Market facilitation concepts

MARKET FACILITATION CONCEPTS

MARKET FACILITATION

Is an ac4on or agent that s4mulates the market system to develop and grow, but does not become part of it

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What is it?

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Facilita4on Concepts Why: to increase the compe00veness of the whole industry over 0me

by: o  Fostering systemic shi<s towards:

§  broader and deeper commercially grounded rela0onships §  ongoing innova0on/upgrading §  benefit flows that drive shi<s in rela0onships and innova0on

o  Fostering improvement in cri0cal end market factors – product, opera0ons, branding

How to: o  Appropriate intensity (i.e. role and resources of project) o  Foster local rela0onships – buying down risks o  Self selec0on of project partners -‐-‐ rolling exit to test rela0onships and ownership

WHY? APPLIED

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Problem statement: The rice value chain relies on smallholder produc4on, but cannot compete because of the low produc4vity of par4cipa4ng smallholders

Why Ra4onale

Farmers performance is due to lack of capacity and untrustworthy private sector actors: •  Project provides output and

input services directly

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WHY? APPLIED 5

Why Ra4onale Farmer performance is due to knowledge and capacity gaps that result in limited effec0ve rela0onships with output market actors: •  Project assists in building output rela0onships,

•  Project provides direct training to smallholders

•  Project provides free or highly subsidized inputs

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WHY? APPLIED 6

Why Ra4onale Farmer performance is due to limited and ineffec0ve rela0onships on the output and input sides of produc0on: •  Project assists output firms to provide market

requirements maybe through improved aggrega0on services

•  Project assists input firms to extend distribu0on networks to the smallholder market with a focus on solu0ons (i.e., informa0on and services)

•  Project works with radio and local fes0vals to improve knowledge flows

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Facilita4on Concepts

Why: to increase the competitiveness of the whole industry over time by: o  Fostering systemic shifts towards:

§  broader and deeper commercially grounded relationships §  ongoing innovation/upgrading §  benefit flows that drive shifts in relationships and innovation

o  Fostering improvement in critical end market factors – product, operations, branding

How to: o Appropriate intensity (i.e., role and resources of project) o Foster local relationships – buying down risks o Self selection of project partners -- rolling exit to test

relationships and ownership

HOW? APPLIED 8

Why: Farmer performance is due to limited and ineffec0ve rela0onships on the output and input sides of produc0on: o  Project assists output firms to provide market requirements maybe through

improved intermedia0on services o  Project assists input firms to extend distribu0on networks to the smallholder

market with a focus on solu0ons (i.e., informa0on and services)

How -‐-‐ Intensity •  Focus leOng value chain actors take the lead •  Project takes a very low profile by spreading its

par0cipa0on between output, input and to a lesser extent smallholders

•  Resources spread between actors depending on the responses/willingness of the actors to take on certain behaviors and drive firm and industry upgrading

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HOW? APPLIED

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How -‐-‐ Intensity

Project takes a very high profile with the smallholder and targets all resources on direct services to the smallholder

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HOW? APPLIED 10




How -‐-‐ Intensity

Project takes a lower profile with smallholders and output firms, but will target resources on smallholder training and inputs

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HOW? APPLIED 11

How -‐-‐ Rela4onships

§  Project facilitates output rela0onships by fostering effec0ve conduct (transparent and longer term) of those rela0onships

§  Project fosters a business ra0onale and improved capacity within output firms to maintain and scale up those rela0onships

§  Project nego0ates, some0mes conducts transac0ons with input, and delivers products to smallholders

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HOW? APPLIED

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§  Project creates strong and dependent rela0onships with smallholders to protect them

§  Project nego0ates and conducts transac0ons on behalf of farmers with output and input actors

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HOW? APPLIED 13


§  Project Facilitates output and input rela0onships by fostering effec0ve conduct of those rela0onships.

§  Project fosters a business ra0onale and improved capacity in output and input firms to maintain and scale up those rela0onships

§  Scans for opportuni0es to include other support market actors

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HOW? APPLIED

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How -‐-‐ Ownership

§  Project responsible for output and input roles limi0ng the need for smallholders or other actors to change or own the process of behavior change

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HOW? APPLIED 15


§  Project facilitates output firms to own the behavior changes needed to develop effec0ve rela0onships with smallholders,

§  Project limits role/interest of input firm by providing direct training and subsidies on inputs.

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HOW? APPLIED 16


§  Project facilitates using tools to get all actors to take on key behaviors in order to access project support.

§  Project puts condi0ons on support dependent on buy-‐in and reac0on to ini0al project interven0ons.

