On September 8, the Leveraging Economic Opportunities (LEO) activity, in cooperation with Microlinks, hosted a webinar on systemic change in markets across four Feed the Future countries. Practitioners from ACDI/VOCA, Impact LLC and MarketShare Associates discussed findings around the diffusion of innovations within market systems in the Rwanda Dairy Competitiveness Program, the Senegal Nataal Mbay program, the Zambia PROFIT PLUS program and the Ghana ADVANCE II program.
Presenters Elizabeth Dunn, Ben Fowler and Olaf Kula had the opportunity to answer live questions fielded from participants and have responded below to more points and ideas raised from the webinar audience.
1. Has anyone addressed interest rates or other administrative fees that may impact behavior?
None of the four studies looked at interest rates and other fees as an influencer of behavior. However, the Ghana case illustrates the embedding of services by an actor downstream from producers. The outgrower businesses engage in the provision of services in time 0, against reimbursement for the cost of services rendered in time period 0+n. By concentrating services downstream from smallholders, the unit transaction costs are reduced. The high cost of borrowing is documented to discourage small holders from assuming the risk of debt against uncertain outcomes.
2. Would you elaborate on "new market opportunities" and any role governments play in them?
Public sector investment in research and development can significantly reduce the risks of new product and or market development, allowing private capital to flow into this space. Tariff regimes and trade policy can erect barriers to imports thus protecting an emerging local industry. Continued barriers and tariffs, however, protect domestic markets from global competition in which the local product or services suffer. Monetary supply, inflation and interest rates all will affect the availability of capital for investment and the returns that that capital must earn to recover the initial investment costs. There are many publications and books on the role of government in creating or constraining an environment that favors the emergence of new market opportunities.
3. To what degree were cultural mores/influences considered in developing tools?
For the project in Ghana, the challenge was reducing the costs and increasing market penetration of input, equipment and extension services into geographically dispersed communities. Cultural mores/influences were important because it was assumed by the architects of the project that success could more easily be achieved and sustained by working with and adapting familiar structures to the input and service challenge. The outgrower businesses (OB) are primarily individuals known and respected by members of her/his community for their greater access to resources and acumen in managing them. Some of these outgrower businesses offered a minimal package of services. Others offered a more robust set. The challenge of the project is to increase the level of services offered and increase the number of farmers to whom services were offered. The success and rapid scaling up and adoption observed in this case may be attributed to the familiarity smallholders have to working with a more knowledgeable and better resourced individual to help them access resources and information.
4. Does the limited purchasing power of your consumer restrict the prices farmers can set for their goods with the whole system operating on razor-thin profit margins?
First, I think that farmers very rarely set prices; they are almost always price takers. An exception would be when there is excess demand and limited supply. Secondly, razor-thin profit margins are only likely to occur when there is excess supply and farmers are competing against each other to liquidate their stock. I would also question the link between consumer purchasing power and prices. There are two reasons for this. The first is that when market prices rise above the ability of consumers to pay, quantity demanded falls and generally price does also. From the field, what I observe is that very poor consumers reduce the quantity of what they purchase when prices are high and increase the quantity when prices fall.
5. Could you elaborate on the level of efficiency gained from consolidation, such as marginal utility of labor or efficient capital use?
The Ghana, Senegal and Zambia cases implicitly involved either consolidation of product by groups or disaggregation of inputs received by groups. Both increase efficiency. This practice is widespread and only constrained by the expected risks from "free riders" and the "tragedy of the commons." In the former group, members seek to benefit from increased efficiencies without respecting the rules of the group. In the latter, individual group members seek more than their share of the benefits from consolidation because of their greater power within their group or network.