by Kathleen Wade and Bhavana Chilukuri
A range of challenges along the agriculture value chain – such as limited availability of on-farm storage technology, the widespread contamination of staple crops with a harmful fungus, and nutritional deficiencies in subsistence crops – are a threat to food security and agricultural development in developing countries.
Traditionally, agricultural programs addressing these issues are driven by upfront investments, where results are difficult to prescribe. The AgResults Initiative, launched earlier this month by the G20 leaders in Los Cabos, offers an alternative.
The initiative relies on “pull mechanisms” to attract new resources – specifically from the private sector – to jumpstart the development and adoption of new products and services. Pull mechanisms are results-based payments distributed to actors once they achieve a pre-determined outcome – for example, delivering a set number of pneumococcal vaccines at a given price. This design encourages multiple participants to find their own way to claim the prize. Donor countries are increasingly interested in pull mechanisms, which have the potential to improve productivity, bolster nutrition, and reduce post-harvest losses for the world’s two billion smallholder farmers whose needs are often passed over by private capital.
Paying for results sounds promising – but how do you design a pull mechanism? Over the past year, Dalberg worked alongside the World Bank, the Bill and Melinda Gates Foundation, and a global network of agricultural experts to answer this question, creating the blueprints for the AgResults Initiative’s initial pull mechanism pilots.
Over the course of the design process, pilot teams found that thorough analysis of local value chains is invaluable to designing effective pull mechanisms. Strong knowledge of local markets allowed teams to identify the private sector actors best positioned to respond to incentives and influence development outcomes. Particularly in the agriculture sector, fragmented value chains produce multiple market failures, and incentives must call on the right set of actors to overcome these barriers.
“Every market is different, and incentives must be designed to suit each one’s unique competitive dynamics,” says Rada Dogandjieva, a Consultant in Dalberg’s Washington D.C. office. Rada traveled with a pilot design team to Zambia, where she surveyed the maize value chain to determine how to stimulate a market for Vitamin A-fortified maize.
The team worked closely with HarvestPlus, a Challenge Program of the CGIAR, which developed the fortified maize variety to reduce micronutrient malnutrition among poor families subsisting on staple crops.
The team started with a list of barriers to consumer acceptance of biofortified maize, and then conducted extensive outreach to determine which actors had the resources and appetite to surmount these challenges.
“Our analysis suggested that industrial millers were the only actors in the Zambian maize market able to source product at scale and influence demand for new varieties,” Rada concluded.Senior Consultant Jordan Fabyanske, also based in Washington D.C., traveled to northern Nigeria to help design a pull mechanism to address aflatoxin contamination of subsistence crops. Aflatoxin is a carcinogenic substance that smallholders can consume when eating moldy crops.
Jordan said that in this case, effective pull mechanism design demanded a highly participatory approach to ensure buy-in from many stakeholders.
“The maize value chain in Nigeria is highly fragmented,” Jordan said, “and the whole intervention will need to involve a variety of participants. The pull mechanism must be harmonized with complementary programs, such as awareness campaigns and government capacity-building, to enforce aflatoxin limits.”
While in Nigeria, Jordan spoke with individual smallholders, farmers associations, agro-dealers and grain distributors, government agencies, and international organizations to understand the context of the aflatoxin problem and what types of coordination would be necessary to support a solution.
“We did more than gather data about cost structures and how smallholders might respond to different incentives,” he said. “We built momentum across the whole array of organizations that will take this program forward.”
AgResults was designed to have a strong learning agenda, with rigorous impact evaluation built firmly into the fiber of the fund. As a result, many discrete lessons are expected to emerge from these pilots as they are executed. Though the ultimate success or failure of these pilots remains to be seen, these lessons will help donors better understand how pull mechanisms can help achieve development outcomes in a more cost-effective way.
Kathleen Wade and Bhavana Chilukuri are associate consultants in Dalberg’s Washington D.C. office.