Snapshots: market system programmes in action · Since July 2015, I have been working with BEAM...

Snapshots: market system programmes in action

BEAM Exchange, 2015

Programme Snapshots, BEAM Exchange | 2

Contents Introduction 3

ABIF: Providing the right prescription for Afghanistan's pharmacies 5

Alliances: Building supply chains for vet drugs in rural Georgia 7

CrossRoads Uganda: On the road to better construction 9

ÉLAN RDC: Changing course ‒ improving coordination in river transport 11

GEMS1: Superb solution to meat demand 13

GOAL Uganda: Digging deep to keep water flowing 15

Horti-Sempre: Better seeds, better crops 17

KMAP: Milking profits for Kenya's dairy farmers 19

Hub 387: Rewiring cooperation in Bosnia's IT sector 21

M4C: Gaining traction in Bangladesh's chars 23

MDF: Overcoming soil acidity in Fiji 25

PRIME Ethiopia: Feeding more mouths than one with animal fodder 27

PSP4H: What the doctor ordered: promoting consultations in health clinics 29

SDA: Spare parts the missing link in Armenian agricultural chain 31


Introduction

How to boil market systems down to their essence without diluting them

If I had a dollar for every time I had to explain what I meant by 'market facilitation' or 'market systems' I could set up my own donor agency.

It takes time and effort to spread new practices from the early adopters to the majority. You want the approach (in this case market systems) to be clear, coherent and differentiated from the status quo, which requires excellent communication and storytelling.

Since July 2015, I have been working with BEAM Exchange to develop short, jargon-free snapshots of what market systems approaches look like in practice. The purpose is to reach development practitioners who are not familiar with market systems approaches to make the approaches more intuitive and accessible.

Each snapshot starts with context and programme goals then pinpoints the key market failures before moving to a vision of a sustainable set of outcomes. Next they trace the process of partner selection and intervention development, including learning and adaptation. The snapshots close with a summary of the changes observed to date.

To keep the snapshots short, they each focus on a single intervention. This was a conscious decision to value clarity and focus over articulating the multiple parallel interventions that are crucial to programme strategy.

Interesting patterns

This work as a whole should not be mistaken as research. Participating programmes put forward suggested mini case studies based on their own interest and motivation. Our primary goal was to capture and clarify interesting examples rather than create a representative sample to analyse and draw conclusions from. However, my inner engineer and researcher would kick myself if I didn't highlight some of the patterns (however statistically insignificant) in the set of snapshots.

1. Sectors

Of the three main sectors represented ‒ agriculture, infrastructure and health ‒ agriculture is by far the most common sector, which is no surprise given the historical roots of M4P programmes and agriculture's importance to so many of the world’s rural poor. Programmes ranged from MDF's work on agricultural lime production (Fiji) to the work on animal fodder supply by KMAP (Kenya), PRIME (Ethiopia) and GEMS1 (Nigeria).

The next most common sector is infrastructure and transportation. This includes specialised vehicle design in Bangladesh (M4C), coordination of river transportation in DRC (ELAN RDC), and financing road construction in Uganda (CrossRoads).

The third sector that shows up multiple ties is health, with a focus on quality products and information in retail pharmacies and clinics by ABIF (Afghanistan) and PSP4H (Kenya).

Other sectors include GOAL‘s work on water borehole maintenance service (basic services) in Uganda and MarketMakers’ work with the IT/software sector (professional services) in Bosnia.


2. Market failures

Each snapshot goes beyond surface level symptoms to articulate one or two market failures, borrowing the technical language from economists. Information asymmetry is prevalent in more than half of the cases, and equally affected agriculture and non-agriculture programmes. This failure showed up on both supply and demand sides of markets: buyers lacked access to information about what products/services were available, and suppliers lacked information about the level of demand, especially among the poor.

The other common market failure is poor coordination. Different actors in a market system often act within a narrow definition of self-interest and miss opportunities to partner to produce better outcomes for both sides of a deal (and ultimately for the poor).

Taken together, these two market failures present development practitioners with a very different problem statement than the typical, symptomatic focus on beneficiary poverty and its negative effects. They cause us to ask questions about why information isn't flowing, and why market actors are failing to coordinate, which can lead to a different set of interventions than simply providing information or training.

3. Partner selection (function within market system)

Retailers selling pharmaceuticals (ABIF and PSP4H), veterinary drugs (Alliances), tractor parts (SDA) or vegetable seeds (Horti-Sempre) were the most common type of market actors that programmes worked with. This is an important pattern, as retailers often can be a leverage point for changing the way information flows to consumers and how that influences consumer behaviour. This is a departure from traditional notions of solving capacity (or information flow) problems by directly filling the gap and providing information and training.

Manufacturers are another common actor type, whether they make pharmaceuticals, vehicles, agricultural lime and animal fodder. Manufacturers have even greater incentives than retailers for building a trusted brand with their customer base. Other partners include banks who finance local construction companies (CrossRoads), associations of river traders (ELAN RDC) and networks/hubs of software companies (MarketMakers).

Next steps

Now that 14 of these snapshots are published, it seems apt to look at where and how we can best use these new resources.

Read the snapshots and familiarise yourself. If you are new to market systems approaches, then use the specific examples as starting points for situating the great resources on strategy and tactics in real world examples. If you are a veteran, then look for channels to share these snapshots with new audiences. Hopefully this can deepen your war chest of anecdotes that you draw from when explaining market systems to others.

Build some open-source experiential learning workshops based on the snapshots to better illustrate what it means to take a systems approach in some sort of simulated fashion. Use the snapshots to introduce market systems to a wider range of staff beyond those who work explicitly on markets and economic development.

Write your own snapshot. We want to hear about your programme and how it has adopted market systems approaches. Email BEAM for more information

Mike Klassen, December 2015

https://beamexchange.org/about-beam/contact-us/


ABIF: Providing the right prescription for

Afghanistan's pharmacies

Afghanistan's pharmaceutical sector is hampered by archaic regulations, widespread corruption and high levels of counterfeit drugs. At best, many of these illegally imported drugs are ineffective, and at worst they can be fatal. Low-income consumers are particularly affected because they receive the lowest value for money for the highest proportion of their income spent on medicine. By investing in a pharmacy chain that builds trust through quality assured medicine, ABIF is disrupting this system. The business has recently received investment from a UK private equity firm, a clear validation of ABIF's approach.

The challenge

Poor people in Afghanistan suffer some of the worst health problems in the world, a situation made worse given that over half all available medicines are counterfeit. At best, these illegally imported drugs are ineffective. At worst they can be fatal.

The Afghanistan Business Innovation Fund (ABIF) is a DFID and Australian DFAT challenge fund launched in 2012 applying a market development approach across multiple sectors including healthcare. ABIF's analysis of the pharmacy retail sector found two related market failures: poor information flows between retailers and consumers; and a lack of effective regulatory control. Furthermore, regulations were holding back the development of pharmacy chains and restricting competition by requiring a fixed distance between shops.

ABIF was designed to stimulate private sector investment by helping innovative business ideas overcome the high investment risk in Afghanistan. The risks are so high that many businesses which would be viable in any other part of the world cannot generate returns to justify the up-front finance required.

Towards a new model of pharmacy

ABIF's vision was a functioning market where healthcare providers compete for customers based on trust. ABIF's rationale for investing in new business models is that they will be adopted by other companies in the sector. Long term, this would ultimately be reinforced by government policies that would tackle the corrupt importation of counterfeit drugs and enable branded retail chains to thrive. Ultimately poor people would benefit from improved access to lower-cost, quality assured products.

