The following blog post discusses the challenges that often accompany many market systems in developing economies where the incentives and market forces/factors are misaligned in ways that disadvantage lower incomes communities. While these misalignments have serious consequences in many market systems, when the market system is also intertwined in an increasingly vulnerable ecosystem, like a coastal waterway, such misalignments can substantially speed up environment degradation and increase vulnerability. As the post suggests, and a key theme that will be explored at the Market System Symposium, figuring out and catalyzing a change in market system forces and factors such that they combine to favor conservation practices and reward labor fairly is central to any journey to self reliance.
COVID-19 forced companies and governments to reconsider the sustainability and resiliency of global seafood supply chains.
Around the world, the seafood industry plays a critical role in feeding billions of people. It’s also a major economic driver: According to the United Nations, fishing and aquaculture provide livelihoods to around 820 million people worldwide.
In many countries like the Philippines, Vietnam, Ecuador, and Ghana, it is small-scale fisherfolk and aquaculture farmers who dominate the seafood industry. But artisanal fishing communities and small operations are especially vulnerable to disruptions like what we’ve witnessed in the time of COVID-19. Often, it is the small operators who do not have access to insurance, retirement plans, alternative livelihoods, or health care—and if they do, it is unaffordable. There is very little, if any, clear price signaling from the markets they sell to, and many fisherfolk and aquaculture farmers do not have much flexibility in how or to whom they sell their products.
Transitioning to more sustainable fishing practices is also often difficult for these small-scale fisherfolk and aquaculture farmers. Many do not see direct financial benefit, nor do they have the capital needed—or access to affordable loans—to make the financial investments necessary to transform their operations.
The seafood industry also struggles with other serious issues like human rights violations, the use of unethical and illegal work practices, gender inequality, illegal and unreported and unregulated (IUU) fishing, and collapses in marine ecosystems caused by overfishing.
As we enter 2021, we see five major trends emerging from the global development community, government, and the private sector to help small-scale fisherfolk and aquaculture farmers enhance seafood sustainability and resilience. Many of these trends have evolved or arisen in response to COVID-19, but they stand to be ongoing opportunities for progress in the seafood industry.
KEY TRENDS FOR SUSTAINABLE SEAFOOD SUPPLY CHAINS IN 2021 (AND BEYOND)
1. Greater Domestic Import/Export Market Diversity.
COVID-19 highlighted the serious disruptions that result from overreliance on one import/export market. Fisherfolk and aquaculture farmers who relied on selling fresh or frozen seafood products to one primary market experienced major disruptions because of lockdowns and restaurant and hotel closures in the United States, Europe, and China.
To remain in business, small-scale fisheries and aquaculture operations had to quickly pivot to weather the disruption. For example, in the Philippines, blue swimming crab from the Visayan Sea fishery is usually destined for canning and export. It is not widely available in Manila or other local markets. But as the pandemic shut down the export market, we saw a number of entrepreneurs adapt to market pre-cooked, whole crab on social media to local Filipino consumers.
We also saw governments and companies collaborate to safeguard food security and prevent economic fallout for local fisheries and aquaculture providers. In the Philippines, the Department of Agriculture and the private sector launched “eKadiwa,” an online marketing platform to help producers and agri-preneurs sell fresh and affordable farm and seafood products to local consumers.
While COVID-19 accelerated this expansion of import/export markets, we expect this trend to continue in the seafood industry. Diversifying these markets will give small-scale fisherfolk and aquaculture providers more control over pricing and resiliency—in the event of another market shock.
And we will likely see more cross-sector partnerships to develop regional and domestic markets too. This will improve local food security while protecting the livelihoods of fishing communities.
2. Acceleration of Digital Technology for Seafood Sustainability and Market Development.
When COVID-19 upended the import/export market, it was digital technology that opened new markets for many fisherfolk and aquaculture providers. Those who were nimble enough to move their products to a digital marketplace could connect directly to consumers for purchase and delivery.
In May 2020, USAID Fish Right's Fish Tiangge initiative in the Philippines developed an online platform using Facebook to link fishers with local consumers. This one initiative connected 6,000 fisherfolk with more than 300,000 households—enhancing local food security and preserving incomes for thousands of fisherfolk.
Digital technology is also helping to modernize fishing and aquaculture operations, increase profits, and expand awareness of best practices for sustainable seafood. For example, we are collaborating with AquaConnect in India to provide digital solutions that help shrimp farmers identify quality products and farm-input purchases. Farmers also get notices and materials on growth and disease advisories, advice and information on affordable financing, and resources to connect to different markets in India.
Digital technology will continue to be a major player in 2021 and beyond.
3. Private Sector Engagement to Unlock New Solutions for Sustainable Seafood.
To create reliable and sustainable seafood supply chains, we need private sector engagement. Of course, the public sector can and should play a role. But government and the global development community can only do so much to address logistics, aggregate supply, ensure quality, and verify sustainable practices for small-scale fisheries and aquaculture providers.
A truly sustainable seafood industry demands creative, market-driven solutions that fit the local context. We’ve been inspired by local private sector innovators like eFishery: eFishery provides technology solutions, financing options, and input sourcing for small-scale aquaculture farmers in Indonesia, helping them build sustainable and profitable businesses. It also provides an online platform connecting farmers to buyers, to close supply chain gaps and strengthen domestic seafood supply chains. We are seeing more local, regional, and international private sector-led solutions—like Verifik8 and Abalobi and Aruna—for small-scale fisheries and aquaculture worldwide; we expect this field to continue to evolve in 2021 and beyond.
4. Innovative Financing to Spur Change in the Seafood Industry.
New, innovative financing approaches can rapidly scale sustainability solutions in the seafood industry. Historically, small-scale fisheries and aquaculture providers have struggled to access capital to improve their practices and operations or to protect against market disruptions, shocks, and income loss. This is a critical gap.
At Resonance, we are designing and piloting blended finance mechanisms that increase farmer and fisher profitability while also improving sustainable fisheries management. These finance mechanisms all build on partnerships on the ground with suppliers, aggregators, local financiers, and buyers—leveraging local connections and social capital. We are exploring a range of finance solutions for fisheries, including:
For example, Resonance is currently exploring a partnership with Minh Phu, Vietnam’s largest shrimp company; Seafood Watch, a global leader in sustainable seafood; and local banks, to provide blended financing to shrimp farmers to improve their shrimp yields while also protecting and restoring mangrove forests in their properties.
5. New Models to Verify and Reward Sustainable and Fair Labor Practices in the Seafood Industry.
Over the last few years, we have worked with several partners, from private sector buyers to NGOs to governments, to analyze the return on investment (ROI) for seafood sustainability certifications and improvement programs. Each project analysis overlapped in one key area: the traditional certification and auditing of individual small-scale fisherfolk and aquaculture providers is not working, despite significant investments.
There is growing support, from all stakeholders, to develop alternative models to verify and reward sustainable seafood production practices. We’re currently collaborating with Seafood Watch, Thai Union, and others to create the Partnership Assurance Model (PAM), an innovative approach to verifying sustainable aquaculture production at a regional level rather than certifying individual farms and operations. We are starting by working with Seafood Watch, buyers, suppliers and government to use PAM to help improve the quality and sustainability of shrimp produced in Andhra Pradesh, India, and Ca Mau, Vietnam.
