How Effective are Pull Mechanisms at Addressing Market Failures in relation to Postharvest Loss?
Agrilinks’ first seminar of the New Year brought with it lots of new learning! The topic this month was improving on-farm storage by testing the efficacy of pull mechanisms to encourage the private sector to fill market system failures in relation to postharvest loss. Speakers from the AgResults On-Farm Storage pilot project in Kenya shared with us their baseline results and what the project expects to accomplish over the course of its life.
In the case of the Kenya pilot, some of the main market barriers preventing firms from producing and smallholders from adopting storage technologies included the low supply of suitable technological solutions for the local context; the lack of farmer awareness on storage and safety issues; limited farmer access to affordable options; and high marketing/promotion costs for firms. The AgResults pilot utilizes pull mechanisms to address the supply side constraints: private sector actors that promote effective storage options are offered pay for performance incentives for hitting pre-set sales thresholds.
Baseline findings confirm that firms have strong interest in engaging in the postharvest storage market in Kenya, but (perhaps unsurprisingly) their focus is on relatively established or high potential markets. As a result, smallholder farmers have limited access to effective storage solutions, and storage solution providers may be missing out on a potentially profitable segment of the market.
The baseline evaluations and pilot start-up have already led to some interesting lessons learned. For example:
- Donors need to understand what the key market failure is in a specific context and anticipate the gaps that may remain overlooked for both farmers and firms, while considering which firms have the capacity to address the necessary gaps or constraints.
- There is a tradeoff between development impact and market impact when using pull mechanisms. While as donors and practitioners we want to understand the overall impact on target beneficiaries, we also need to consider that firms need to feel that there is a benefit for them to enter the designated market.
- The pilot project is intended to measure how effective the pull mechanism really is for development impact, so that the development community can better gauge the potential success of the approach. So while there is a temptation to engage with both push and pull mechanisms, for the purpose of the pilot it’s necessary to be more hands-off in regard to the “push.”
Over the next couple of years, the Kenya AgResults pilot expects to reach 480,000 smallholders with storage technologies and to generate USD 14 million in benefits from increased storage. But ultimately, there may be a need for both pull and push mechanisms to reach the poorest beneficiaries and to have sustainable development impact. We're looking forward to learning more from this pilot project as it continues to produce fascinating data!