Building trust among consumers

After asking for concept notes, ABIF came across Al Hadi Ltd., a pharmaceutical company looking to build a chain of trusted retail pharmacies. Al Hadi’s business model directly addressed the lack of access to genuine and affordable medicines that ABIF had identified. During discussions, ABIF proposed using mobile technology to let customers verify the quality of drugs. This innovation had already been proven by GSK in Nigeria to overcome the challenge of counterfeit drugs. Al Hadi ran with the idea, and is piloting a similar approach with 786 pharmacies.

As a challenge fund, ABIF was set-up to make viable commercial investments using a minimum amount of public grant money. Figuring out that optimal amount required detailed calculations of the rate of return for 786's business plan. This was then compared to the expected rate of return for investors in Afghanistan, which ABIF calculated to be 25 per cent.

In March 2013, ABIF signed a grant agreement to support Al-Hadi’s investment in the 786 Pharmacies project. The money was disbursed at specific milestones, to make sure that the company and the fund were sharing risk at each step of the process. The final 20 per cent of


the grant was only released once 786 had established an agreed number of new pharmacies and reached a target number of poor customers.

Serving over 220,000 customers

Al-Hadi has opened eight 786 pharmacies in Kabul city since March 2013, and has so far served over 220,000 customers. In the past few months and after extensive due diligence, 786 Pharmacies received growth stage investment from a UK private equity firm. This was a clear endorsement of the underlying business strategy and its commercial potential. Attracting external equity finance is a major achievement for any business in Afghanistan, given the particular set of investment challenges in the country. 786's visible commercial success has been a major early milestone in getting other companies to copy its business model. One aspect is that is already showing promise is its extended opening hours, which other pharmacies have been forced to copy. Additionally, the company is beginning to hire female pharmacists to provide better service to its female customer base. These are small, but important indicators that 786 is driving change within the sector.

One of Al Hadi’s strengths is its owner’s commitment to overcoming archaic regulations while still complying with local laws. He has found clever workarounds, such as registering different outlets in the names of family members to overcome the rule that each person can only own a single pharmacy.

In addition to this, Al Hadi is lobbying for a change to pharmacy regulations in Afghanistan that prevent inclusive growth. They have submitted a concept note to the Ministry of Public Health illustrating how modernising regulations would benefit Afghanistan’s poor though improved access to quality healthcare services, job creation and general professionalism in the pharmacy sector, all while generating tax revenue for the government. Through these efforts, 786 Pharmacies is slowly making a lasting positive impact on Afghanistan’s healthcare services sector.


Alliances: Building supply chains for vet drugs

in rural Georgia

Rural farmers can only grow their income when they have access to the drugs and veterinary services to keep their animals healthy and growing too. Alliances has partnered with a national veterinary inputs supply company to improve access to drugs, information and vet services for poor farmers in rural Georgia. There are strong signs competitors are seeking to replicate the model, which is also scaling up nationally and in neighbouring countries.

The challenge

Over 2 million people in rural Georgia rely on subsistence farming, typically owning less than one hectare of land. SDC has been funding a series of programmes in Southern Georgia since 2008 to improve the livelihoods of livestock farmers.

During initial surveys, Alliances learned that less than 10 per cent of farmers were accessing veterinary drugs or services in their community, in rural vet pharmacies mainly self-stocked from trips to Tbilisi. Others bought drugs when travelling to the capital. In the rural vet pharmacies a limited range of often improperly stored drugs were sold at high prices due to the resultant transaction costs. Local advice was minimal, unavailable or out of date. This had led to a lack of farmer trust in local veterinary products and services and unwillingness to invest.

Suppliers had failed to grasp the market potential of developing rural distribution, lacking both the information and capital to do so. The uncertainty about whether farmers would buy their products meant the perceived risk held suppliers back from making the first move.

Delivering drugs and services to rural farmers

Alliances’ vision was for farmers to have access to a broad range of quality medicines at a competitive price with advice to go with it. The means to achieve this was for drug manufacturers to invest in improved distribution systems to pharmacies in towns and villages. This included setting up new village-based pharmacies and providing additional training for pharmacists so they could deal with common livestock illnesses and diseases, local veterinarians and farmers to develop the market. This improvement in access and service quality would improve productivity for farmers, increase sales for drug companies, and enable them to self-finance further growth and expansion.

Intervention development and learning

Alliances decided to partner with Roki Ltd. because it was working with more pharmacies than other manufacturers, Roki was also investing in local production of generic medicines of its own, producing 40 per cent of their medicines within Georgia, and provided some limited trainings for vets, pharmacists and farmers. Roki’s vision was aligned with Alliances: it felt that its future development depended on improved management of its distribution systems, customer relations and pharmacist capacity.

Most importantly, however, they were the right people. The chemistry was right, ideas flowed, and they had a strong social ethos towards farmers which aligned with the programme.


Alliances were able to use its market research to demonstrate a large market for drugs amongst farmers in rural regions. The Alliances co-investment equipped the vet pharmacies whilst the company invested in drug distribution. Specifically Roki supported high potential pharmacies with wholesale rates for drugs, advertising for vet products an expanded set of trainings and a hotline service for vets and pharmacists.

Women’s economic empowerment was core to programme strategy, with gender disaggregated research data and training and advertising designed to reach women, however early results showed that the majority of the customers reached by these pharmacies were male. To respond, Alliances worked with Roki to create a new model of satellite veterinary pharmacies. These were closer to villages and accessible by women who rarely travel to town centres.

Drugs and services for 70,000 farmers

With support from Alliances, Roki has facilitated the opening of 44 new pharmacies, leading to increased access to veterinary drugs and services for over 70,000 farmers. Roki has expanded the model to include 284 further veterinary pharmacies in other parts of Georgia, and 11 other vet pharmacies have copied the model, resulting in over 250,000 Georgian farmers having access to veterinary services.

In Georgia, a key competitor in the supply of vet drugs is starting to replicate the business model, by importing identical medicines, creating an identical distribution chain and offering training to its pharmacies. In Azerbaijan Roki has partnered with Real Vet a company with outreach to 350 vet pharmacies. Drugs are being exported to Armenia and Turkmenistan. Roki now produces 70 per cent of its own medicines at its now HACCP and ISO compliant factory in Tbilisi and has become a founder member and advocate in industry related fora in an increasingly burgeoning sector.


CrossRoads Uganda: On the road to better

construction

Ninety per cent of imports and exports travel by road in Uganda. However, the quality of these roads is often poor. Narrow roads with numerous potholes are dangerous for passengers and slow down the flow of critical products. Behind this visible challenge is a road construction industry beset with many issues, not least a loop of poor reputation and low trust. The CrossRoads programme aims to build trust between local construction firms and banks so that government expenditure on roads is more effective.

Foreign companies taking lion's share

Roads play a key role in connecting urban and rural communities in Uganda where 90 per cent of imports and exports travel by road. The government plays a significant role in this sector, financing the construction and maintenance of all major road contracts, many of which are currently won by foreign companies.

In 2011, CrossRoads' analysis showed that access to finance played a crucial role in how the roads construction industry was structured. Cash outlays were needed to bid for jobs and to meet early working capital requirements before payment was received. However, banks believed Ugandan contractors would misuse funds. They built this risk into the price of their loans, charging very high interest rates. They also required contractors to commit property or money that they would forfeit if they failed to repay their loans.