Further, PAM and other models like it can help verify sustainable and fair labor practices—an area that the seafood industry has struggled with.
New assurance and improvement models such as PAM will gain greater traction as NGOs, governments, and the private sector seek more effective and cost-efficient ways to accelerate and verify sustainability progress.
SUSTAINABLE SEAFOOD IN 2021 AND BEYOND
While COVID-19 challenged many small-scale fisherfolk and aquaculture providers, it also showed us areas of opportunity where the seafood industry can build more resilient and sustainable supply chains. We expect the trends that we have outlined will play critical roles in helping governments, the global development community, and the private sector make progress toward a more stable, more sustainable seafood sector.
This post discusses the central themes that will be explored at the Market Systems Symposium 2021.
An enduring question in development is why societies seem to get stuck in patterns of behavior that can be hard to understand. Whether conflict, stubborn levels of poverty, elite capture, inability to address climate change, increasing equality, etc., development practitioners continue to wrestle with how best to help catalyze positive change. Applying systems thinking, including embracing complexity, has been an important advancement in helping development practitioners understand difficult questions that are grounded in understanding local contexts. At the same time, complexity and systems lenses suggest that if there is a given pattern, like strong gender norms to limit women from participating in and benefiting from economic activity, such patterns are grounded in something that made that pattern attractive. Through the lens of a western moral framework, this can be hard to align or even disconnect from stated development goals.
These difficult and sticky challenges are central to the Market Systems Symposium 2021. Climate change and related conservation challenges, a new theme at this year’s Symposium, are integral to the longer-term journey to self-reliance of many countries. At the same time, there remain patterns in many of these contexts that are likely to make the journey longer and more difficult in terms of health, economic, etc., outcomes. Similarly, how communities and societies manage shocks and stresses is also critical to a country’s journey to middle income status, a thread that will be explored under the Market Systems Resilience theme. While it seems clear that communities often rely heavily on informal communal social safety net mechanisms to help them weather shocks and stresses, many of these mechanisms can result in patterns that do not align with economic growth requirements. Urban populations and related non-agricultural market systems, while less of a focus for much of the development industry, are likely to be the economic engine that drives a society to middle income status; this will be discussed under a theme exploring systems such as housing, water, nutrition, and more. In all these themes, how private sector actors compete, cooperate, invest, innovate, etc. is elemental to whether a society can grow in ways that are more inclusive and durable. In many developing countries, there are patterns related to firms using their political/market power to create unfair competitive landscapes that limit who can participate and benefit. Questions and debates related to challenging private sector patterns will be covered in the Symposium’s Private Sector Engagement theme.
Whether the patterns relate to conservation challenges, inability to overcome known and knowable stresses/shocks, elite capture in markets, the critical role urban poor play in the journey to self-reliance, etc. learning how best to apply various lenses to local contexts to understand the current attractiveness of problematic patterns will play a foundational role in the Market Systems Symposium’s conversations. Practitioners will also debate, discuss and share learning in how to catalyze changes in market systems that are attractive enough to signal to others in the market system it is time to adopt, adapt, and/or otherwise change behavior.
Additionally, the Symposium will interweave key cross-cutting themes related to how initial changes in market systems can influence change in deeper-seated norms/mental models like the role of youth, gender norms and/or other limiting norms related to vulnerable groups. How entrepreneurship could/should emerge and catalyze increasing innovation over time will also be a cross-cutting theme, including how effective entrepreneurship requires increasing inclusiveness, better internal market systems signaling/feedback and mechanisms that allow for increasing churn/trial and error. The other cross-cutting themes will cover operational issues that include measurement, donor strategies, and adaptive management.
We are excited for this year’s Market System Symposium, especially in light of increasing confidence that life is getting back to some sense of normalcy. Pushing new learning, better practice, and a shared commitment to applying systems thinking to complex development challenges seems more important than ever.
LEARNING STORY SPOTLIGHT: Chillington Rwanda, Pathways for Adaptation and Growth, Responding to Societies’ and Customers’ Needs
Entrepreneurship is an evolving area of inquiry as it has become increasingly clear that growth and especially inclusive growth is highly dependent on a country having a robust entrepreneurial eco-system. While more traditional efforts have focused on individual entrepreneurs and their defined issues like access to finance and basic business skills, market systems projects have focused more on systemic biases and constraints that guide the evolution of an entrepreneurial eco-system.
Incorporated in 1982 in Rwanda, Chillington Rwanda Ltd is a leading local manufacturer of agricultural cast iron tools (such as shovels, pick axes, and wheelbarrows), which was a solid business before COVID-19. The company had already demonstrated its ability to respond to local demand signals, innovate, and provide product lines that would improve life for Rwandans. Chillington Rwanda had diversified its cast iron product line to produce manhole covers as manholes are often left uncovered on construction sites and in public spaces where manhole covers are hard to come by or standard sizes do not fit, and result in severe safety issues in Rwanda. Chillington Rwanda produces manhole covers at regular and customizable sizes and within a year manhole covers have become 50% of their business). Chillington Rwanda started manufacturing wheelbarrows in 2011 locally at almost double the price of imported wheelbarrows but has still been able to capture around 80% of the market share to date. Their product is recognized for much better quality and therefore durability, with the ability to customize wheels and handles. Chillington Rwanda conducts regular surveys with its customers and distributors, including sending their team to rural villages to do so. Based on customer feedback in late 2018, Chillington Rwanda quickly innovated and sourced an adapted wheel design which is more appropriate for many of the Rwandan conditions so that they now offer a line of wheelbarrows that function much better in the more muddy conditions while others operate better on asphalt.
The emergence of the COVID-19 pandemic started to put a strain on Chillington Rwanda’s business lines as overall economic activity slowed. For Chillington Rwanda, waiting out the shock was not an option. They needed to adapt, but how best to adapt in such a dynamic environment was a central question. Chillington Rwanda resorted to first principles of a value- based business that pointed Chillington Rwanda to look at where they could deliver value. In surveying the dynamic landscape, they saw that Rwandans were struggling to adhere to basic public health protocols. As they investigated further, they identified an opportunity defined by the value they could deliver for their community/society. The opportunity was related to the gap in the use of surgical face masks as Personal Protective Equipment (PPE) that seemed to stem from the relatively high costs of masks in Rwanda. Additionally, Chillington Rwanda identified the opportunity as potentially regional in nature.
Chillington Rwanda began to go to work. They assessed the opportunity, including near, medium and longer term contexts of shifting and expanding their production capacity. Would the cost of shifting be more than off-set by increases in sales and firm value given the timeline for wearing surgical face masks for COVID-19 protection? If not, could the new production line adapt easily to produce products that have a clear ongoing and potentially increasing demand? Chillington Rwanda drew on their existing expertise in manufacturing and existing relationships with production equipment suppliers in China to diversify from producing agricultural tools and equipment (such as wheelbarrows and spades) to producing surgical face masks as PPE.
Chillington Rwanda recognized that the pre-COVID-19 demand over the previous six months for imported PPE surgical face masks in Rwanda averaged 1.5 million masks per month from ongoing mask requirements at hospitals, pharmacies, etc. This ensured a potential ongoing demand which substantiated diversifying into this area even if demand were to drop post COVID-19. Chillington Rwanda’s market analysis seemed to indicate that there was real value not only from a narrow business perspective, but maybe more importantly, from a community/societal value perspective.
