March 3, 2021
By Rodrigo Ortiz
As the world prepares to recover economically from COVID-19, it’s key that we find ways to scale agricultural innovations so that the most vulnerable are included in the path forward. Smallholder farmers must be able to access innovations to improve their resilience to external shocks and to strengthen food systems. Prize competitions, such as those designed and implemented by AgResults, are an effective way to actively engage the private sector in this scaling, using monetary incentives to show businesses why it is lucrative to invest resources in a yet untapped but developing market.
Yet prize competitions do not occur in a vacuum. They take place in a specific context and thus are subject to the policies and influences that shape that enabling environment ecosystem. For example, governmental control on commodity prices could stifle the entry of new actors and market growth. Our experience is that more liberal policies incentivize innovation and sustainability.
By anticipating influences in the enabling environment – such as access to finance, policy, and the time to test and adopt new technologies – and crafting the prize structure accordingly, AgResults’ Pay-for-Results model embeds the goal of post-project sustainability into the intervention right from the design stage. In this way, AgResults’ prize competitions can create an enabling environment that supports the delivery and scale-up of agricultural technologies to smallholder farmers.
Upfront Investments: Facilitating Access to Finance
Although prize competitions use monetary incentives to initially encourage the private sector to act differently, we have learned that it’s crucial to facilitate relationships with financial institutions early to establish timely cash flow. Prizes spark interest for the private sector and encourage them to venture into untapped markets. Prize competitions demand innovation, but for the private sector, innovating means deviating from ‘normal’ operations and putting capital at risk. The speed of adoption and scaling hinges on private sector competitors reinvesting short-term profits and prizes. Prize competitions provide prizes and incentives allowing smaller producers to reinvest their earning and prizes until they become credit worthy. Only with continued access to credit can businesses afford to reallocate resources and restructure their operations to achieve desired scale in the shorter term.
In Tanzania, AgResults’ competition built in a step early on to bring financial institutions and competing dairy input suppliers together. Two banks demonstrated the available credit facilities to competing dairy input suppliers, discussing their specific situations and laying the groundwork for future loans. By convening these meetings early on, AgResults encouraged the competing businesses to think more deeply about mobilizing funds and created the impetus for sustained relationships with banks that will be critical to their long-term scaling of technologies for dairy farmers.
A Loose Governmental Grip: The Absence of Hindering Policy
It’s essential to anticipate political economy influences – particularly the strict policies that often accompany commodities – when designing competitions. Rather than seeking out contexts with ‘positive’ government policies, the key is to look for the absence of hindering or fluctuating policies. Such policies can constrain the market when prize-driven competition starts to bubble up. These same policies will stifle chances of scale-up into a new sector or through new distribution channels.
Our competition in Zambia, which aimed to increase consumption of Vitamin A biofortified products, ran into governmental roadblocks because it was targeting a staple and highly politicized food commodity. Commodity markets are often vulnerable to fluctuating policies and political interventions. Price and export controls and distortions deterred maize millers and seed companies from investing in sales and distribution, ultimately stalling the competition before it ever took off.
In contrast, an open government stance on exports and trade can pave a path to widespread adoption of agricultural technologies. In Nigeria, a more open governmental approach around export of maize encouraged the preconditions would translate scaling of AflasafeTM into increased trade of high-quality maize. AgResults ran workshops and events to encourage competitors to lobby the government to set a standard for aflatoxin levels in crops, focusing efforts locally and regionally to influence policies that directly impacted their operations. As the competition progressed, we continued to engage the government for post-competition regulation – all of which hinged on the existing approach to encourage market growth rather than overly control it.
It Just Takes Time: A Slow Initial Rate of Adoption
Because smallholder farmers are risk-averse, they need time to observe the efficacy of a technology before committing precious resources. We’ve learned to build in time for early adopters to test a new product so they can trust the process and be convinced of its utility before expanding to widespread adoption.
The first few years of the Nigeria project started slowly. Competitors that joined the project initially worked with a small number of farmers because they wanted to test the product and see evidence that it worked before promoting it more widely among their farmers. Because so many competitors insisted on testing AflasafeTM on demonstration plots, adoption and participation were limited in the competition’s early years. This delay taught us that building in time for early adopters to test a new product would eventually expand the competitor pool as late adopters observed the benefits of investments and risks taken by more pioneering companies. And eventually, the entire market system benefited as use of AflasafeTM scaled.
AgResults Design: A Balancing Act of Finance, Policy, and Time
AgResults weighs the influence of a range of enabling environment elements on project context when designing interventions. That way, we can better set up the potential for scaling from the start and proactively develop a market-based incentive scheme to stimulate initial demand and overcome food security challenges. As we continue to embed plans for sustainability at the design stage to address – and overcome, as needed – enabling environment influences, we can more strategically encourage the private sector to play a central role in scaling technologies. And as these technologies get into the hands of smallholder farmers, we can set the preconditions for future food systems that are stronger and more resilient.