These requirements largely restricted Ugandan contractors to only bid for one project at a time, often losing out to foreign companies. On top of that, local firms’ inability to bid on multiple contracts restricted competition. The industry was trapped in a loop of poor reputation, low trust, low quality and poor performance. Economists would label the market failures as unequal access to information (banks lacking information on trustworthiness of local contractors) and high costs of establishing agreements (collateral requirements). In order to break this cycle, CrossRoads needed to find a way to improve the reputation of local firms.

Rebuilding trust

CrossRoads sought to rebuild trust between banks and Ugandan road contractors without funding new projects itself. The programme designed an innovative financing model, called the Construction Guarantee Fund (CGF). The fund was launched in January 2012 to show banks that contractors were less risky than they believed.

Guarantee fund

The CGF has an endowment of £2 million, which is used to guarantee half of the losses to banks in the event local contractors fail to deliver and the guarantee is called by the employer.

The fund is managed by aBi Finance, a Ugandan business with strong expertise in agribusiness finance. Banks are required to cover 50 per cent of the losses in the case of a failed contract. This puts pressure on banks to thoroughly assess each applicant.

Programme Snapshots, BEAM Exchange |

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Local contractors have to meet criteria that include past performance and credit worthiness. They also have to provide 50 per cent collateral (cash or real estate) which they lose to banks if they fail to meet their contractual obligations.

During the first year, five local banks joined the CGF and provided bonds to more than 20 local road construction companies. As more local firms started to experience the benefits of being able to bid on contracts, they put pressure on other banks to join the fund, threatening to close their accounts unless they did. This market response was a spontaneous and unplanned development on the part of the local contractors.

Financial firms crowd in

As of September 2015, 14 financial institutions had joined the CGF. More than 1,400 guarantees had been provided to local contractors, valued at roughly £10 million. Not every guarantee led to contractors winning a contract, but more participation in bidding raised competition. To date, at least 15 local contractors have won bids that guarantee them work for the next three years. Crucially, not a single default has been reported, indicating that banks were judging local contractors too harshly.

The CGF has proved its value by building mutual trust and confidence between banks and local contractors. Looking to the future, the government is planning to replicate the fund in the soon to be created Uganda Construction Industry Commission (UCICO). The proposed fund will improve access to finance for all contractors in Uganda. Over time, as banks start to fundamentally re-evaluate the risk of local contractors, the CGF may become unnecessary. Of course there are risks of having the fund managed by government sponsored institution. UCICO will need to develop its capacity to manage the fund, as it will be under very different pressures than aBi Finance.


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ÉLAN RDC: Changing course ‒ improving

coordination in river transport

Farmers in rural Democratic Republic of Congo face an uphill task when it comes to getting goods to markets in the capital city. ÉLAN RDC is developing trust and coordination between traders and river transport outfits to make this process more efficient. By encouraging traders to relay information about how much produce is ready to be shipped, boats can be dispatched sooner and have sufficient space for all goods.

Lacking coordination

Millions of small scale farmers rely on the Congo River as their principal route to market. Farmers cycle up to 60km to sell to traders at the river's edge. From there, traders often wait long periods for boats to come, and then have to pay high prices for the trip to Kinshasa. In all, transport makes up one third of the final price of food.

Launched in 2014, ÉLAN RDC is a five year DFID-funded project working in river transport and other markets to support people with low-incomes. ÉLAN RDC found that a lack of coordination between traders and boat owners was affecting the market for river transport. Because farmers sell to a fragmented network of small and medium traders, operators of larger boats, lack information on how much produce traders are holding. As a result, there is often a shortage of boats, especially in more remote areas. In Basanankusu, where ÉLAN RDC is working, only eight boats come to collect produce in an entire year.

As the time lapse between boats increases, so does the risk of rot. Consequently, traders take on significant risk, which they factor in to the low prices they pay farmers.

Due to the large number of traders operating at small volumes, no individual has a strong enough incentive to invest in better information systems. Economists would call this type of market failure a coordination failure.

Information is the key

ÉLAN RDC’s vision was for better information flows and planning, with more timely access to information about where and how much produce was located. It believed this would increase boat frequency, shrink times to market and lower transaction costs. It also saw forward purchase agreements as a significant benefit to both traders and transporters, with shared targets to work towards, both in terms of volumes and timing. Over the longer term, traders would gain confidence in more regular transport and buy more produce, leading to higher farmer incomes.

A new type of contract

To achieve this ambitious vision of change, ÉLAN RDC looked for a combination of traders and transporters who saw a mutual benefit from increasing coordination. ÉLAN RDC found an association of traders in Basankusu called ACOBA, whose members were willing to share information on the type and quantity of produce they had purchased. This information was relayed via mobile phone to a trusted focal point person within the association, who


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calculated and relayed the aggregate figure to a network of river transport operators to agree the date, time and volume for pick up.

A pilot was designed to see how this forward contract would influence both trader behaviour (how much would they purchase?) and boat owner attitudes (would they show up on time with adequate space?). It was also set up to generate valuable data that could be used to persuade others to adopt the new model.

ÉLAN RDC and the association of traders also shared the cost of building small warehouses to store produce from different traders. The warehouses were strategically located close to both the port and local roads used by traders. This enabled farmers to further save money by selling to motorised traders rather than paying the high costs of bicycle transport. Traders in turn would spend less time waiting for boats to fill up and reduce losses by using better quality storage.

Cutting costs by 20 per cent

The initial test proved successful, with 450 tonnes of farmer produce sold and transported in the first year of the pilot. The produce was transported by a single transporter, MB MOISE, which transported over three times the amount of maize compared to the previous year. The benefits were a faster boat rotation and significantly reduced fuel consumption. All of this added up to a 20 per cent reduction in transport costs for traders. There is now a high demand from traders to be a part of the system, with projections for a doubling of volumes in Basankusu.

ÉLAN RDC is replicating the model in nearby Bikoro as well and encouraging other businesses to crowd in and copy the model. Video was used to disseminate the profitability of the new model to attract interest from other firms.


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GEMS1: Superb solution to meat demand

In Nigeria, the DFID-funded GEMS1 programme has facilitated a highly successful business model for smallholder farmers who own sheep and goats. Known as ‘Feed Finishing,’ it is a set of practices such as feed complement, adding roughage (e.g. shredded crop waste, nutritional grasses), de-worming and providing adequate supplies of water and training that support households to increase the productivity of their herds. Over five years, the model has reached over 220,000 people and generated an additional income of over £14 million for poor farmers.

High growth potential focus

GEMS1 was a five-year DFID funded project which aimed to improve the incomes of the poor and disadvantaged farmers by facilitating long term changes in the local meat and leather markets.

GEMS1’s initial analysis found that small livestock owners lacked the strategic skills to expand their output to meet demand. While population growth had the effect of increasing livestock prices, it also decreased the land available for grazing. To secure sustainable income growth, livestock owners needed to increase herd productivity without adding more animals.

The programme discovered the causes of low productivity among livestock farmers in Nigeria included:

Poor animal health, variable nutrition and low quality slaughter practices

Farmers saw cattle as a store of wealth and were unwilling to invest in quality feed or veterinary services ahead of slaughter, so received lower prices due to lower weights.

This lack of investment by farmers meant that animal feed suppliers were not manufacturing and marketing products for sheep and goats, in contrast to the poultry market, for example, where farmers were paying for high quality feed.