In addition to the clear demand signals around masks, Chillington Rwanda also recognized the signaling in demand for feminine hygiene products (sanitary pads) which can be produced using the same manufacturing capabilities as surgical face masks. This provided a further opportunity for diversifying in the future using the same manufacturing capacity being invested in for the surgical masks.
Chillington Rwanda recognized that investment into producing PPE masks made further business sense as this business strategy falls within the Government of Rwanda’s priority to support an environment that enables medical equipment manufacture in Rwanda for local use and export to other parts of Africa and the world. Specifically, as a result of COVID-19, the government is incentivizing the production of PPE face masks by local producers in a bid to facilitate mass production as well as affordability. In April 2020, Chillington Rwanda was included in the Rwanda Food Drug Authority (FDA) official list of companies allowed to manufacture barrier and medical masks in Rwanda, with Chillington Rwanda being one of only three companies approved to manufacture higher quality surgical masks.
The combined demand from consumer feminine hygiene products and healthcare worker masks, and the informal Government approval, provided Chillington Rwanda with the longer-term commercial rationale to make the final decision. Consequently, Chillington Rwanda began adapting to initially focus on producing quality assured affordable masks for Rwandans, with the idea that a regional market for quality assured masks would also emerge as neighboring countries were also experiencing similar challenges in accessing masks.
With a loan from a commercial bank and support from the German development agency, GIZ, who were eager to support local mask production to decrease costs of masks in Rwanda to make them more easily accessible, Chillington Rwanda had the finance to fund initial production and laboratory testing. This laboratory testing phase was very important in developing standards for quality control and assurance for higher quality surgical masks in Rwanda. The Rwanda Standards Board helped local manufacturers such as Chillington Rwanda to understand how to conform to quality standards in mask production. Chillington Rwanda provided samples of its masks to the Quality Control Division of the Rwanda FDA for approval.
Chillington Rwanda invested in a machine from China that has the capacity to produce 4 million masks and started production, distributing the masks through pharmacies throughout Rwanda. Sales have grown quickly. In keeping with its vision to make masks for affordable and accessible in Rwanda, Chillington Rwanda is currently producing masks at 300 RWF with a goal to further decrease costs to 180 RWF.
Chillington was eager to learn from its initial endeavors. Consumers appeared to appreciate the quality of the masks. In quick response to customer and distributor feedback, the company however recognized that consumers and retailers prefer masks to be packaged in smaller packs (of 5 to 10 masks rather than 50) so that when customers take a mask from the box in the retail store there is less chance of contamination with too many other masks at the same time. The company is therefore adapting its packaging to support improved health and sanitary at the retailers sales points by investing in a packaging machine that is able to package in smaller units.
Chillington Rwanda does not only think about its product lines and customers, but also about its staff and workers. Growth-orientated firms are able to understand the importance of investing in performance management systems as a continued way to improve staff capacity and performance. Chillington Rwanda worked with a consulting firm on how to invest in performance management systems which incentivize a motivated, productive and loyal team. Productivity has been linked to payments, so Chillington Rwanda pays workers more if they are able to reach production targets.
Chillington Rwanda recognizes the importance of treating workers well and ensuring good health and hygiene procedures. In 2019, for example, there was 0% staff turnover. The company provides drinking water stations throughout its plant and milk for workers. A sense of pride and team spirit is reinforced through aesthetically pleasing uniforms. The factory and offices are being renovated and upgraded with new coats of paint and more natural light. As a result of COVID-19, Chillington Rwanda implements good manufacturing practices with workers washing hands before work and keeping distance from other workers. Their team has been split into two groups, with a night shift added to distance workers even more.
By focusing on signals from Rwandans that indicate what is of value to them, Chillington Rwanda was able to more clearly see how they could adapt in a way that added value. Often businesses focus on the supply or production of products they perceive as having value with little awareness of or a clear understanding of the end customers’ needs, wants, contexts. Even worse, in many cases, the firms focus on how they can produce a product that delivers less value, but can be perceived as providing a higher value. Whether by adulterating, faking, or not investing in quality assurance, they calculate that by operating in a unclear/confusing environment for consumers they can capture extra, unfair margins from their customers.
Chillington Rwanda’s commitment to customer value and its responsiveness to consumer signals provides an excellent example of how markets can work well when market actors compete on delivering customer value. As firms and entrepreneurs increasingly focus on competing on the value they deliver to customers, staff and suppliers, the more likely other firms in addition to Chillington Rwanda will adapt and innovate in response to end-consumer signals about what is important to them. Markets that evolve such competitive landscapes not only generate more inclusive wealth, they also increase a society’s resilience by taking on and neutralizing or mitigating risks from stresses and shocks. Chillington Rwanda is helping Rwanda to mitigate the shock of COVID-19 by producing cost effective masks locally that allow Rwandans to better protect themselves from COVID-19. Chillington Rwanda saw an opportunity and innovated/adapted to meet an emerging consumer demand, helping their business and the wider society be more resilient.
This post was authored by the Nguriza Nshore team.
Entrepreneurship is an evolving area of inquiry as it has become increasingly clear that growth and especially inclusive growth is highly dependent on a country having a robust entrepreneurial eco-system. While more traditional efforts have focused on individual entrepreneurs and their defined issues like access to finance and basic business skills, market systems projects have focused more on systemic biases and constraints that guide the evolution of an entrepreneurial eco-system.
Kigali-based Masaka Creamery was established in 2015 as a vehicle for launching a high-quality dairy creamery in Rwanda. The company produces yogurt, fermented milk (buttermilk), cream, cheese and butter for the domestic market. The female-run Masaka Creamery is an interesting case in that its initial value proposition was not one hundred percent defined by growth or commercial goals. It also had a goal of providing meaningful employment for deaf individuals as well as youth. Unlike other cases in the series, Masaka Creamery’s starting point integrated a clearer vision of the value it could provide as a business that went beyond its customers to include its staff and suppliers. As Nguriza Nshore is learning, even businesses that start with a relatively narrow commercial goal, such as generating a positive gross margin, will only grow over time if they take into consideration the value they deliver not only to customers, but also staff and suppliers. Businesses that act in extractive ways toward their staff and/or suppliers are unlikely to get good performance, but as the Masaka Creamery example shows, are also unlikely to weather stresses and shocks well.
Masaka Creamery established its brand as a reliable and quality assured supplier of various dairy products to other businesses such as restaurants and hotels. By targeting restaurants and hotels that catered to high-end consumers, Masaka Creamery could generate a healthy margin ensuring they could treat staff and suppliers in ways that demonstrated shared value, while also investing in the important and necessary quality assurance practice demanded by such a clientele. Interestingly, by focusing more on a business to business model, as opposed to a business to customer model, Masaka Creamery probably eased their start-up process as they had fewer and larger clients on which they could focus their customer service.
Masaka Creamery was growing nicely and attracting investment as it continued to strengthen its brand as a reliable and quality assured supplier of dairy products to its business customers. It is here where the story gets interesting. COVID-19 emerged quickly and had an outsized effect on the exact businesses that Masaka Creamery has targeted, especially restaurants and hotels, which emerged as their largest customer segment. Masaka Creamery could have hunkered down and tried to weather the shock, but they realized doing so would have serious repercussions on their staff and suppliers, so they adapted. Unlike other entrepreneurs who focused heavily on capturing and extracting margins from their business, Masaka Creamery invested in ensuring quality and performance as required by their business customers. This customer orientation that included investing in staff and suppliers, gave them a clear competitive advantage when forced to adapt as they had both an emerging brand based on customer value, an operating culture that was based on shared value (i.e., which also translates into shared risk), and a vision for the company that was defined by more than what they produced.
