemonics, USAID’s Nigeria Maximizing Agricultural Revenue and Key Enterprises in Targeted Sites II Program (MARKETS II), Uganda Commodity Production and Marketing Activity (CPM), and the Ukraine Agriculture and Rural Development Support Program (ARDS) illustrate how the market systems lens can be used to facilitate a strong network of relationships aligned around common market incentives.
Launching a scalable approach in Nigeria
In Nigeria, the MARKETS II project noticed a few common challenges that diminished returns for all market actors: informal guarantees of future business rather than formal purchase orders, subjective pricing and inconsistent quality standards from one buyer to the next, and asymmetric market information limiting farmers’ knowledge beyond a single transaction. The project brought together processors, farmers, and local extension and farmer service providers from NGOs and the private sector to jointly identify bottlenecks and “co-create” a system that works for everyone.
With input from all players, MARKETS II jointly developed an easy-to-understand and easy-to-apply set of techniques for each targeted value chain, called a “package of practices.” The package, along with a transparent step-by-step process for all participants in an outgrower scheme, is designed to ensure the higher yields and quality sought by cocoa, cassava, maize, rice, sorghum, soybean, and aquaculture processors. To surround farmers with the knowledge, skills, and inputs for success, the project involved processors, input suppliers, extension agents, and microfinance bank representatives at training and field events. At the systems level, the project facilitated several changes. Processors now have formal supply arrangements with farmers, who show a higher degree of loyalty due to better and more consistent prices. Larger, business-minded farmer associations have become burgeoning small-scale rural agribusinesses, providing services to members and selling services to the wider farming community. Vendors of farming inputs and support services have taken advantage of new business opportunities as training events create demand for their products. System actors have shown an interest in sharing information rather than taking advantage of each other: Thanks to “copycatting,” farmers are training neighbors, extension agents are training colleagues, and other donor and government programs are replicating the MARKETS II training approach. Processors are investing in the outgrower model in other regions and crops, including procuring services of local NGO and private sector extension and farmer service providers.
Harnessing the business goals of the private sector in Uganda
In Uganda, input use ranks among the lowest in East Africa and an estimated 40 to 60 percent of crop protection products are fake or substantially diluted. The input system is characterized by low rural penetration, poor vertical and horizontal integration, lack of trust between market actors, and thriving counterfeit trade. Applying market systems analysis, the Uganda CPM team and its private sector partners identified six key constraints to a healthy input market inclusive of farmers: 1) limited access to and trialability of timely, genuine input packages; 2) the real and perceived high costs of inputs and input delivery; 3) absence of repeated demonstrations proving high marginal rates of return to input use; 4) poor extension service delivery; 5) unreliable data to forecast demand; and 6) dependency on free inputs from donors. While USAID partner activities focused on government regulation and reduction of product adulteration, CPM tested and scaled a private sector self-regulatory mechanism for genuine inputs by harnessing the business interests of end buyers to increase genuine input use. The approach links end buyers to intermediaries, known as village agents, who buy farmers' produce on behalf of those buyers (processors, traders, and apex farmer organizations). CPM helped these large buyers engage and train village agents to bring inputs and other production services to farmers through a door-to-door sales delivery model.
Using a facilitative approach, the team links input suppliers to local village agent networks. The supplier delivers inputs to village agents, which reduces the cost to farmers by 30 to 40 percent. The way this approach is facilitated is that after receiving training in input use and handling, village agents engage in demand creation activities, prioritizing repeat field demonstrations and product information dissemination to build trust and loyalty. Agents provide door-to-door extension, input needs assessments, and cost-benefit analysis of input use, building farmers' confidence that there will be a return on investment while consolidating orders and making bulk procurements. Financing through group loans, credit schemes, and savings mechanisms enhance input affordability. The approach “tightens” value chain actor relationships, as suppliers are incentivized to improve demand forecasting, agents are driven to eliminate fake input sales so as not to alienate their clients, and farmers are less inclined to side-sell their produce. As of August 2017, CPM has facilitated $5.8 million in genuine input sales through activity-assisted intermediary business models.
Sharing risk and equalizing the agriculture sector Ukraine
With a pervasive sense of uncertainty following the closure of the Russian market, Ukraine’s agricultural market system is primarily constrained by producers’ limited knowledge of export and processing standards for alternative markets and an inequitable enabling environment that favors oligarch groups. Using market systems analysis, the Ukraine ARDS team identified an opportunity to influence the behavior of intermediary businesses, specifically input suppliers, traders, and post-harvest processors, guiding them to view small- and medium-sized horticulture farming enterprises and producer organizations as preferred customers and as a more essential part of their business strategy. ARDS is working under the assumption that if intermediary buyers offer fee-based extension and market advisory services, then SME farming enterprises and producer organizations will be equipped and incentivized to upgrade their production and processing standards in compliance with export market standards. ARDS’ support adheres to co-design and co-investment principles, so that businesses share the risks, responsibilities, and rewards of a partnership; develop responsive feedback loops directly with customers; and transition to selling services to this customer segment on their own. Activities in the first year included stakeholder discussions as well as design, implementation, and review of a pilot that is a potential game changer: river barge transport of horticultural products to Kyiv and beyond instead of road transport. The aim is to mitigate delays and ensuing losses of product in the field, product damage due to packaging and truck packing, and higher costs of road transport.
To catalyze systemic change, the team is also driving policy reforms to reduce barriers faced by SME farming enterprises and producer organizations, with a focus on property rights and land governance, agri-food control regulations, and other unpredictable regulatory requirements that favor oligarch-owned agro-holdings. Holding up to 40 percent of arable land, agro-holdings historically wield their economic power to prevent development of an agricultural land market and lobby for taxation favorable to large-scale enterprises. ARDS first conducted stakeholder mapping to identify public, private, and civil society partners with influence and interest to affect institutional reform. In partnership with the Ministry of Agrarian Policy and Food as well as sector associations and NGOs, ARDS is deploying a mix of embedded technical advisory services, institutional capacity building, and rigorous analysis to identify perceptions on lifting the moratorium on land sales, build public trust in land reforms through media campaigns, draft legislation, and pilot electronic land management and inheritance systems. While much remains to be done, ARDS is positioned to ensure registration in Ukraine's parliament of at least four draft land reform laws this year, demonstrating that beginning with robust stakeholder buy-in and alignment with government priorities is critical to achieving results.
Market systems are complex by nature and each country, value chain, and supply chain requires tailored interventions. By keeping in mind different actors’ incentives across value chains, it’s possible to create a market system that works better for everyone.
Lark Walters is an associate and Anna Ulbrich is a manager in Chemonics’ Agriculture and Food Security Practice.