Owners of small livestock have relatively low income, are risk-averse and geographically spread making distribution expensive. In economists' terms, this was an incomplete market.

This cycle of unavailable feed, weak veterinary services, and underinvestment by farmers resulted in poor quality meat production and low profitability.

Changing animal husbandry

GEMS1 saw that if small livestock farmers changed their animal husbandry practices, and started paying for feed concentrate and the services of paravets, then they could increase their returns. Using a combination of practices known as Feed Finishing, farmers could achieve slaughter weight in a third of the time required for an animal that was simply range fed. Reducing the age of the livestock at slaughter without reducing the carcass size would also make a significant contribution to improving herd productivity.


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Feed finishing

In 2011, GEMS1 launched a pilot designed to take advantage of the opportunity that livestock owners traditionally fattened and sold livestock to sell at Eid-al-Adha, known locally as Sallah, where animals are slaughtered as a sacrifice.

At the time, there was no manufacturer making small ruminant feed, so the programme partnered with feed supply company Superb Feeds to develop an appropriate product for small scale livestock herders. Initially, they had no-one who could train local farmers and so a local consultant with relevant experience was recruited to assist. Once trained, farmers began to see the benefits of buying the new feed, which produced fatter animals, leading to higher profits.

GEMS1 also realised the vital role that assistant veterinarians (paravets) could play in mobilising and training communities, eliminating parasites and administrating vaccines. Paravets also helped livestock owners understand their feed investment by measuring and weighing animals over time. This critically reinforced the economic benefits of feed finishing.

Within a short time, feed finishing was spreading within communities based on word of mouth recommendations from friends, neighbours and families. The most interesting aspect of the current expansion of Feed Finishing has been the extent of the copying in the data collected, which is a clear indication of the sustainability of this intervention.

By 2013, the programme had successfully transitioned away from hiring consultants to train farmers towards brokering business relationships and expanding to additional states in Northern Nigeria. Many paravets act as sales agents for feed companies and earn health monthly sales commissions. Feed Finishing is driving income for paravets through induction activities and provides an incentive for them to provide accurate and timely advice.

The feed market responds to change

Other feed manufacturers are now crowding in and adopting the same business model without any support from GEMS1. Starting with Superb Foods in 2011 and then Animal Care, there are now 19 companies producing and marketing feed for smallholder livestock herders in Nigeria. Competition is beginning to increase, as a number of these companies target overlapping markets. To date, more than 500,000 animals have been feed finished by over 100,000 farming households, which are showing positive increases in incomes.

Under the guidance of GEMS1, the Livestock Feed Manufacturers Association was launched and succeeded in obtaining an audience with the Federal Ministry of Agriculture. The government’s School Agriculture Program has also adopted the GEMS1 Feed Finishing module into the curriculum. All of these changes point to a significant shift in behaviours at multiple levels, as feed finishing becomes normal practice and a commercial opportunity for smallholder farmers.


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GOAL Uganda: Digging deep to keep water

flowing

Eight million Ugandans live without reliable access clean water. The Ugandan government and overseas donors are making large infrastructure investments to improve water supply to the rural poor but only 80 per cent of existing water pumps currently work. GOAL Uganda is supporting water pump mechanics so that they can build trust with rural communities and provide routine maintenance and fixing breakdowns in exchange for regular payments.

The challenge

In late 2014, GOAL set out to understand why investments in the water supply infrastructure were not leading to better services for rural communities. They discovered that the underlying reason for Uganda’s water pump failure rates was poor collection rates of user fees by community water committees. Nearly 80 per cent of people were unwilling to pay for maintenance and repairs, even though they could afford it.

GOAL's research also revealed that although over 90 per cent of mechanics had sufficient technically skills and the right equipment to repair the broken water pumps, they did not have the business skills or relationships with the communities to sell their services.

The main market failures, in economists' terms, were a lack of coordination and high cost of enforcing agreements. Both of these failures were on the demand side, where communities struggled to raise and hold onto the money needed to pay for repairs. More than 60 per cent of community water committees, set up to collect user fees for water, had no money in their accounts for repairs at the time of the survey.

This created a vicious cycle of low willingness to pay, no funds for repairs and no investment in maintenance, leading to frequent pump breakdowns and long downtimes. It undermined mechanics that went months without receiving payment and created cash flow problems as a result.

A new approach

GOAL's vision is for a reversed pattern of behaviour:

Communities raise enough money to pay for routine maintenance

Mechanics are responsive and provide quality service on a regular basis

To support this new market, local government provides oversight and mediation to make sure both sides are keeping up their side of the bargain.

The programme approach is to pilot this model at a district level and to influence policy and practice at a national scale.

Regular payments crucial

Given that mechanics had high technical capacity but weak business skills, GOAL chose to work with an existing business with strong links to the mechanics in order to create a new offer to communities. The new model being introduced is a service contract for the


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maintenance and repair of water points, in return for quarterly payments. By shifting from payment for repair to payment for maintenance service, functionality should improve with significantly less downtime.

A new business model for water pump repair:

Water committees, set up by communities themselves, collect money from each household and pay a set fee each quarter to service providers.

Mechanics provide maintenance services for boreholes on a fixed schedule, in return for a fixed quarterly fee. They also promise to repair any breakdowns at no extra cost, which incentivises quality, as they will spend less of their own money on repairs if maintenance is done well.

The business case for service providers is estimated to generate a 13 per cent profit margin. This is based on historical pump failure rates.

For the economies of scale to be fully realised for the service provider, they would need contracts with multiple communities. This helps ensure enough money in the bank to cover the higher, but less frequent, costs of having to fix a pump failure.

GOAL's primary role in the early stages of the pilot has been to support service providers to develop their business model and marketing strategy. For the first year of the programme, GOAL agreed to subsidise some of the cost of parts required for major repairs and upgrading of pipes. This keeps service providers profitable while they build their repair reserves to cover higher, one-off costs of major repairs. Initially, the reserve will be managed jointly to ensure donor investments are used wisely.

At a community level, the new model needs water committees to take a more assertive approach to collecting fees from their users. To support them, GOAL has developed a parallel intervention to introduce water committees to mobile money technology for increased transparency. This ensures there will be a record of every transaction and reduce chances of corruption, helping to reduce the cost of enforcement, which was a barrier to fixing pumps.

Building reputations

GOAL introduced the service contract model in early 2015, so to date there are few concrete results to report. GOAL plans to track the contracts signed, the level of satisfaction amongst communities, the length of interruptions to water service and the number of pump breakdowns successfully fixed.

The long-term strategy for this business model to succeed relies on successful service providers building on their reputation and expanding the number of communities they serve. To reinforce the relationship between service providers and communities, GOAL is working with the local government to help it play a stronger regulation and mediation role. As the provision of water is a public good, this role involves agreeing to the service charge rate and ensuring that service providers offer a good service, and that communities continue to pay regular fees.

There are some new developments in the water and sanitation sector at the national scale around a new model for operations and maintenance across Uganda. Building on this pilot, GOAL will be well positioned to share lessons learned from the maintenance service model into national policy discussions.


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Horti-Sempre: Better seeds, better crops

Horti-Sempre has created a new market in Mozambique for the importation of high quality vegetable seeds from Brazil. The programme has fostered business relationships between Brazilian seed producers and local Mozambican input suppliers. By developing expanded distribution networks into the north of the country, these input suppliers have the potential to reach thousands of small scale vegetable growers.