Masaka Creamery quickly realized that most of their business clients would have trouble maintaining their purchases requiring the firm to look for other channels. Interestingly, Masaka Creamery took the bold step of testing a direct to customer channel. Such a shift from a commercial channel with fewer and larger clients to an end-consumer channel with many more smaller clients can be very difficult for a business. Managing a large and growing customer base requires a fundamental shift in business operations, especially marketing and customer service. Masaka Creamery’s key advantage though seemed to be its customer orientation or its interest in delivering value to its customers.
Masaka Creamery went to work learning how to leverage social media, how to segment the market in ways that eased their transition to a direct to end-consumer channel. They brought on board marketing and branding skills that are essential for a direct to consumer channel, and they raised their game in terms of customer service. For example, they actively engage their customers, leaving thank you notes for customers and promoting their values as central to their business. The transition was not easy as they also had to develop capacity in managing multi-stop delivery routes, a substantial increase in the number of transactions, a large and growing customer base, and brand integrity (i.e., emergent customer complaints, operational hiccups that could affect customer value, unexpected company/product memes, etc..).
Masaka Creamery has emerged out of the transition in a way that has them on a stronger growth trajectory. They have a growing base of repeat customers, their revenue is even higher than before COVID-19, their brand value is increasing, and they are investing in ways that will increase their capacity to deliver value to their staff, suppliers and customers. The Masaka Creamery story is particularly important in demonstrating the value of entrepreneurs when they are motivated by the value they can create, as opposed to the margin they can capture. It is through Masaka Creamery’s commitment to value that they were able to adapt in ways that led to increased growth and increased employment.
This post was authored by the Nguriza Nshore team.
This post is part of a larger series highlighting the Feed the Future Nguriza Nshore project in Rwanda. Nguriza Nshore is applying systemic lenses and tactics to shift the orientation of the financial services market system. Nguriza Nshore is focusing on two major shifts in the financial services market system. The first is shifting the orientation of the banking and microfinance service providers toward the SME segment. This shift requires banks and micro-finance service providers to shift their operations and product offerings to accommodate the specific needs of SMEs and the SME segment. The second is shifting the overall balance of enterprise finance away from banks and microfinance service providers and toward private capital that can more effectively serve the growth capital needs of Rwandan entrepreneurs.
The Government of Rwanda (GoR), through the leadership of the Ministry of Trade and Industry (MINICOM), realized that in order to continue its economic growth and to grow even more inclusively, it is necessary to substantially improve the entrepreneurial and SME operating environment in the country. With the support of the Feed the Future Rwanda Nguriza Nshore project (Nguriza Nshore), MINICOM decided to undertake a participatory process for developing and gathering support for an ambitious EntrepreneurshipDevelopment Policy (EDP). Through this participatory process, MINICOM and Nguriza Nshore were able to both develop a comprehensive policy for catalyzing greater entrepreneurial activity, as well as generate a wide base of support for the policy. Nguriza Nshore continued to support MINICOM through the policy approval process at the national level. The comprehensive nature of the EDP presented MINICOM with a range of challenges related to building internal support across multiple Ministries. By working closely together, MINICOM and Nguriza Nshore managed the approval process by leveraging the wide base of support generated through the participatory development process.
For Nguriza Nshore, its effort to support MINICOM to develop a comprehensive entrepreneurrship policy included more than just the potential benefits of the improved policy; Nguriza Nshore was also keen on improving how policies were developed and improved over time. Taking a more systemic approach has been central to Nguriza Nshore’s success in supporting MINICOM. For example, by focusing on a participatory process of policy development, MINICOM and Nguriza Nshore were able to catalyze a substantial constituency for the policy. MINICOM and Nguriza Nshore traveled across 20 districts and interviewed 313 diverse stakeholders to better understand the achievements and challenges from the previous SME policy. Specifically, through the participatory process, they were able to prioritize challenges affecting startups and business growth in Rwanda and adapt the EDP based on constituent input. Throughout the policy drafting and consultation process, MINICOM and Nguriza Nshore were able to gain insights into the unique challenges of women as they start and grow their businesses. Through the process, of the 313 stakeholders consulted, 122 were women.
Nguriza Nshore has also supported MINICOM as the ministry thinks through the key components of implementing the policy, including how to anticipate and build in an adaptive capacity. Throughout the process, Nguriza Nshore witnessed a continued strong sense of ownership among stakeholders present during the EDP implementation plan adaptation workshop, where participants updated the implementation priorities to match new COVID-19 realities and align with GoR economic recovery activities. Additional stakeholders have also already begun aligning their activities with the EDP. Inkomoko approached MINICOM with a request to directly support the implementation of EDP by aligning Inkomoko’s $2.3 million SME Relief Fund within the EDP framework.
In April of 2020, a Cabinet meeting passed the EDP, and a formal launch event was held in November. All in all, the passage of the EDP by the Cabinet is a testament to its inclusive development process and alignment to GoR’s priorities. With this milestone, Nguriza Nshore will implement all future activities with the entrepreneurship ecosystem priorities, which will ultimately go beyond the life of the Activity. The EDP will be officially implemented by MINICOM in 2021. Nguriza Nshore will continue to partner with MINICOM and support the policy’s amplification across the country.
This post was authored by the Nguriza Nshore team.
This post is the second half of a two-part series. To view the first post, click here.
In any given market system, elements of both small-group and large-group dynamics co-exist. What matters most, however, is which dynamic is dominant. As a result, when analyzing a market system to understand the prevalence of small group and large group institutions, it is useful to tease apart the regulative, normative and cultural-cognitive elements. Showing the ways in which large and small group thinking might co-exist at different institutional levels provides a sense of direction to programs looking to influence change towards a large group orientation.
Assessing how predominant or influential small group institutions manifest in market system behavior is critical. In addition, while regulative variables are considered “faster” (i.e., easier to change), interventions based on “slower” normative or cultural-cognitive variables will be more likely to yield sustainable, self-enforcing changes within the market system. For example, a common situation occurs when the regulative institutions have been reformed to align with large-group principles (e.g. employment equity laws and regulations), yet the normative and cultural-cognitive institutions continue to reflect small-group norms (e.g. discriminatory hiring based on kinship/family ties). In these cases, the informal institutions typically control behavior, leading to a disconnect between law and practice. For example, a Kenyan project used an earlier version of this framework to gain insights into cases where there was a high a prevalence of corruption/elite capture, which is a common manifestation of small group dynamics as normative/cultural-cognitive institutions around communal loyalty often create a ‘greater good’ perception that reinforces such behaviors.
The table below gives high-level insight on the kind of ‘map’ that could be produced for any given market system:
With a greater understanding based on a more nuanced and contextual perspective of local behavioral patterns, practitioners can design program strategies and intervention tactics that are more effective at catalyzing durable change.