§  Project knowledge management efforts track closely ownership and changing behavior to determine if changes are needed including exi0ng

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Fostering Relationships and Ownership: o Buying Down Risks

§ Using project resources to reduce the risk of local actors to engage in transactions/shifts in business tactics that will lead to longer term commercial relationships and drive upgrading

o Self Selection §  Requires value chain actors to perform and action in

order to access project resource – the action has to lead to ownership of a behaviour change process

Facilita4on Concepts

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Buying Down Risk: o Foster innovation in marketing and business

tactics

o Maintain local relationship focus

o Embed subsidy to mimic real life transactions

o Clarify exit in time and resources

Fostering Rela4onships

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Buying Down Risks – How: o  Promotional events (i.e., discounts,

transports, demos, etc.) o  Internal firm upgrading/expansion

(i.e., management training, staff skills/internships, etc)

Promo0onal events

Cost share training and opera0onal costs for new smallholder manger posi0on

Cost share promo0onal discounts and demos with input firm to get farmers to tests products and services

Internal firm upgrading and expansion

Cost share training of mid-‐level managers with private input firms to promote and manage rural services delivery

Fostering Rela4onships Cost share with buyer large promo0onal event to explain/sell market opportunity to farmers

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Buying Down Risks – How: o  Service delivery (i.e., certification

skills, equipment, research, etc.)

Service delivery Cost share equipment and training with Rice firm for service providers signing exclusive deals for discounts to their suppliers

Assist and cost share with input firm and spraying service providers a cer0fica0on process for individual sprayers

Cost share research with ICT firms/banks mobile banking plaTorms for transfer and payment services

Fostering Rela4onships

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Self Selection:

o Ensuring ownership

o Setting hurdle to entrance

o Changing hurdle height as program evolves

o Using hurdles to manage rolling exits

Fostering Ownership

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Self Selec4on examples: Rice firms has to has agree to SH

management and iden0fy specific managers to ini0ate the program

Rice firms must conduct internal systems review to iden0fy inefficiencies and informa0on gaps

Project assists training of mid-‐level managers on new supply chain management skills

Project cost shares upgrading of system to support new SH management strategy

Then Then

Fostering Ownership

FACILITATION

•  Intervening for relationships and ownership is more art more than a science §  Goal is to do just enough risk reduction to

foster interaction and trust investments §  Value is really only determined when

someone demonstrates via investment/behavior change

§  Rolling exit and wait and see are important ways to use self selection

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Crowding In

Incen0ves

Demonstra0on Effect Upgrading

Exit Strategy

Buying Down Risk

Incen0ves

•  Understanding and building on the drivers (interests and mo0va0ons) of the actors to take on a new behaviour (take on or par0cipate in a new ac0vity)

•  May be social, personal, financial, etc.

•  Agrovet and 3rd-‐party support services want to grow their businesses and make higher profits, by: •  developing be]er rela0onships with customers (for repeat sales from farmers)

•  reaching new customers (by selling to new farmers in rural areas)

•  making more sales (by making it easier to order, access and pay for their products)

Buy-‐down risk •  To demonstrate the benefits of new market behaviours, a project might decide to decrease (“buy down”) the risk of a market actor trying out the new behaviour -‐ using strategic “smart” subsidies.

•  It may seem too risky for the market actor to bear the cost and 0me of taking on the behaviour/ac0vity on their own for the first 0me

•  A cost share was used by the project to share costs for the open-‐air market day promo0onal stalls as a demonstra0on to agrovet that this would indeed bring in more customers and sales.

•  The project covered a rapidly decreasing % of the cost of transport for the first 10 open-‐air market days

Demonstra0on Effect

• Effects on the behaviour of individuals or firms caused by observa0on of the ac0ons of others and their consequences

• Uses early behaviour change adopters as examples / models

• Goal: deepen ownership of behaviour changes in the value chain actors, and broaden the change throughout the value chain so that it becomes a “norm”

•  Other input suppliers (agrovets) see how successful the agent network and rural market day promo0ons are, and start seOng up services to reach poorer farmers in rural areas.

Upgrading Inves0ng 0me, money or other resources into improving the enterprise -‐  Process upgrading (new

produc0on techniques or improved technology)

-‐  Product upgrading (improving the product or other product lines)

-‐  Func0onal upgrading (improving skills)

•  Invested in new technology to improve his business (M-‐PESA payments, cell phone customer research tool)

•  Invested in bringing in new partners to be able to offer a more sophis0cated range of products and services

•  Invested in improving skills and buying new equipment to run local promo0onal events

Crowding-‐in •  Interven0ons catalyze or bring in other players and func0ons into the market system so that it works be]er for the poor.

Can result in: •  Expanded breadth (more transac0ons in the market)

•  Expanded depth (suppor0ng func0ons)

•  Expanded reach (new areas or markets)

•  Increasing number of agrovets may see the success of a business strategy to target rural farmers, and start copying or adap0ng the ac0vi0es of the agrovet

•  Increasing number of support service providers are seeing the benefit of partnering with agrovets to target poorer producers (spraying, soil tes0ng, …)

Exit Strategy • Stopping investments in a certain ac0vity once a certain level of uptake or behaviour change has been reached.

• “Rolling exit strategies” stop cost-‐sharing, using a wait-‐and-‐see approach, to see if a market actor self selects to take on an ac0vity by themselves, showing that they have the ownership and capacity to con0nue without the project’s support.

• The project stopped cost-‐sharing open-‐air market day stalls as the agrovet started seeing value and demonstrated the ownership, capacity and means to take on the ac0vity

• The project planted the idea of an agent network, but waited to see if the agrovet took the ini0al steps to put this in place before inves0ng more 0me and money into strengthening the network.

Crowding In

Incen0ves

Demonstra0on Effect Upgrading

Exit Strategy

Buying Down Risk

Business

Market facilitation concepts