In a crowded donor space it can be difficult for programmes to overcome market players' disincentives to change and facilitate a more competitive market system. Read how the MOST programme in Malawi addressed this challenge with surprising results.
In Malawi, support to agricultural sectors by the government and development partners has been typified by direct delivery and interventionist approaches. Government initiatives such as the extensive Farm Input Subsidy Programme (FISP), ad hoc export restrictions on crops, and state-mediated input supply systems have created significant market distortions. Incentives are often perverse, for example seed companies limit their seed production to the easy money volumes procured through a single contract through the FISP, neglecting commercial supply such that agro-dealers cannot meet growers’ demand for seed.
Major reform is needed, but challenging to bring about, not least because of the approaches taken by some development partners that reinforce the status quo, as well as the perceived political rewards from subsidy. The result is that companies are incentivised to supply the well-established, low cost FISP/donor/NGO markets, rather than pursuing commercially sustainable business models.
This challenge is likely to be familiar to many programmes applying market systems approaches. In a crowded donor space with significant government intervention, it is difficult for programmes to overcome market players’ strong disincentives to change and facilitate a more competitive market system.
One and a half years in, the DFID-funded Malawi Oilseed Sector Transformation (MOST) programme team has been grappling with these issues, and asking:
- How can we really (not just superficially) understand the incentives of market players, to assess when they are open to a lasting behaviour change, i.e. when the time is ripe for us to engage?
- How can we gain traction with a facilitation approach, which requires the market player to take the lead on a challenging change process with a long time horizon, when another development programme is willing to step in with a quick but temporary fix?
Improving access to inputs
A key focus of MOST's portfolio is facilitating smallholders’ improved access to inputs, addressing a constraint that results in a cycle of low production, low returns and low re-investment. The extent to which we have been able to understand the incentives of a key market player, the government Department of Agriculture Research Services (DARS), has been central to both our successes and failures in improving input access.
One example of market facilitation by MOST that has been successful has been the establishment of private sector inoculant production in Malawi. When applied correctly to soybean seed before planting, inoculant can increase yields for smallholders by 30 per cent. Smallholders grow 94 per cent of Malawi’s soybean and yields are very low, at an average of just over 1.0 mT/ha against a potential of 3.5mT/ha. Limited access to inoculant in Malawi is a key constraint on soybean growers’ productivity.
Identifying the constraints
Despite the huge benefits inoculant affords to yields, when the MOST programme began in April 2014 only the government’s DARS was mandated to supply inoculant, as it maintained the strains for research purposes. Market demand outstripped DARS’ limited supply, with approximately 20,000 sachets being produced annually against estimated demand of around 300,000 sachets.
Furthermore, DARS did not have the commercial capacity to market or distribute the much sought-after product. DARS main mandate is to research and regulate agricultural technologies, hence it did not have the capital to invest in the refrigerated storage required to hold sufficient stocks, or to sell the product across the country, nor did it engage in any promotion on use of the product. Instead, DARS would produce small volumes of inoculant in unmarked sachets at a cost recovery price, which would sell out in a matter of days. Soybean growers from across the country had to travel to the DARS office in the capital to attempt to purchase inoculant, and MOST’s rapid assessment showed that most smallholder soybean growers did not know the product existed.
Empowering market actors
At an early stage MOST engaged with DARS, who were aware that they were unable to keep up with market demand. At the same time, MOST identified a Malawian company, Agri-Input Suppliers Limited (AISL), who had spotted the opportunity to establish a commercial laboratory to produce and distribute inoculant. From the outset the key issue was a high level of distrust between DARS and AISL. DARS was wary of releasing the inoculant strain to the private sector, as it did not believe that its quality would be retained by a commercial player pursuing profits; AISL perceived that DARS wanted to hold on to a monopoly on inoculant. As a result, no progress was made.
MOST’s intervention manager mediated a series of meetings between DARS’ management and AISL’s managing director to overcome the suspicion on both sides and broker a partnership. Through this partnership, DARS would continue to produce the inoculant strain in their research laboratory, support quality control and then sell the strain to AISL for multiplication and the latter stages of commercial inoculant production.
Demonstrating that a small investment can generate significant returns, the time spent by the intervention manager in facilitating meetings between the two players paid off in terms of the deal that was struck. In the 2015/16 season, MOST is supporting AISL’s marketing of inoculant as a fully commercialised product with a minimum sales target of 100,000 sachets. These sales are projected to lead to an increase in productivity among approximately 33,000 smallholders.
Iterative learning
Conversely, MOST misjudged the incentives of DARS when it came to releasing the rights for groundnut and soybean seed to the private sector. In Malawi, all groundnut seed varieties and many soybean seed varieties were developed by the government. During scoping, MOST recognised that DARS could not multiply enough basic seed to meet seed companies' demand. We expected that the revenue stream from selling basic seed was the decisive factor for DARS, and that royalties from releasing the seed to the private sector would be sufficient compensation. In fact, DARS was concerned that releasing seed rights to one company would create a monopoly and restrict smallholders’ access to seed. DARS’ intention was to provide the seed as a public good, even if it was not fully able to do so. Moreover, it later transpired that DARS inability to produce sufficient basic seed was not primarily due to resource constraints. It was mainly a function of a lack of information on market demand for basic seed and poor coordination. Ultimately, DARS was unwilling to release groundnut and soybean seed to the private sector.
These sorts of situations that challenge our assumptions and necessitate a complete strategy rethink, will be familiar to many programmes working in market systems development. Good MSD programmes are judged on their ability to learn and improve, and the MOST team subsequently returned to the drawing board to develop new intervention strategies designed to improve smallholders’ access to groundnut and soybean seed. Our seed strategy now involves partnerships with a number of seed companies to pilot cash sales, improve stocking and distribution, and address quality issues in the supply chain.
Systemic change in the seed market still hinges on market players realising that the FISP, despite its extended existence, is unsustainable. While the government insists on continuing the programme for political mileage, with the huge debts owed to seed companies rising, the latter are beginning to appreciate the consequences of their dependence, and are keen for our support to diversify to non-FISP seed sales. The key test for MOST, across our work in input markets, will be to prove the value of non-FISP sales, thereby overcoming market players’ strong disincentives to change and facilitating a better functioning market system.
The Malawi Oilseed Sector Transformation (MOST) programme is a DFID funded market systems development programme, which aims to increase the incomes of 60,000 poor women and men working in Malawi’s cotton, groundnut, soybean and sunflower markets. More information on MOST can be found here: www.most.mw
Ellie Horrocks is a Manager in ASI’s Private Sector Development Practice and a Project Manager of MOST. This article also benefited from the contributions of MOST Intervention Manager Mercy Butao and Technical Director Jason Agar.
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