As a default, most projects start with a set of assumptions that a society should be moving toward large group dynamics. While there is increasing evidence that such institutional change does result in higher life expectancy, better health and educational outcomes, etc. (i.e., key development objectives), the process of change will be messy, with winners and losers and shifting responsibilities for who manages the downside risk from change. As a recent book on the spectacular development in China lays out, (Ang, Yuen Yuen, How China Escaped the Poverty Trap, September 2016) institutional or systemic change involves co-evolution of institutions and market behaviors. The historical review of 40 years of China’s development reveals a process of smaller emergent ‘viable fit’ changes that catalyze additional nuanced changes that also fit the context. Each smaller change has to deal with systemic pushback as a result of eventual clashes with accepted institutions. Many small changes are reversed or blocked, while others take hold. Over time, this process can result in substantial change, as in China, but it is more meandering. The viability of any particular change is often uncertain at a given point and time.
For systems thinking practitioners, adaptive management has been normalized in the process of probe, sense, and respond. For this process to be effective, it requires some way to parse observable patterns to know where or how to probe, make sense of changing patterns, and respond tactically (including re-allocating resources). Typically, practitioners rely on observable manifestations of regulative, normative, and cultural-cognitive institutions drawn from countries defined as ‘developed’. These manifestations are often framed as best practices or the right way of doing something, but often do not fit ‘developing’ country contexts. Drawing again from the Kenyan case, donor programs have for years predefined that a cooperative organizational structure was the right way to improve cooperation within the dairy market system. When applying this framework, donors should have recognized that small group dynamics were at play. Instead, sustained focus on an organizational structure that reinforces group loyalty at times amplified adversarial relational contexts between farmers and processors as the answer. When an earlier version of the framework was applied, the project shifted away from pushing any specific organizational structure and focused more on amplifying specific behaviors that align with large group dynamics, such as clear performance-based supply chain management tactics that can form the foundation of building a trusted commercial relationship between farmers and processors.
The underlying management philosophy we propose is self-selection, which involves uncovering and directing attention and resources towards attractors. These examples of behavior attract attention and help move other system actors towards what’s new because of interesting and desirable features of the new behavior. This is not about an old, stable company making a dramatic change. Instead, programs should be looking for outliers - an actor or person keen to change (i.e., not vested in the current dynamic).
The idea of an attractor or outlier is that over time, the behavior can become normalized – reinforced by emerging normative institutions. Thus, change is driven by an internal process based on benefits – including social benefits. From this point of view, we understand leverage relative to the potential amplification of the attractiveness of the behavior. This way of thinking can have a substantial effect on tactics, as the idea of locating ‘problems’ and fixing them via training or other direct interventions ceases to make sense. Firms have more leverage than farmers, but the firm itself is not the point – it’s a signaling tool for propagating new norms. The firm’s behaviors signal back into the system that the behaviors are attractive and the source of new normative institutions. Over time, as those norms become more dominant, they may also replace assumptions of ‘how things work’, and become embedded as cultural-cognitive institutions.
Conclusion: Pragmatic questions for testing & call for partnerships
This way of thinking links important strands of systems thinking in development that need further exploration. Important next steps include building out practice guidance to help practitioners understand these strategies and tactical decisions (what to do and why), to move beyond the overly simplistic and inaccurate “direct” versus “indirect” understanding of facilitation. Here are some important questions that merit deeper investigation:
Written by Mike Klassen and Mike Field
This post is the first half of a two-part series. To view the second post, click here.
The field of market systems practice has embraced complexity thinking in recent years. In general, this is a great thing: acknowledgement of complex and multidimensional causes, the internal drivers and momentum of systems (with or without us as development actors), and the unpredictability of response help keep our egos in check. However, while we have embraced complexity, we continue to ignore the important and difficult task of emergent trade-offs that a society has to deal with as it develops. So, while ardent supporters of complexity often say, “it’s better to let the system itself decide,” the decision to intervene in another country is itself a normative act. We need to take ownership of this, and increase our willingness to stake our assumptions around the effects of system change outcomes and whether they are contextually better or worse for a given society. To do this thoughtfully, we need a better framework for evaluating the underlying institutions. When complexity is combined with institutional thinking, the framing can provide greater clarity on system dynamics and how a given change would likely result in some trade-offs, which can then be assessed as better or worse, thus allowing a project to either amplify or dampen signals favoring the change.
For the past six months, a team has mined academic sources to investigate possible frameworks that can help explain the deeper social and cultural norms and institutions that underpin market systems. While that work focuses on inclusive, entrepreneurial market systems in the context of enabling environment reforms, we think it has wide applicability to all market systems programs. This blog post introduces the two big ideas we propose as the basis for an institutional view of market systems: (1) small group vs. large group thinking, and (2) regulative, normative and cultural cognitive institutions. We then sketch out how these could be used by managers making decisions about allocating resources in a market systems program.
Small group vs. Large group
The distinction between small group and large group societies or institutions is best articulated by David Rose:
An important step in the economic development of any society is being able to move from only being able to support personal exchange to being able to support impersonal exchange. A completely small group sense of morality is adequate for personal exchange but becomes increasingly inadequate as exchange and cooperation becomes impersonal because it is conducted in larger group contexts. (Rose, 2011)
Large group societies allow risk management at a societal level, through institutions that evolve to support impersonal exchange and trust in society beyond simply personal relationships. In contrast, small group societies centralize resources and control, and rely on strong family and kinship ties, mitigating risk at the level of the small group. This can be an incredibly important community-level safety net, but it leads to exploitative relationships as it is deemed morally acceptable and even important for members of a community to extract resources from those outside their group in order to support their own. When small group institutions dominate, it is typical that higher-level ideas of merit are devalued, and substantial segments of society are blocked from meaningful participation as power is wielded to the benefit of the smaller group holding power.
Broadly, ‘development’ can be thought of as the trajectory from mostly small group societies to large group societies, however this is not a simple, one-way path. There is no easy transition from a low-income authoritarian government to a society where rule of law is respected and equity is enshrined in cultural and legal norms. The process of change creates winners and losers, and these are important trade-offs we need to reflect on in our work. It’s also important to note that countries can move in either direction - in recent years there is a clear trend toward populism and authoritarianism – most starkly in Hungary and Poland, but also in countries like the US and UK – which can be seen as manifestations of small group thinking.
Ultimately, the small versus large group framing sets up an institutional spectrum that can help program managers make decisions on what evidence to gather and how to allocate development resources when wading into an uncertain environment.
Three types of institutions
Institutions are the ‘rules of the game’ that shape human behavior in conscious and unconscious ways. A common distinction is made between formal institutions (laws, regulations, contracts) and informal institutions (belief systems, social norms). We take that distinction a step further, and draw on the work of sociologist W. R. Scott, who proposed three types of institutions: regulative, normative and cultural cognitive. These flow from the more explicit and formal (regulative institutions) to the more implicit and taken-for granted (cultural cognitive). A helpful analogy is the iceberg model in systems thinking, which elaborates how mental models mold systemic structures that ultimately shape patterns of behavior and events.
The three institutional types each influence behavior in different ways, based on different logics, compliance mechanisms and sources of legitimacy. Regulative institutions explicitly coerce behavior through rules or sanctions enforced externally. Normative institutions encourage behavior by appealing to the need for people to belong by following desirable group norms. Normative institutions also sanction people for not following norms via social mechanisms like shame. Cultural cognitive institutions shape subconscious assumptions, constructing a taken-for-granted view of how the world works that shapes the available choices for action or behavior.
