Capitalizing on Private Sector Opportunities and Constraints to Strengthen Agricultural Markets

This post was authored by independent consultant Amy Chambers in collaboration with the Feed the Future Enabling Environment for Food Security project.

In July, Agrilinks focused on the enabling environment for food security and agriculture — the complex web of policies, laws, regulations and norms, whether formal or informal, that influence behavior in a market system. As the month has now drawn to a close, let’s take a moment to recap what we have learned as well as what pieces of the conversation have prompted further exploration.

Successfully integrating smallholder farmers into a sustainable, commercially viable market system has the potential to pull millions of small farmers out of poverty. Yet doing so requires overcoming a variety of challenges that limit investment in the smallholder market, including low access to finance, limited technical know-how, poor rural infrastructure and the high costs of aggregation. Across the developing world, private sector investors are experimenting with new business models and innovative technological solutions to address these challenges. USAID and other donors continue to devise mechanisms to support these investors, such as challenge funds, grants and other platforms that facilitate initial market entry, partnership development and knowledge-sharing.

But the enabling environment is often the X factor. Whether through unpredictable import policies or stringent government regulation of pesticides that drives the private sector underground, the enabling environment can derail even the best-laid business plans. As Katy Garcia, Acting Director of the Office of Market and Partnership Innovations in USAID’s Bureau for Food Security, noted so clearly when we kicked off the month, “[p]olicies, laws, cultural norms and regulations impact the costs and risks borne by agricultural market actors and therefore influence investment incentives, as well as the efficiency, inclusiveness and performance of the entire system.” 

Throughout July, Agrilinks contributors profiled tools for analyzing the enabling environment and platforms designed to support private sector investment. Contributors highlighted the importance of adaptation in program design and suitable metrics to track systems change. The importance of making the rules work for private sector growth was noted. But one voice has been missing: that of the investors themselves.

We need a better understanding not just of the costs the enabling environment places on businesses, but also exactly how it influences their decision-making both before the investment is made and in bringing operations to scale. More importantly, we need to evaluate, through their eyes, what types of support are most useful in helping them to overcome the X factor. In other words, what does it take to make the policy environment an enabling one rather than one that deters?

Over the next month, the Feed the Future Enabling Environment for Food Security project will sit down with private sector businesses currently investing in the smallholder market across Feed the Future focus countries in an effort to bring their voices to the table. We will seek to better elucidate, through their stories, the most common enabling environment constraints for different types of investment and the types of support that have been most influential in tackling these barriers to investment in the smallholder market. We hope this study will help to identify a framework for better integration of enabling environment support into donor mechanisms for market system development going forward.

Stay tuned for more from these private sector voices!