Input suppliers thin on the ground

Northern Mozambique struggles with low vegetable productivity, importing 2/3 of its vegetables domestically and internationally. Small scale farmers suffer from common constraints: poor agriculture practices, low investment in irrigation, poor access to inputs (seeds) and high post-harvest losses.

Launched in March 2013, Horti-Sempre is a 4-year project funded by SDC, looking beyond these constraints to understand why the wider market system is failing. It found that the public extension sector was under resourced and input suppliers were very scarce, so the majority of farmers had no technical assistance. Limited access to water, combined with manual irrigation using watering cans, led to small plots of land and low yields. Poor quality seed stock is a key contributor to low yields, and is the focus of this mini case study.

The lack of improved seed was caused by a vicious cycle: farmers did not see the value in spending money on seed, so their yields remained low. They then lacked the resources to invest even if they wanted to. The private sector did not believe there was a viable market, so spent no effort acquiring suitable varieties of seed. This is an example of an information asymmetry market failure. Prior to the project no new vegetable seed varieties had been registered in the country since the 1980's.

Seeding an increase in yields

Horti-Sempre's vision is to increase productivity in the horticulture sector in Northern Mozambique through mainstream adoption of high productivity vegetable farming practices. This requires investment from the private sector: irrigation suppliers, input firms and traders who buy vegetables from farmers. Horti-Sempre envisioned input firms selling seeds and other inputs to farmers, who are able to increase their yields and therefore incomes. Farmers then can expand the area under production, and purchase additional inputs from firms, leading to increased profits for both. To achieve this vision, Horti-Sempre needed to find seed businesses who believed that small scale vegetable farmers were viable customers.

Proving the business case for imported seed

Horti-Sempre quickly identified JNB, a small seed and input provider in the north of the country which was open to importing seeds from overseas. The programme also identified FELTRIN, a seed producer in Brazil with a great portfolio of tropical seed varieties well suited to Mozambique’s climate.

Horti-Sempre encouraged JNB to purchase and import seed varieties from FELTRIN in a bid to prove the business case for imported seed so others firms would copy, leading to long term sustainable change in the market.

Horti-Sempre helped both firms navigate the regulatory process for testing and registering new seed varieties. Initially, the project subsidised the cost of registration ($250 USD per


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variety) for the first 10+ varieties. This enabled JNB to test how much farmers were willing to pay for new seeds.

As things started to move forward with the FELTRIN-JNB business relationship, Horti-Sempre reached out to other input suppliers who might also be able to import seeds. In particular, the project facilitated their participation at an international horticulture exhibition in Brazil. This widened the potential for seed import business relationships with Brazilian firms beyond the initial pilot.

This led Horti-Sempre to connect FELTRIN with LUSOSEM, a larger input supplier in Southern Mozambique. As part of that relationship, Horti-Sempre is supporting LUSOSEM’s entrance into the northern market. This represents a shift in strategy to try and create healthy competition and helping other businesses crowd in, which is crucial to sustainability.

Vegetable prices rise by over 20 per cent

In the first year, JNB sold imported seed to over 600 small scale farmers. Some preliminary surveys show that farmers are seeing the advantages of these improved seeds. For example, with lettuce, they are benefitting from higher germination, shorter protection cycles and heat and disease resistance of the imported varieties. Farm gate prices have risen by 20-23 per cent compared to the local lettuce varieties, another strong reinforcing element that make farmers more likely to purchase more improved seeds in the future. Even though the absolute size of the market is small, both JNB and LUSOSEM are happy with early results and planning to expand sales in the coming season.

Horti-Sempre has also built the government’s capacity by simplifying the procedure for approving new seeds in Mozambique. The response from the government to simplify the procedure for new varieties is a promising sign that improved seed could become a new norm for the vegetable sector.


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KMAP: Milking profits for Kenya's dairy

farmers

Small dairy farmers need a reliable supply of quality hay to improve their productivity and incomes. In Kenya, businesses have perceived the risks of investing in commercial hay production to outweigh the potential benefits, so the supply of quality hay has remained low. The Kenya Market Assistance Programme (MAP) is supporting commercial hay producers to respond to the demand from small farmers, by investing in machinery, distribution and soil testing. The initial business model, proven with a cooperative, has been adopted by others across the country.

Low quality feed leads to low productivity

Kenya’s dairy sector is held back by low milk productivity among small dairy farmers, and the country imports significant amounts of milk powder as a result. Dairy farmers struggle with low quality feed, weak veterinary services, poor cattle genetics and weak integration with formal processors.

Launched in 2012, MAP is a 7-year DFID-funded programme taking a market systems approach to the dairy sector. MAP's analysis found that farmers were not making investments in their cattle, and lack access to the key inputs, such as hay, needed to increase their productivity.

In turn, service providers, who could potentially be providing hay, do not take smaller farmers seriously as legitimate customers. This kind of market failure is what economists call an 'information asymmetry'.

The level of milk output from a dairy cow is directly related to the quantity and quality of its feed. Getting enough hay, with the right nutrients, on a regular basis, is the basis for high milk productivity. Currently, many small Kenyan dairy farmers just let their cattle graze on the available pasture. This leads to significant variation in the quantity of feed between rainy and dry seasons, not to mention highly variable quality. When farmers are desperate for hay in the dry season, they spend significant time and money to try and source it, often travelling long distances to do so.

Commercial production of hay requires expensive equipment (to plant, harvest and 'bale' the hay) as well as a strong distribution system to transport the bulky product to farmers. This business proposition has proven too risky, given the belief that farmers wouldn't be willing to pay, and so the supply of quality hay has lagged behind demand. Suppliers that do exist offer low volumes of variable quality hay that is only available sporadically.

Quality certified hay

MAP’s vision was for a more productive dairy sector, built on a strengthened supply and demand for certified hay. This means a larger number of companies investing in commercial hay production to sell to small scale dairy farmers. To support this investment, hay producers needed financial services to afford reliable equipment. Farmers who make the investment in quality hay are rewarded with improved volumes of milk, increased income, and then are able to purchase more hay (and even more cattle) in the future.


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Focus on high quality feed

MAP sought to find models for high quality, year-round hay production that would be easy for other businesses to copy. The project identified a pair of strong dairy cooperatives which wanted to improve their services to farmers. MAP helped the coops to form a limited liability partnership, Hay and Forage (HnF), to produce quality hay. The programme subsidised some up-front costs for hay harvesting and processing (baling) in order to let the business prove its value. Initial sales were high, as farmers enjoyed the low price and high quality. Farmers in turn have seen their milk productivity increase, increasing demand for more hay in the subsequent season. This has led HnF to purchase the necessary equipment with its own resources, moving beyond reliance on the programme, to growing from its own profits. HnF's early success was key to prove the business case to other cooperatives and large farm owners.

Milk production up by a fifth

14 per cent more farmers are buying quality hay in target areas and their milk production has increased by more than 20 per cent as a result of the access to hay. Farmers save money, and during the dry season spend much less time travelling to find feed. In addition to MAP’s work with HnF, five other large farms with a potential land area of 3,000 acres have shown interest. One of these, SOCHON Ltd, is growing 800 acres of hay and hay seed itself and has contracted more than 2,690 acres via smaller farmers. To strengthen and reinforce this new group of hay producers, MAP has linked soil testing and fertilizer companies to hay producers to further increase hay productivity. The programme has also facilitated financing for HnF and SOCHON to purchase further equipment to expand its area under production. These signs, taken together, show that the supply and demand for certified hay are growing and that the market is changing to support the new business model.