What is most important about this distinction is that the more deeply embedded the institution, the more dominant or controlling its influence on a market system’s behaviors. When all three sets of institutions align, behavior patterns can be deeply entrenched and very difficult to change. When there is conflict or different signals being sent, it is the normative and cultural cognitive institutions that tend to dominate. It is important to note that change can happen even when a behavior is deeply held, but it would likely take longer to change.
Implication for practitioners
Complexity was central in helping practitioners understand and embrace the messiness of systemic change. For example, in Zambia, a project decided that a lead farmer model was the right way to push the project’s ideas on improved farming practices. The project provided that farmer with resources and training that other farmers could not access. While complexity thinking might align with this tactic as a way to catalyze change as it could present an attractive alternative for other farmers, institutional theory clearly would have identified the local normative and cultural-cognitive institutions around communal loyalty that raise the potential for communal backlash. In the end, that farmer’s fields were burnt down by the community as they were perceived as behaving outside of acceptable boundaries as defined by local manifestations of institutions. Additionally, institutional theory helps practitioners better understand their own biases. In the Zambia case, it’s clear that the farmer model is based on long-held North American normative and cultural-cognitive institutions around individualism and individually-driven innovation that often does not translate in other country contexts. By combining complexity to understand the messiness of change, and institutional theory to understand localized and contextualized trade-offs, practitioners can make better and more informed decisions on how best to catalyze an internal change process.
Institutional theory also helps practitioners to understand change at deeper levels. Small group societies are very effective in certain ways that are positive, including deep and wide family/friends/communal networks that absorb shocks and stresses. At the same time, small group societies tend to create high levels of haves and have-nots with internal hierarchies. Similarly, larger group societies rely heavily on more formal mechanisms and innovation to neutralize/mitigate risks, but when those functions perform poorly, family/communal networks are often not strong enough to absorb shocks. This shows how important it is to think through change processes carefully, to avoid the unintended consequence of eroding existing (small-group) risk management mechanisms before new society-wide (large-group) mechanisms are fully developed.
For more on how to apply this framework in practice, see Part 2 of this blog.
Written by Mike Klassen and Mike Field
In the following post, Jessan Catre lays out an important case for housing, and especially housing for lower income populations, as needing to be a central organizing node for recovery efforts. While not explicit in the blog, he also highlights the importance of how relief efforts are organized to make sure they are catalytic and maintain/enhance the diversity of market systems. Often the knee-jerk reaction of recovery efforts are to give things to vulnerable populations, and often do this via large contracts to big firms. Such effort, while unintended, can do substantial damage to systems as they push out SME and informal firms, shifting power to larger firms, as well as redirecting these firms to focus on donor customers. The emergence of providing cash directly into the hands of the vulnerable population has been a welcome mechanism to inject resources that can be more effective at catalyzing greater positive knock effects. As Jessan recommends, recovery should not just be about getting back to where the system was, but taking the opportunity to lay the ground work coming out of a shock like Covid-19 that allows for a quickening pace of positive systemic change.
The COVID-19 pandemic has completely upended the life that Arfel Aljohon, a carpenter, worked so hard to build for his family in the heart of the Philippines.
In late March, all of Cebu island was put under "enhanced community quarantine," an almost total lockdown, including the temporary closure of non-essential shops and businesses. These restrictions, while necessary to minimize spread of the deadly virus, meant the pipeline of work he had lined up came to an abrupt halt, and with it the $8 to $10 he expected to earn daily. One of his daughters was a teacher at a private school, and she also contributed to the family purse. When the school closed, her salary stopped too.
Overnight, Aljohon and his family went from feeling comfortable to wondering how they were going to survive, let alone support their four aging parents and other relatives near their home in Bogo City, Cebu Province. To make matters worse, Aljohon was about to complete repairs on their house but now can’t afford to, so the family feels particularly vulnerable to COVID-19.
Aljohon’s ordeal is tragically common, not only across the Philippines but also in the other middle-income countries where Habitat for Humanity works to improve the resilience and inclusiveness of housing markets and help people gain access to a decent place to call home. So as governments and development organizations around the world consider how to prevent an economic and social catastrophe, it’s extremely important that they understand how local building and local housing markets really work.
Many of the 1.6 billion people who lack adequate housing make do by building and repairing their homes incrementally as family finances allow. Houses built in this way comprise from 20 to 70 percent of housing stock, depending on the country, in the Global South. The informal housing markets that caters to these builders are massive as well.
But shocks to the housing sector produce far-reaching ripple effects, starting with informal businesses like Aljohon’s. They are some of the most vulnerable to the effects of COVID-19. We are already seeing low-income families worldwide postponing construction projects and using the money for even more basic needs, such as food and medicine.
As a result, masons and carpenters stop working. Demand for materials decreases, hitting local building material retailers. Upstream, this affects construction materials manufacturers, with paralyzed supply chains disrupting the flow of raw materials. The disruption spans the entire construction supply chain. With manufacturing halted in many countries, critical building materials are unavailable to households. So even if and when families are ready to improve their homes, they are unable to do so.
Similarly, the financial sector also is in lockdown. Banks are deemed essential businesses but the microfinance institutions that most low-income homebuilders turn to for external funding are not. Without regular repayments, their survival is in jeopardy.
Fortunately, there is an upside to this complicated web of interdependence. A well-functioning housing market can serve as the foundation to the economic recovery needed to create prosperous and resilient societies. Under normal circumstances, the construction sector, of which housing is an important segment, is one of the largest in the global economy, representing $10 trillion in spending annually and employing millions of people such as Aljohon. Many governments, from the Philippines and Peru, realize this. They are already using investments in the construction sector, of which housing is a part of, as a driver for economic recovery from COVID-19.
But the devil is in the details. Incorporating housing into relief packages will mean little if those plans overlook the needs of low-income homebuilders and households. Three actions, in particular, will keep them at the center and truly strengthen the resilience and inclusiveness of housing markets:
First, as governments begin to invest in the housing sector in order to spur economic recovery, they must design bailouts with the informal sector in mind. In addition to working with large or mid-size developers focusing on new construction, they must ensure that funds flow to small-scale developers and businesses or microfinance institutions that can channel capital to people seeking to upgrade or expand existing homes.
Second, it is crucial that aid does not displace local market actors—including construction material companies, hardware stores, training providers, media entities and financial institutions—who will be irreplaceable in providing those services and products into the future. Financial relief should be channeled through these local housing market actors and when possible, through cash-based programming to make their homes safer during the pandemic.
Finally, as governments take steps to designate construction and housing as essential services, we must focus on the safety of the people who will be building back our communities and our economies. Construction laborers need access to personal protective equipment and training in how to use it. They also must be familiar with appropriate physical distancing guidelines and good hygiene habits to keep themselves, their clients and their own families safe.
Taking action now will help ensure the survival and resilience of informal housing markets that are so crucial to economic recovery. More importantly, they can help reverse the fortunes of families such as Aljohon’s who can once again feel secure in their own homes. That will allow them to begin building back their neighborhoods and, along with it, the hope that everyone in their community can house themselves safely, securely and sustainably.
