Robust, resilient market systems rely on efficient, rules-based interactions. A well-functioning, properly enforced system of sound rules creates an enabling environment for the business of agriculture, reducing the risks and lowering the cost of transacting vertically and horizontally within value chains. Both the lower risk and higher profits associated with a good, well-enforced legal system can lead to poverty reduction, food security, economic growth, employment, and systemic resilience. The enabling environment, which includes both formal rules (i.e., policies, laws, regulations, and standards) and informal rules (i.e., societal norms and traditions), directly impacts the performance of all segments in a market system. This means fewer efficiency losses throughout a value chain and more money available to invest in higher returns.

In April, a group of enabling environment experts convened at the Market Systems Symposium in Cape Town, South Africa to discuss why it is so difficult to encourage donor investments in this space. Discussions led to a set of five principles to better integrate enabling environment interventions into programming, synthesized as follows:

1. Operate through the private sector as the primary agents of change. Sustainability is crucial to the successful implementation of market systems initiatives. Sustainability, in this case, takes place when the private sector or civil society organizations, including Apex organizations, take ownership of the proposed legal (or otherwise regulatory) changes and are viewed as agents of change. Donors must work closely with the private and public sectors to ensure that regulations and other enabling environment tools are enacted and implemented for the benefit of the public good rather than the limited interest of sectoral groups. This approach must be carefully balanced to avoid the creation of non-tariff barriers to trade. 
2. Improve explicit recognition of the role played by enabling environment initiatives in sector-focused projects. Most enabling environment reform activities occur on an ad-hoc, and many times reactive, basis. A government proposes new regulations, and industry reacts with donor support. Projects confront policy issues when identified without necessarily having a proper structure to address them. There is a need to operationally systematize enabling environment components within projects, particularly when faced with policy, legal, and regulatory instability or unpredictability.
3. Elevate donor coordination to capitalize on mutually beneficial programs. The cross-cutting aspect of enabling environment initiatives often means that policy initiatives build on each other. Any donor working on agricultural financing should collaborate closely with a legal systems reform program that improves contracts enforcement or a new credit reporting system, as these interventions have a direct link to the risk premium for accessing finance. 
4. Increase and improve human capital to develop and implement laws and regulations. A few organizations detected the need for greater numbers of professionals working on enabling environment issues, within the public sector and the private sector.
5. Address indicator challenges, including issues of attribution versus contribution as well as the timetable for reform. Global best practices are to deemphasize donor or implementing partner involvement and to emphasize local ownership of reforms. Indicators should shift from direct attribution to reflect instead the implementing partner’s contribution to the expected change.

For an in-depth look at the role of the enabling environment in agricultural market systems, tools and best practices for enabling environment reforms, see the Enabling Environment in Market Systems Technical Note.