February 10, 2017
This post was written by AgResults USAID Steering Committee Representative Aviva Kutnick
We have made serious investments to develop technologies that improve the lives of people living in poverty. Among these, AgResults’ donors supports a number of agriculture research institutions to develop improved seeds and bio-fortified foods targeting specific nutritional challenges. For example, in Zambia, where Vitamin A deficiency rates are some of the worst in the world – particularly in rural areas – we have invested significantly in creating bio-fortified pro-Vitamin A (PVA) maize. Unfortunately, despite its potential for impact, PVA maize often remains un- or underused, and people can face significant health challenges. The commercialization of PVA maize is required for the realization of improved nutritional outcomes.
Years of good science, including social science, such as product refinement and demand analysis, has produced high yielding PVA maize hybrids. The taste of this orange-hued maize is accepted (and sometimes even preferred as it’s a bit sweeter!) in the Zambian diet, and yet it’s hard for farmers to find PVA maize seeds, also known as “orange maize,” in the market and almost impossible to buy orange maize products.
If farmers want to grow it and their households want to eat it -- why is it so hard to find?
Because of high uncertainty and costs of market entry, companies, including seed companies and millers, have been reluctant to adopt orange maize as a viable commercial product. This reluctance led to no clear commercial end market, and seed companies did not invest in sufficient multiplication. Beyond development projects providing demonstration seeds, farmers were buying some seed, largely for home consumption, but these amounts would vary widely depending on household budgets and were relatively small; leaving demand for the seed, uncertain at best.
But we as donors have the opportunity to help create a market for this and other new technologies. In the AgResults Zambia Biofortified Maize Project, donors award monetary incentive prizes to seed companies who sell PVA maize seed above specific sales thresholds. Additionally, we award prizes to millers who buy, mill, and sell PVA maize meal to supermarkets and food processors targeted to urban consumers. Ultimately, this increased supply, mixed with marketing campaigns, will hopefully increase demand of consumers living in urban and peri-urban areas in Zambia. By offering these prizes, the project incentivizes the private sector to overcome the risks and costs for market entry, and ultimately build a vibrant PVA maize market.
Wait, I thought we were trying to address rural Vitamin A deficiency, why do we care about urban consumers?
It’s true, urban consumers are not our target market for improved nutrition. Of course they can benefit as well, but by targeting millers to sell the PVA milled maize to urban consumers, we are able to facilitate market development and foster commercial investments that lead to sustainable markets. By doing this, we hope that this pay-for-results mechanism will impact those most vulnerable and nutritionally insecure. Through this model, seed companies are producing more PVA maize seed and small-scale producers will have access to these seeds, keeping some of the maize harvest for household consumption, and selling the rest to millers. The increased supply will be milled into maize meal to be marketed in stores and supermarkets, largely targeted to the urban consumer.
Pay-for-results projects or prize competitions, sometimes known as “pull mechanisms,” provide a new approach to creating sustainable markets for improved food products where once they did not exist. Pay-for-results allow donors to analyze the value chain and find where the market failure (or opportunity) exists. From there, donors offer prizes to incentivize private sector actors to enter into markets they would otherwise deem unattractive. Non-existent or struggling markets, like the orange maize market in Zambia, offer donors a chance to implement and test these mechanisms, which is exactly what USAID is doing with our partners through the AgResults Zambia Biofortified Maize Project.
Do prizes work? Are they enough to incentivize all of this change?
The Zambia prize is in its second year and has yet to show significant results. However, the preliminary results are promising. Despite a cultural stigma against yellow/orange maize that is associated with food aid, marketing events and promotional efforts have seen positive changes in the way urban consumers approach the product. Furthermore, two seed companies have already joined the pilot, and three others are working to join the pilot in subsequent planting seasons. Furthermore, seven millers have joined the pilot and are already receiving orders for maize meal.
This is a new model to finance development projects. Through AgResults, USAID, along with its partners in the governments of Australia, Canada, the United Kingdom, and the Bill and Melinda Gates Foundation, is testing the way in which these projects can be implemented to develop long lasting markets that have sustainable impact and do not require continual donor support. By disseminating the lessons learned from AgResults, donors will be able to learn how pay-for-results can work to create sustainable markets beyond agriculture, in health, water, and other sectors.