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Hub 387: Rewiring cooperation in Bosnia's IT

sector

Bosnia and Herzegovina has a youth unemployment rate of more than 60 per cent. The information technology sector is poised to grow, but remains held back by overlapping constraints. MarketMakers is enabling technology hubs and business associations to tackle key constraints and help Bosnian firms compete internationally. Through shared workspace and collaborating on larger projects, firms in the sector are providing young people with well paid jobs.

Missing links

A thriving IT sector relies on clusters of companies working in close proximity to each other. This facilitates a flow of people, knowledge and ideas. Helvetas' MarketMakers project, funded by SDC, was launched in 2012, after it identified two fundamental problems that led to the sector’s underperformance: a lack of support services to technology companies and an absence of coordination between them.

One missing service was relevant training and education, especially for new employees. Training programmes, mostly run by public educational institutions, were not aligned to industry needs. The curriculum was outdated and teachers were unaware of the latest technologies. The formal education system also failed to teach critical soft business skills, such as project management and administration.

Local businesses invested in some in-house training, but only for existing employees. This lack of qualified workers contributed to a scarcity mind-set among companies. Afraid that their best people might get poached, they were reluctant to collaborate or work nearby to each other.

There was what economists would call a public goods market failure, as companies did not think they would be able to reap the rewards of any significant investment in staff.

Working together to exploit international opportunities

MarketMakers' vision was for IT companies to collaborate and gain access to higher-value projects as well as advocate on key issues. Using co-locations, companies could work together to access more international business and improve their overall competitiveness. Sharing the costs and benefits of running up-to-date and dynamic training programmes, would also help recruit more qualified workers.

Creating a vibrant IT community

Early on, MarketMakers identified a Bosnian-American businessman with considerable experience in Silicon Valley who brought credibility, knowledge and a shared vision of how collaboration could help the sector to prosper.

MarketMakers helped him refine the concept of an IT Hub in Sarajevo and then bring it to reality. Called HUB387, it aimed to build a vibrant IT community and promote a culture of collaboration among companies.


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The Hub aimed to overcome mistrust between companies and in doing so dispel fears that training and developing staff was a wasted investment.

MarketMakers helped the Hub secure office space and promote it to prospective new member companies. The programme also provided staggered rent subsidies to new member companies, staring with six months in year one then three in year two, before disappearing entirely. This lowered the initial barrier to entry, enticing companies to join without creating any long-term dependence on the project.

HUB387 also created a hybrid training model, Academy387, which offered an array of hands-on courses and programmes, including many IT courses run by business specialists. In addition, MarketMakers connected HUB387 to other donors, such as USAID and SIDA, to fund Academy387, rather than provide support itself.

International expansion

After one year, nine companies had been recruited to HUB387, at least one of which was a new start-up. The original office space was 80 per cent filled after just 6 months, with companies reserving the additional space for their future expansion, and the HUB is already looking for new facilities.

The Hub’s success has sparked interest from other countries, with a franchise opening in Croatia (HUB385) and discussions for HUB381 in Serbia currently underway. Within Bosnia, INTERA Technology Park has started to collaborate with the Hub by hosting satellite training programmes.

More than 130 new high value jobs were created in 2014, which compares to 247 direct jobs for the IT sector as a whole from January to July 2015.

Hub member companies have started to cooperate to attract bigger projects, and one company is planning to start its own IT camp in a more isolated part of Bosnia.

MarketMakers is now focused on stepping away from HUB387 to concentrate on making introductions between hub management and people willing to replicate the model. HUB387 and BIT Alliance, both led by private sector actors, are actively participating in government policy discussions around making ICT a priority sector for economic growth in the country.


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M4C: Gaining traction in Bangladesh's chars

The chars are sandy islands along the main rivers of Bangladesh. People living on the islands suffer from highly unstable land conditions and isolation. They have to travel further to access health care, education and basic services. Making Markets Work for the Jamuna, Padma and Teesta Chars (M4C) is overcoming this by encouraging automotive workshops to develop custom vehicles for difficult conditions, which allows transport operators to offer more frequent trips. Poor farmers save on reduced transportation costs and time spent travelling to markets on the mainland.

Navigating the shifting sands

The chars are shifting riverine lands formed from river sand and silt deposition. Most of these are islands, partially or fully submerged at least once or twice each year. As a result, there are almost no permanent roads or docks. When the river subsides, villagers have to cross long stretches of sand-banks and silty land to reach the remaining river channels where two boats can moor.

This land is unsuitable for conventional vehicles, such as bicycles or rickshaws. Farmers are particularly hard hit, spending significantly more time and money transporting goods to markets on the mainland, which reduces their income.

Horse carts and motorcycles are the main transport on the islands. Mechanics with the technical capacity to create effective transport solutions live and work on the mainland. They have no knowledge of the needs of remote char-dwellers, and do not see a viable market for custom designed vehicles.

The government has limited experience with building infrastructure suitable to the chars’ volatile conditions. This fact, combined with a lack of coordination and planning between local and national governments, leaves the islands underserved.

Economists would describe this as a public goods provision market failure.

A new model

M4C, a five-year SDC-funded project implemented by Swisscontact and Practical Action, believed char dwellers could benefit from an improved transportation system, which could enhance mobility and reduce transport costs. It realised that better transport required investments in both road quality and the availability of suitable vehicles. To achieve this, M4C set out to partner with both government and the private sector to develop viable business models that could be adapted across the chars.

Fit for purpose

M4C began implementation in 2012, initially partnering with two local automotive workshops to adapt vehicles to be able to operate in the sandy conditions. These new vehicles, called Charer Gari, had different sized tyres and a special gearbox for extra traction.

The programme then approached interested horse-and-cart and boat owners to help test and further develop the new vehicles, sharing the costs with workshops and entrepreneurial individuals. This helped create legitimate business relationships between workshops and


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buyers. Workshops were focused on tailoring products to real customers, who would continue to buy their products. They in turn benefitted from branding, as the workshop name was painted on the side of the new vehicles.

M4C also engaged local associations of horse-and-cart owners to develop a new viable business model for road construction and maintenance. Lack of roads had slowed travel times, limited the number of trips they could take, and caused more frequent breakdowns.

The associations proposed piloting new, simple and low cost technology to build a better surface for carts, bicycles and the new specially-adapted motor vehicles. M4C, the local government (Union Parishad) and the association of horse and cart owners shared the costs of a new 4km road, which used a toll to help with maintenance and rebuilding in the dry season.

Cutting travel times in half

The customised vehicles have reduced travel costs by 30 per cent and cut travel time in half. Because the new vehicles are bigger, goods and passengers can now travel together. Four other entrepreneurs from surrounding islands have bought Charer Gari without M4C support, increasing the likelihood that workshops can expand their business across the chars.

However the new road maintenance model has yet to be fully proven. The pilot started late and with only two months to collect tolls from users, achieved 20 per cent of the income required for sustainability. Both the government and the local association look set to reinvest for a second season. The cost share breakdown between the association, the government and M4C was 30:30:40. M4C plans to identify other local government unions where the pilot may be replicated in the coming years.


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MDF: Overcoming soil acidity in Fiji

Better known for tourism, Fiji also has a sizeable agricultural industry growing everything from sugarcane, coconuts and cassava, to sweet potatoes and bananas. Yet this success has come at a price as the country’s 65,000 farming households have gradually seen increasing soil acidity contributing to lowering yields and threatening the future of farming itself. The common solution to acidic soils, agricultural lime, is expensive to import and not well known among farmers. MDF Fiji has partnered with Standard Concrete, a leading concrete block manufacturer, to invest in national agricultural lime production, promotion and distribution.

