We currently have seven wonderful University students gearing up to join our team in May as Junior Fellows (JFs), and a couple of weeks ago I tasked them with learning about, and writing a blog post describing the concept of market facilitation. Market facilitation has become the core of the Agricultural Value Chains (AVC) team philosophy. Here are the posts that have been written so far:
- Sarah – http://gonnagotaghana.wordpress.com/2012/03/22/avc-easy-as-one-two-i-love-michael-jackson-12-2/
- Naomi – http://naomiandfriends.wordpress.com/2012/03/28/my-mad-rhymin-skillz-gonna-give-you-the-chillz/
- Alanna – http://alannawithoutborders.wordpress.com/2012/03/28/agricultural-value-chains-and-market-facilitation-what-we-are-doing-and-why-it-matters/
- Emily – http://routestoroots.wordpress.com/2012/04/05/what-is-market-facilitation-and-why-does-it-matter-for-smallholder-famers/
I haven’t written about it here in the past, so I thought I would join the JFs in taking a stab at defining market facilitation and why it is important. Better yet, I’ll try to do it in five words or less. Well, at least leave you with five words or less.
If I had to define the goal of market facilitation in a single word, I would start with “innovations”. Granted, that is not very descriptive, a lot of things are about innovation, but let’s start there.
The second word I would add is “market”, to make “market innovations”. This might seem obvious given that we started with “market facilitation”, but it qualifies the goal quite a bit. Market facilitation is about looking at an entire market system. It is not about driving innovation from the perspective of a single business, or actor within a market. It is a holistic look at how a market system itself can change. This is where market facilitators start to differ significantly from traditional business consultants.
If you allow me a third (albeit hyphenated) word, it will be “win-win”. The innovations that come out of market facilitation have to be win-win for marginalized actors in that system (small holder farmers most often) as well as for the larger, more formal businesses that are important parts of the market. After all we want to see improvements for small holders, and existing powerful players are not likely to adopt a change that disadvantages them for the sake of small holder farmers.
Win-win market innovations. That’s it! Three words that to me capture the essence of what market facilitation is trying to achieve. I will kindly request two more words to add to the definition at the end of the post, but for now let’s leave it at three.
A great concrete example of a win-win market innovation is the case of the PrOpCom project in Nigeria. PrOpCom saw an opportunity to change the way new tractors were being brought into the Nigerian market. Before the project, tractors were only introduced through a government subsidy program, where the government bought tractors in bulk from tractor retailers and then distributed them through various channels. Individual tractor operators that wanted to buy tractors would have to wait long periods of time to get access to a tractor, and much of the benefit of the subsidy was lost through the political nature of the disbursements. Furthermore, no tractor retailers were selling tractors to individuals due to the lucrative bulk orders from the government.
The project staff saw an opportunity for a market innovation that would see tractor retailers selling directly to tractor operators, with financing provided by a local bank. This would allow tractor operators to acquire tractors in a timely manner, give tractor retailers a new market and add a profitable new product to the bank. Last but not least, it would greatly increase the availability of tractors and tractor services for small-holder farmers in Nigeria. A new, innovative way to organize the market, that is win-win for everyone.
There is an extensive case study on the work that this project did in tractor services here: http://www.m4phub.org/news/PrOpCom—Making-Tractor-Markets-Work-for-the-Poor-in-Nigeria.aspx
Where things get slightly messier is in the why and the how. The term market facilitator doesn’t really exist in a Canadian context. Why are market facilitators necessary to make markets work in Ghana if we don’t need them in Canada? It is possible we do need them in Canada, but I’ll take a stab at why they are especially needed in Ghana.
The number one reason is risk. Innovation is risky, and businesses tend to be risk averse, especially when the safety nets for failed businesses are not quite as soft as they are elsewhere. Businesses in Ghana (especially agricultural businesses) are often lacking the spare operating capital required to invest in innovation. Testing a different business model when you have one that is operating reasonably well is just not worth the risk when the cost of failure is high. In the case of PrOpCom above, the project reduced the risk of the banks to loan money to tractor operators by agreeing to pay a certain percentage of the bank’s loss if a tractor operator were to default on the loan, reducing the risk for the bank.
Another reason is trust. There are few regulatory trust mechanisms in markets in Ghana, especially in agriculture where most transactions are done informally. A market facilitator can add an element of trust between small holders and businesses that wouldn’t exist otherwise. Two skeptical parties might not invest in building trust in each other, but a market facilitator can explicitly find opportunities to increase trust between actors. In the PrOpCom case, the project staff built trust between the bank, a local tractor operator association and a tractor retailer to facilitate a test of the new market model.
Finally, market facilitators make the time and space for innovations to emerge. Without clear time and space for market actors to come together and work on innovative ways of changing the way their system operates, it is unlikely to happen. Businesses are busy running their operations and farmers are busy farming. It takes a sophisticated understanding of the different market actors, their motivations, and skill as a facilitator to get everybody together in a room to discuss potential improvements to a market system.
By reducing risk, adding an element of trust, and making the time and space, market facilitators can accelerate the process of market innovation. By choosing which innovations they will invest in, the market facilitator can do her best to make sure these are win-win innovations, that benefit both powerful market actors and marginalized market actors. This process may well have happened on it’s own, but by deliberately creating the conditions for market innovations to occur they will hopefully happen faster and with a stronger emphasis on empowering those who traditionally have less power in the system.
Finally I’d like to introduce the two words I asked for earlier. Those words will be “that spread”. Market facilitation aims to create win-win market innovations that spread.
Whether it be a new business model, new market access or upgrade in quality, market facilitators want to see innovations spread. Once the innovation has been proved, hopefully there will be a “crowding in” of market actors who also take up the innovation, scaling the impact of the market facilitator’s work. A market facilitator can spread the idea himself, or make sure that the new service or idea is highly visible, encouraging other market players to offer similar products or services and change the way they operate. In the PrOpCom case, other banks and tractor retailers saw the success of the pilot, and started providing similar products on their own without support from the project. This is a great example of “crowding in” and is the ultimate goal of successful market facilitation. If innovations are being adopted by people who have not worked directly with the project, then there is a high chance of those changes being sustained once the project ends.
- Reducing Risk.
- Increasing Trust.
- Making Time and Space.
Win-win market innovations that spread.
The theory and practice of market facilitation can certainly become very complex, but hopefully my stab at a digestible five-word definition gives you a bit of a picture of what we’re working for on the AVC Team.