Jessan Catre is the Philippines Country Manager at Habitat for Humanity’s Terwilliger Center for Innovation in Shelter
In the post below, the authors discuss the use of a contest/competition tactic in raising awareness around a specific challenge. The use of contests and/or competitions have been around for a long-time outside development. As a tactic it has shown to be useful at raising awareness and focusing attention on a specific issue, challenge or product. From a market systems perspective, when using such tactics a project should consider a few lessons that have emerged over the years. One important lesson has been that throwing money at a complex development challenge has not been effective. Interestingly, the phrase ‘pay for results’ seems to be a the wrong way to describe the use of competitions. The project seems to be raising the importance/value of certain technologies that for some reason have been undervalued. In this context, the project is not paying for results, but catalyzing local actors to rethink the value proposition of that technology that they can then take forward in pushing adoption as appropriate in their contexts. Another lesson is around sustainability. For a country to continue on a journey to self-reliance, adopting a discrete technology is necessary, but not sufficient. A country has to develop the capacity to effectively identify, prioritize and allocate resources in response to various threats and opportunities. As a result, systems thinkers are keen to understand why such practices and products were not taken up previously, as well as how the system would come up with the next innovation without a donor project. In this context, raising awareness and focusing attention on a specific issue/challenge is an important skill that needs to be resident in a system. Longer term sustainability suggests that a project might want to shift from using such tactics directly to catalyzing local actors including market, civil society, government, etc. actors to learn how to use contests and competitions as a tool to help raise awareness and focus attention on issues they find important.
COVID-19 has dramatically altered the landscape of international development. As the world grapples with how to address this crisis, resource shortages hamper many potential responses. These gaps can shift national priorities, altering the trajectory of the development sector along the way. Host governments, development donors, the private sector, and everyday citizens are all struggling to balance the immediate need to quell the spread of disease with long-term development goals. Given this lens, the development community must adopt innovative approaches to sustain pre-COVID efforts. Now more than ever, it is crucial to leverage private sector investment to complement public resources.
Using Pay-for-Results Competitions to Strengthen Resilience
With an emphasis on engaging the private sector, motivating innovative solutions, and strengthening linkages between market actors, Pay-for-Results (PfR) mechanisms can be a powerful tool in the coming months and years as the development sector moves forward in the wake of COVID-19. PfR approaches, such as AgResults’ prize competition model, help build resilience because they tackle problems with contextualized solutions and encourage local actors to develop linkages with others along the value chain. Rather than providing funding up front, PfR prize competitions incentivize private sector actors to develop and deliver solutions to market challenges that disproportionately affect vulnerable populations such as smallholder farmers. As they achieve prescribed criteria, these “competitors” receive prize payments. The result is economically driven changes in behavior that provide vulnerable populations with access to resources that they could not previously afford.
Although PfR prize competitions do not work directly with vulnerable populations, they engage the private sector to interact with these groups to drive long-term shifts in behaviors. During crises, vulnerable populations are often the hardest hit, and it often takes the longest time for them to fully recover. By encouraging solutions that increase farmers’ access to new markets and strengthening relationships along the value chain, prize competitions can strengthen resilience – an important outcome during a crisis like COVID-19 and in the long run. In this way, prize competitions have the potential for critical short-term and long-term development impact.
Encouraging Sustainable Value Chain Linkages in Kenya
AgResults’ successful work in Kenya to drive smallholder farmers’ uptake of on-farm storage technologies shows how an approach that engages the private sector can effectively address a market failure and encourage resilient linkages. The competition, which incentivized companies to develop, market, and sell on-farm storage devices to smallholder farmers, had significant economic and food security benefits: More than 300,000 farmers benefited through sales of 1,390,777 devices that created 413,265 MT of improved storage capacity. Looking through a lens of market systems development, the competition encouraged private sector actors to invest in new relationships with vulnerable populations, strengthening the overall market. The stakeholders who participate in these value chains are now better positioned to deal with future food security threats or other crises in coming years. (AgResults plans to examine the long-term sustainability of this competition through its External Evaluator in the future.)
Boosting Farmers’ Ability to Respond to Economic Shocks in Vietnam
In Vietnam, AgResults’ aim to reduce greenhouse gas (GHG) emissions by incentivizing improved cultivation practices in rice production is strengthening the value chain and farmers’ resilience to economic shocks. The competition incentivizes grain traders, seed producers, and input suppliers to implement innovative agronomic practices, such as advanced irrigation techniques, with specialized inputs to increase productivity while lowering GHG emissions. Initial results from the first two growing seasons have been scaled up in Seasons 3 and 4 to reach over 20,000 smallholder farmers. Broadly, the competition is cultivating new linkages between the private sector and smallholder farmers, changing long-term behaviors so these populations can better respond to climate change and other threats.
COVID-19 has rattled the entire global system, with economic impacts cascading into developing markets and hitting vulnerable populations especially hard. When designed to intervene in the right contexts, PfR prize competitions can effectively target market failures and motivate new types of relationships that strengthen the whole system. As the development sector reflects on its new role in the wake of the COVID-19 pandemic, exploring newer development financing approaches such as Pay-for-Results may carve out opportunities that drive both immediate response and longer-term resilience.
Rodrigo Ortiz is the lead consultant for the AgResults program. He has worked in 86 countries and draws upon over 30 years of development experience.
In the post below, Bidowra and Mark provide an interesting example of how to support a single firm as they adapt and grow their online delivery business model. The case raises important and often ignored elements of good systems thinking, including systemic resilience. It highlights important insights and guidance on how to engage with a firm, which is certainly necessary, but not sufficient. Good systems thinking needs to also include how an initial interaction with a firm catalyzes other firms to see such behaviors as attractive, as well as how the system becomes more diverse. While Chaldal is demonstrating good behaviors, systemically, the online delivery market segment can only adapt and grow over time if it includes a diverse set of lead firms that invest in developing competing supply chains. Additionally, from a systemic resilience stand point, there would be concern from focusing too much on a single lead firm to gain scale as that would likely increase fragility, as structures that rely on a single node can easily fail if that node/firm stumbles. A real challenge when applying systems thinking is the importance of maintaining multiple perspectives using different analytical lenses so the project can catalyze ongoing improvements in and alignment of the competitiveness, inclusiveness and resilience of the market system.
Based in Dhaka, a densely populated city of nearly 22 million, Chaldal is the largest online platform for grocery delivery in Bangladesh, capturing roughly 80 percent of the country’s market shares of online grocery and retail sales. When the COVID-19 crisis hit Dhaka in March, more households relied on grocery delivery services to social distance and prevent the spread of the virus. Chaldal’s average deliveries rose from 3,000 to 15,000 per day.
This growth opportunity also presented a dilemma. While the company already sourced rice and grain products from wholesale markets, the fivefold increase in demand for their products from urban customers meant they needed to significantly grow their supply without sacrificing quality. They did this by sourcing aromatic rice, pulses, and oilseeds from aggregators who procure from farmers supported by Feed the Future. New warehouses, an expanded workforce, and additional motorcycles for deliveries boosted their operational capacity, but this alone wasn’t enough.
Technical support from the Feed the Future Bangladesh Rice and Diversified Crops (RDC) Activity aided Chaldal in developing a more agile supply chain and new products. Recognizing the market opportunity, Chaldal developed a “know your rice” campaign to highlight the benefits of locally produced premium rice varieties. The campaign allowed Chaldal to market its products sourced from rural Feed the Future areas to urban areas. It also allowed Chaldal to expand its supply chain portfolio, ensuring food availability for the urban poor, with a focus on marketing nutritional products, such as zinc rice, to women and children. Existing customer databases allowed the company to target these market segments with promotional campaigns through bundling fast-moving consumer goods and promotional packets of nutritional products.