Overcoming the hurdles

In Fiji, farmers lack access to the information, skills and resources to meet export standards or demands. While the government provides some support and information it is under-resourced and only provides limited inputs in times of emergency or to specific sub-groups. Private sector input suppliers are few and far between, with two large input providers and fewer than five specialist retailers. Soil acidity is gradually worsening, adversely affecting yields. Agricultural lime, the most common solution to acidity problems, is expensive to import, and the existing input suppliers did not see a viable market for it. Economists would describe this as failure to both access information and a failure of market power.

Local production and know how

MDF believed that if it could support a local provider of agricultural lime and make farmers aware of it and how to use it, soil acidity would fall and yields improve. It also thought that getting input suppliers to reach out further to rural areas to provide farmers with better information would also improve productivity.

Responding to blocks in distribution

While at first glance, a company producing concrete blocks might seem like an unlikely ally, Standard Concrete Industries was actually the obvious choice for a partner due to its access to a lime quarry, used for building materials. Yet just as important was Standard Concrete Industries' willingness to diversify into agriculture, and test the market for the product.

In July 2012, MDF and Standard Concrete Industries' jointly commissioned a major feasibility study to understand the state of soil acidity across the country. This led to a stronger business case for the company to invest in developing the business model required to produce Aglime and sell to farmers – a very different model to its concrete business. MDF also agreed to co-finance some of the early marketing efforts so farmers were aware of the benefits of using Aglime and how to use it.

Aglime was launched in August 2013 at a third of the price of imported agricultural lime. Several hundred farmers purchased it in the first season, but sales were not as high as projected in the business case. MDF and Standard Concrete Industries investigated the underlying cause and found that promotion and distribution efforts would need to be significantly boosted to reach more farmers. Together, the two parties decided to double down on the distribution network, and improve the front-line marketing and information services to farmers.


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MDF’s second phase of support began in March 2014. Standard Concrete hired a team of Aglime Field Promoters to provide on farm support, including soil-testing services to advise farmers on the proper amount of lime to apply to their fields. Through advertising, signboards and numerous demonstration plots, the company aggressively promoted the new product alongside better knowledge about soil acidity.

Standard Concrete also started to succeed in finding institutional partnerships with key institutions, such as the Fiji Sugar Corporation, to offer Aglime on credit to their farmers. This leveraged the incentive of the purchasing arm of the Fiji Sugar Corporation, who would benefit from increased sugar volumes, and therefore were willing to take on the risk of getting farmers to test out Aglime initially.

Farmers reap the rewards

As of August 2015, over 1,100 farmers have benefited from access to Aglime. Standard Concrete Industries has recorded total sales of nearly 40,000 bags. Early results from farmers show that in the areas of highest soil acidity, farmer yields have more than doubled as a result of the lime.

In terms of the systemic change observed, Standard Concrete's increasing commitment to this new line of business is very promising. Fiji is a small country, and the small and nascent input sector means it is unlikely any other businesses will enter into the agriculture lime market any time soon. That being said, the buy-in from numerous government ministries and key partners like the Fiji Sugar Corporation are spreading the word and encouraging farmers to adopt the practice.


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PRIME Ethiopia: Feeding more mouths than

one with animal fodder

Pastoralists in Ethiopia have a long history of grazing their animals. However, this is becoming less viable, with recent droughts having put extreme stress on herders and their animals. PRIME is working at the intersection of relief and development, supporting companies to distribute animal fodder. By sparking behaviour change in the use of feed to keep animals healthy and productive, PRIME is contributing to increased incomes and improved health for people living in poverty.

Improving livelihoods for pastoralists

Livestock is key to the livelihoods of Ethiopian pastoralists. Their animals form the backbone of both their diet and income. Drought puts these both at risk, with emergencies presenting a particular challenge for governments and donors to keep livestock alive without undermining local markets.

When drought hits, available pasture for grazing is drastically decreased. This means less feed for animals, which produce less milk as a result. Simultaneously, pastoralists need to replace the nutrients they are no longer getting through milk. Because livestock is their main asset, they start to sell off part of their herd to be able to afford extra food. The underfed animals at this point have declined in weight and thus sell at a lower price, losing as much as 30 per cent of their value. This creates a vicious cycle for farmers, whose assets are dropping in value at the time when they most need to sell them.

PRIME is a 5-year USAID funded project that launched in 2012 to improve resilience and livelihoods of Ethiopian pastoralists. The project has used the Emergency Market Mapping and Analysis (EMMA) toolkit to understand the structure of the key market systems influencing pastoralists. Fodder is one of these critical markets, as the availability of affordable, quality feed can stop the vicious cycle of farmers selling off their animals at low prices.

There are market failures in the fodder system related to unequal access to information at multiple levels. Pastoralists do not understand the full impact that feeding their animals has on weight, health, output and especially their own nutrition as they drink the milk. Commercial fodder producers do not have information on the real demand for fodder among subsistence producers. They are further reluctant to enter the market because free distributions during emergencies undermine their attempts to sell fodder. The emergency relief handouts also reinforce the idea that fodder is a public good that pastoralists are not willing to pay for. Even in non-emergency situations, the open market price for fodder is out of reach for the poorest pastoralists. The poor road network and long travel distances mean very high transportation costs (28 per cent of final price) in rural areas.

Pushing commercial fodder

PRIME's vision is that commercial fodder producers will establish distribution channels into poorer rural areas, and effectively market and sell fodder to pastoralists, even during emergency situations. Pastoralists that can recognise the return on investment from proper use of fodder will avoid selling their assets at low prices, and instead keep their animal productivity relatively stable by supplementing pasture grazing with additional purchased fodder.


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Emergency presents opportunity

In August 2014, late in PRIME’s second year of implementation, a major drought hit Ethiopia. This presented both an opportunity and a challenge for the programme to influence how emergency aid would be delivered and to minimise market distortion.

PRIME reached out to major market centres in the key areas where it worked, and found willing retailers who would sell fodder given a stable supply. In turn, PRIME connected these retailers with wholesalers of commercial fodder in Addis Ababa, establishing a business relationship based on commission for sales. To balance the desire to build a market with the gravity of the emergency situation, PRIME subsidised the fodder being sold through this new market channel by 50 per cent. This was intended to demonstrate the ability of pastoralists to pay at least some of the costs.

As the 2013 drought subsided, and natural pasture became more available, PRIME shifted from its strategic subsidy of fodder to a set of other interventions designed to influence pastoralist behaviours. These included a cleverly produced series of radio shows designed to stimulate household level discussion around a variety of topics, including animal feeding. PRIME also worked to stimulate the supply side of the fodder market by working with businesses that supplied improved seeds and inputs for farmers growing fodder.

10,000 animals covered

The initial emergency intervention led to the sale of 4,300 bales of fodder to 6,500 farmers for around 10,000 animals. An important sign of the sustainability of the new distribution channel is that relationships between distant fodder producers/wholesalers and local retailers have continued beyond the subsidy. PRIME interviews with retailers have revealed that there has been a spike in interest and demand from pastoralists to purchase fodder in the future.


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PSP4H: What the doctor ordered: promoting

consultations in health clinics

Health care is about information as much as medicine. A well-informed consultation can save patients significant time and money they might have lost through later self-diagnosis. PSP4H is working with health clinics and pharmacies in Kenya to market consultations as part of their core offering and persuade more urban poor to consult qualified clinicians before buying medicine.

