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Facilitating Market Led Inclusive Agribusiness Investment

Ending extreme poverty. The goal could hardly be more ambitious—or more challenging.  It is not something that can be achieved by external donor, government, or even corporate social responsibility funding.  It requires the real investment capacity of the private sector and the resources that global markets can bring to bear on addressing the problems by turning them into opportunities for growth for poor farmers.  Mobilizing those resources and getting them applied to addressing the critical problems of the poor is the challenge.

Over the last 30 years I have learned that most problems facing the poor in agriculture can be solved by commercially viable solutions – ones that make financial sense to both the seller and the buyer.  If there is a solid value proposition on both sides of the supply and demand equation the market will respond, if the products are properly introduced.  The challenge for facilitators is getting the lead firms to the tipping point, where the break even point has been reached and enough critical mass will take over driving the outreach.

 

Characteristics of an effective market system

The market systems development approach can highlight major opportunities for inclusive agribusiness development and then provide guidance on how to make it succeed.  Working with large agribusiness companies can often be the most efficient and effective way for reaching large numbers of poor farmers for either supply of inputs or purchase of outputs.  It all depends where the critical problem lies and choosing the right initial partners.

Effective and lasting market development is not just about one or two firms changing their behavior, it is about a change in the way most firms behave in the system so that delivering commercially viable solutions to the poor becomes the norm.  I find that three elements characterize an effectively functioning, and constantly upgrading, market system serving the poor:

  • Good competition, where firms compete to do better than the firm next door, helps to drive innovation and steady upgrading of firms’ capacity and productivity to outperform the competition, rather than to undercut the competition. Sectors will grow when competition is driving shared learning, developing new solutions, and there is pressure for firms to innovate.
  • Good Cooperation is based on win-win strategies where both firms do better through their cooperation, not on “win-lose” strategies that are so often seen in traditional market relationships. In win-lose relationships, one firm gains at the expense at the expense of the other.  Good cooperation is transparent, longer-term & trusted, responds to joint opportunities and threats, leading to more efficient value chains.
  • Ultimately sectors will grow most rapidly when there are mutual benefits for all the market actors from working well together. Sound value propositions, that promote broad distribution of benefits and where social and economic benefits are mutually reinforcing will move actors towards driving effective cooperation and competition.

I want to highlight two cases where we were able to co-opt input suppliers into becoming the main drivers of solutions for problems facing the poor.  Convincing the lead firms that by investing a little in making the farmers more profitable through increased productivity would greatly increase their own profitability, and lead to systemic change.

 

Driving Productivity increases in Nigerian Aquaculture – Partnership Initiatives for the Niger Delta – PIND

In Nigeria’s Niger Delta, poor productivity of small scale fish farmers was leading them to low profits.  Careful analysis in 2012 showed that farmers could significantly increase their profits if they applied better production techniques, monitored their expenses through simple management tools, ensured better water quality, and most importantly used the right quality of fish feed.  Since fish feed accounts for 60% of the cost of production, the companies that will benefit the most from increased production will be feed companies.  

PIND convinced two firms of the value proposition – invest a little in training farmers on how to increase their productivity through use of improved feed and they could greatly increase sales of feed to a new market.  We helped them design a program where the feed companies, working with local associations, would organize and pay for pond demonstrations to train farmers in proper practices and feeding techniques.  These initial demonstrations led to 65% increase in profitability of the fish farmers, while increasing sales and market share for the feed companies.  With a proven model, the feed companies took over organizing the demonstration ponds on their own, covering all costs, and now impacting thousands of farmers.  By sharing the demonstrated benefits in public fora, multiple feed companies began competing to organize the demonstration ponds.  With the benefits of the fish farmers and the feed companies aligned, there has been rapid and sustainable uptake of the model, benefiting thousands of small scale farmers.

 

facilitating-market-led-solutions-1Building the market for certified seed in Northern Mozambique – SDC

Introducing certified seed to small scale farmers is a critical starting point for increasing their productivity.  Yet in 2014, almost no certified seed was available to small scale farmers in Mozambique and there was limited demand as farmers had little concept of pricing or the value of using certified seed.  Since 2014, the SDC funded Innovation for Agribusiness (InovAgro) has helped create a value proposition for seed companies to market directly to small farmers through organizing demonstration plots, recruiting extension agents, participating in seed fairs, and developing agro-dealer networks.

In 2014-15, two lead seed companies organized 10 demonstration plots to show the benefits of certified seeds. By 2015-16, five companies organized 95 demonstration plots, and this year, the top seven seed companies in Mozambique are copying the model and will be organizing more than 500 demonstration plots to demonstrate certified maize, soya, sesame, pigeon pea and groundnut seeds.  The seed companies own the model and are paying nearly all the costs.  They have hired 25 extension workers to drive outreach, while linking to more than 60 agro dealers.  The companies have realized that the more farmers aware of the choices and the benefits the more they will buy; so it is in their interest to jointly market, so they are investing more in seed fairs.

seed-fair-in-nampula-province

Seed Fair in Nampula Province

 

Final thoughts

Getting inclusive agribusiness approaches to reach commercial scale is an iterative process.   One must first understand the problem and identify a clear commercially viable solution (value proposition) with the agribusinesses.  To reach scale, the product cannot be seen as a social investment and must be seen as a commercial investment.

When choosing a partner, one must be certain to have someone who is committed to the solution (has the will to carry out the initiative) as well as the technical, financial, and management skills to drive the investment.  That firm must take the lead on investment in the solution, as well as take ownership and drive the investment (after all it is their bottom line).  

Once a pilot is working, make it public; announce the benefits and engage with other lead firms to encourage them to enter the market.  Keep monitoring and assist any of the firms with ideas on how to adapt their products and improve their competition through innovation or through enhanced cooperation.

 

  • This blog is part of a series on what’s new in inclusive agribusiness from April 2017. Hear from more contributors in part one of the series– digging into the details of inclusive business programmes around the world.  In part two contributors share how long-standing perspectives on cooperative, corporate strategies, value chain partnerships, market system change, rural livelihoods support, financing, and innovation adoption are beginning to blend, and why. 
  • Read more on key topics in inclusive agribusiness in the series of six theme papers.
  • Access over 450 resources on inclusive agribusiness on SearchInclusiveBusiness.org
William Grant
William Grant
William Grant has dedicated the past thirty years working at DAI to introducing market driven solutions into developing countries, primarily in Africa.  He has worked with private companies and foundations to help them integrate sustainable...

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