The RDC Activity, which is funded by USAID and implemented by ACDI/VOCA, helped the company fast-track their hiring process using virtual trainings for new delivery employees. The RDC Activity also helped Chaldal develop a network of procurement agents and millers, set up stricter hygiene protocols, supply employees with face masks and soap, and impose regular cleanings of its vegetable sourcing, processing, and packaging facility. As a result, Chaldal is on track to meet delivery demands. The company plans to use this supply chain infrastructure to create trade efficiencies and expand its sale of fresh vegetables and perishables. Although Chaldal had the resources to make this transition on its own, the RDC Activity’s support redirected the management of these resources and made them a priority for the business to adapt and respond to COVID-19.
The successful shift in business operations shined a light on how global development entities should engage with the private sector. To increase the agility of enterprises to adapt to market shocks, development organizations must understand the context of the problem, co-create a solution with the company, adapt to rapid changes, and use data to inform responses for both the donor and the enterprise.
Adjusting how we think about partnerships requires major behavioral shifts and acceptance of that fact that there will be failures. In 2019, USAID launched a policy that began the process of institutionalizing private sector engagement as a core part of its operating model. ACDI/VOCA’s own private sector engagement approach explores how to incentivize the right enterprises in the right ways to weather a storm — not only for their own gain, but also to strengthen the broader market systems.
Understanding the Problem
Understanding how and why businesses behave the way they do is the first step toward engaging the right partners to strengthen local economies and contribute to development objectives. It is an approach that begins with analyzing the market to discover the root causes of poorly performing sectors. Better understanding can come through identifying business and decision-making norms, highlighting gaps in financing, defining problems or opportunities rooted in gender and social inequalities, or gauging openness to inclusive business methods.
The RDC Activity drew upon its previous Chaldal partnership, which focused on marketing, as well as its COVID-19 analysis to identify ways in which the company was already resilient and to determine the new challenges it faced. This created an opportunity to develop a mutually beneficial partnership focusing on expanding opportunities targeting the urban poor with nutritional products. Through this process, the RDC Activity also helped Chaldal identify promotional campaigns at schools where mothers pick up their children. This proved to be a very effective channel for push marketing.
Co-Creating the Solution with the Private Sector
When a development organization approaches a company with a predetermined plan for how to partner, the company can only accept or reject it. By shifting the conversation to say “Here is what we are seeing on the ground. What are you seeing?” we open up the terms of engagement and increase the likelihood of partnership. Through this process, there is an opportunity to collaborate and co-create with the private sector.
The RDC Activity started working with Chaldal in 2019 to promote fine and aromatic rice varieties through innovative marketing. This involved facilitating meetings to introduce Chaldal to millers and procurers of rice. Based on this previous experience, it was clear to Chaldal that the opportunity to source its products from the Feed the Future zone would add value to their market in Dhaka. The RDC Activity brainstormed with Chaldal’s CEO on how to respond to the increasing demand, while also meeting the mandatory safety protocols of warehouse and delivery systems. Based on this discussion, Chaldal co-created the proposal with technical assistance from the RDC Activity.
Responding to Rapid Changes through Adaptive Management
Investing time, energy, and trust-building resources into partnerships with the private sector allows for more flexibility when changing circumstances, such as COVID-19, disrupt supply chains and business models.
Since the COVID-19 crisis began, ACDI/VOCA programs around the world have been helping enterprises pivot through adaptive management. As was the case in Bangladesh, sometimes that means lowering the barriers and simplifying the process for engaging with enterprises to become more agile.
In an article published by USAID, Anar Khalil, the RDC Activity’s agreement officer’s representative at USAID’s Bangladesh Mission said, “We looked at past programs and realized that the traditional design process — from the moment we put together a concept idea to procurement — takes 18 months to two years. So, by the time the project is awarded, these ideas are old.”
For the RDC Activity, adaptive management meant quickly moving forward with applications that had the most potential to create both immediate and long-term solutions resulting in more resilient systems that are better equipped to cope with shocks. This flexible approach allowed Chaldal to address self-recognized pain points and make a quick pivot to its business model. It also allowed the company to expand its capacity to increase sourcing and offer farmers market opportunities in the middle of unprecedented shocks in demand for their products. The RDC Activity’s streamlined grants process identified key evaluation criteria and removed barriers to participation. Recognizing the urgency of addressing COVID-19 constraints, USAID waived its one-to-one fund matching requirement for sub-grants related to COVID-19 responses. This allowed the RDC Activity to pivot its approach and turn applications around much faster. The RDC Activity co-created their final agreement with Chaldal to ensure any proposed solutions were realistic and could address the challenges the company faced.
Measuring and Learning from Results
Data informs both companies and programmatic decision making. Based on their learning from annual performance surveys and rapid situational analysis, the RDC Activity was able to better understand which business models and interventions could lead to systemic changes in the agriculture market system. This informed how the RDC Activity worked with Chaldal, especially supporting the company’s ability to decide where to expand and to focus on the investments needed to meet demand. Mutually beneficial data increased the capacity of Chaldal to identify, prioritize, and allocate resources more broadly into their supply chain operations.
Agile Responses Lead to Systemic Change
ACDI/VOCA’s portfolio approach to private sector engagement recognizes the needs to shift thinking beyond firm-level investments and, instead, to look at the broader group of firms supported and their contribution to a stronger system. The RDC Activity’s systems approach is predicated on collaboration within the market system through facilitating connections between enterprises and creating incentives for multiple firms addressing a common challenge. Its partnerships are also linked to the activity’s systemic change objectives.
This has resulted in a stronger supply chain and distribution model that is improving the competitiveness and resilience of the agricultural market system. For example, the RDC Activity facilitated connections between agriculture mechanization providers and rice companies to develop branded “franchise service operators” who provide services to thousands of farmers in their network. That led to continuous maintenance support, established farmer databases, and scheduling and training programs for equipment operators with new companies entering the market.
Chaldal’s aggregators target these farmers as part of their increased sourcing from the Feed the Future zone. The company intends to increase rice procurement from rice mills that are dependent on a pool of farmers, including female farmers, who produce single variety rice. This will happen once they establish quality and pricing standards and develop partnerships with regional seed input providers.
The RDC Activity is making the inclusive business case for Chaldal to invest in women both as producers and consumers. To date, the RDC Activity has invested in 37 enterprises with 54 unique interventions, resulting in $3,182,462 in sales and procurement to 344,654 farmers who have accessed improved services.
From the private sector perspective, having the ability to adapt and innovate during challenging times leads to more inclusive, sustainable, and agile responses.
“When the COVID-19 crisis hit, we were flooded with orders,” Chaldal CEO Waseem Alim said in an interview. “USAID and RDC came in with COVID-19 emergency support, which was used to help adapt and expand our business operations while ensuring continued safety of our employees.”
Adaptive approaches lead to increased sales and a strengthened ability of firms and the broader system to not only increase food security but also respond to future crises. The result is more sustainable and scalable opportunities benefitting farmers.
Bidowra Khan, Market Systems and Social Inclusion Specialist for the Feed the Future Bangladesh Rice and Diversified Crops Activity
Mark Sevier, Technical Director of Market Systems and Partnerships for ACDI/VOCA
The MSDHub Blog Series is authored by respected implementers and donors of market systems projects globally.