Self-diagnosis a key constraint

Health care in Kenya is heavily influenced by donor funding. There are nearly 300 ongoing health projects, and nearly half of the government’s health budget is externally funded. Despite this subsidy, health care remains a patchwork network of actors with different priorities and access points. As a result, many poor people use pharmacies as their first point of contact.

Launched in September 2013, PSP4H undertook significant research to understand why and how poor Kenyans were accessing health care, finding that many were self-diagnosing and buying medications without seeking advice. When this diagnosis was wrong, their symptoms often worsened to the point of emergency and the associated high cost of immediate, qualified treatment.

Overall, there was a widely held mind-set that paying for consultation was a waste of money. However, looking at their overall annual income, many of the poor could pay for health care, including consultation services. PSP4H research showed the number who could pay was nearly 50 per cent.

Quality the key to change

PSP4H’s vision is that pharmacies and health clinics deliver increased access to quality, affordable healthcare services. It supports high potential businesses who want to grow their sales by serving the poor. In particular, the program wants healthcare providers to see consultations as crucial to gaining and retaining customers. A high functioning market system would have pharmacies and clinics competing based on the quality of treatment as well as the price of drugs. To achieve this, PSP4H needed to find private sector partners willing to test the true market size for low cost health care.

Piloting a proof of concept

In early 2015, PSP4H partnered with Viva Afya, a chain of low-cost private health care clinics mostly located in densely populated areas of Nairobi. Even though the company employs qualified clinicians, most of their sales come from medicine rather than consultations. To try and shift this pattern, PSP4H negotiated to cost-share a marketing pilot to influence more poor customers to pay for consultations. Viva Afya would cover the personnel costs (75 per cent), while PSP4H would pay for the marketing materials, outreach activities and data collection (25 per cent). The new strategies to test were:


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Offering customers a discount for referrals and giving a free consultation to new customers

Offering progressive discounts to family members seeking consultations. This encourages loyalty and reinforces the behaviour of consulting before purchasing medicine

Bundling consultation, drugs and lab tests together for young children.

The pilot was designed to prove to Viva Afya that more people were able to pay for consultations than had done previously. Once achieved, PSP4H would let the company pay for its own marketing having done a cost-benefit analysis for each market test. The programme also planned to encourage other clinics to replicate the model by sharing results.

Consultations rise by a fifth

Three months into the marketing pilot, Viva Afya's participating clinics had seen an overall 17 per cent increase in the number of customers, and more importantly a 20 per cent increase in the number of consultations. PSP4H is currently working with Viva Afya to conduct an analysis of the cost vs revenue for the marketing tests, to determine which to roll out more fully to its full suite of 14 clinics.

In parallel to the marketing pilots, PSP4H linked Viva Afya to businesses developing other pro-poor business models. These included firms building a common brand for quality medicine and those offering insurance and health savings products to address cash flow issues of Kenya’s working poor who are usually informally employed. Viva Afya became one of the first companies in a network offering quality assured medicine under a common brand and health service provider for the health insurance product. This decreases the risk to consumers of receiving counterfeit drugs, improves the company’s reputation, and increases profit margins through bulk purchase of medicine. PSP4H didn't initially plan for Viva Afya to participate, but saw an emergent opportunity to connect firms from its various interventions together. Rather than sticking exclusively to the details of isolated intervention plans, the programme acted on a chance to achieve its vision of a health care system that better serves the poor.


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SDA: Spare parts the missing link in Armenian

agricultural chain

Small-scale farmers in Armenia grow their own hay, but lack the machinery to harvest it. Machinery operators use old soviet-age combine harvesters, which often break down. In rural areas, a lack of spare parts has been a major issue leading to long down-times and poor yields for farmers that harvest late. SDA Armenia is helping build stronger distribution networks for key spare parts, by supporting local entrepreneurs and their relationships with wholesalers. As a result, more farmers are harvesting on time, improving the quality of fodder and leading to increased milk production and incomes.

Breaking the cycle

Agriculture in Armenia has struggled since the country’s independence and land privatisation. Infrastructure, formal market channels and essential services previously delivered through collective farms have dissolved. The previous centrally controlled system focused solely on production targets with no consideration of costs, meaning farmers have had to learn to manage their farm budgets from scratch.

The Strategic Development Agency (SDA), with funding from SDC, is taking a market systems approach to the livestock sector in the Syunik region of Armenia. SDA's market analysis found that farmers lacked access to support services and agricultural inputs including mechanised farm equipment, especially during crucial times of the season.

Available machines were out of date and unreliable requiring frequent and intensive maintenance. A lack of spare parts often led to machinery downtime. These delays hurt the quantity and quality of the fodder harvest, leading to losses for farmers and higher costs for both dairy and meat producers.

Wholesale suppliers of spare parts were not spending any time or energy finding markets for their parts in rural areas. Rural machine operators became accustomed to having to travel long distances to get the parts they needed, and so the spotty service and long down times became the norm.

Smaller scale farmers were especially disadvantaged, as when harvesting machinery was up and running, the priority usually went to larger, wealthier farmers who could easily pay for services in cash. Smaller farmers would often receive harvesting on credit, and have to repay the loan, with interest, after selling some of their hay. Economists would call this a coordination failure.

Creating a better supply chain

SDA's vision for a functioning market was better supply chain relationships between wholesale part suppliers and rural retail outlets. This would lead to better access to parts for rural machine operators, better services for farmers and increased fodder productivity. Increased competition between machine operators would increase choice for farmers, and the extra milk and meat produced would lead to increased farmer incomes.


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Supporting local entrepreneurs

SDA's strategy was to prove the business case for rural parts supply retailers by supporting a few local entrepreneurs to open shops to sell to machine operators and larger farmers who owned the machinery. It sought out Hayk Arakelyan, a local entrepreneur from Brnakot, a village in the south of the country, willing to invest in a local shop. SDA introduced Hayk to a specialised spare parts wholesaler in the capital that was looking for reliable supply relationships with a retailer. The reason for working with a single rural entrepreneur was to send a signal both to competitor entrepreneurs (who might copy the business model) as well as to wholesale part suppliers, who might consider expanding their own reach.

To overcome the up-front costs of launching a business, SDA agreed to cost share the initial investment. SDA and Hayk each invested 1 million AMD (USD 2,112) to ensure enough working capital for the initial phase of the business. Hayk used the starting capital to purchase spare parts and machinery from the wholesale supplier at a reduced price negotiated with support from SDA. He also negotiated to receive 2 million AMD worth of spare parts on credit from the wholesaler to ensure a much better stock of product. Hayk's offer of a better quality and variety of spare parts led to reduced cost for mechanisation services in the area.

Other businesses grab the opportunity

Hayk Arakelyan has managed to repay all of the credit without any delays, a strong sign that his business is not reliant on further grants. In its first phase, the business made 137 sales to 35 agro-machine operators who offer services to over 600 farmers. Two other entrepreneurs in the area have also open similar businesses with even less support from SDA. Both are operating with no external financial support.

SDA’s focus has shifted to communicating this business model to other prospective entrepreneurs, and to continue to build relationships between wholesalers and these retail outlets. The programme is also promoting uptake of the business model through a government SME development agency that reaches many regions of the country through trainings and mass media.

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Development and Cooperation. It is administered by PricewaterhouseCoopers LLP, working with organisations including the Institute of

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This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should

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