Market Facilitation in Thin Markets: Lessons from Timor-Leste
This post was co-authored by Mary Beggs and Dina Karic, both are with Cardno Emerging Markets.
Domingos da Costa used to travel two days to purchase seeds in Dili for his small-scale plot, as there were no places to purchase basic agricultural inputs in his home municipality, Ainaro. Sometimes, the inputs that he needed would not be available, even after he had traveled to the capital city.
The journey increased his cost of production and deterred others in his village from attempting to engage in semi-commercial production. The inconsistent supply made production planning extremely difficult in an already challenging agricultural environment.
Helping subsistence farmers transition to small-scale commercial horticultural sector production has unique challenges in very thin markets such as Timor-Leste, which has had limited private sector activity, a small input supply base and few support services. Through a series of innovative adaptations, USAID’s Avansa Agrikultura Project is demonstrating that tested market facilitation approaches can still be effective in these situations.
The Project began by conducting a market systems analysis to determine gaps in this value chain, followed by in-depth stakeholder interviews. Regarding the distribution of inputs, it became clear that local general stores did not have sufficient cash to purchase inventory up front and were not sure which products would be in greatest demand. They also did not have regular access to inputs; individually, they were not able to import them in sufficient quantities to be cost-effective.
To help make inputs more readily available, the Project is facilitating consignment-based arrangements between input importers/wholesalers and rural retailers. Dili-based importers of agricultural inputs provide stock to the rural general stores, and the general stores pay the importers when they sell the products. This is the first time such a model has been tested in Timor-Leste’s agricultural sector.
To encourage investment in new agricultural equipment for early adopters through embedded technical assistance and co-finance, the Project partners with private sector input suppliers to assist farmers to access agricultural equipment and drip irrigation. Farmers pay 50 percent of the costs (spread over twelve monthly installments), while the Project covers the remainder. The private sector partners deliver the equipment, provide training and conduct maintenance for a few months after installation. In addition to encouraging use of new technologies, the Project is also helping to demonstrate the value of a client-focused sales model that combines agricultural equipment and distribution with technical assistance.
To improve production during the rainy season, the Project sought to introduce protective tunnels that will allow vegetables to be grown even during heavy rains. The Project also recognized this as a potential business opportunity. We identified a Timorese partner who had been building furniture from bamboo. We taught the new partners to build low and high tunnels from bamboo and to offer these products to farmers for a fee. To increase supplies, we helped farmers establish bamboo nurseries. As a testament to the demand for bamboo products, one nursery farmer has now stopped working on coffee because he can make more from his bamboo nursery and bamboo trees.
Similarly, we are supporting farmer-entrepreneurs to establish commercial nurseries for other plants. Through a grants program to help offset the initial investment, the Project helped to establish three commercial nurseries (there were previously only a few in the entire country) and taught their associated techniques, such as grafting. This is already paying dividends. We supported one farmer to establish a nursey for rambutan, a regional fruit tree. The farmer made USD $8,000 selling rambutan seedlings in just a few months this year, versus only USD $250 from coffee on an annual basis.
In parallel to catalyzing a private sector-based input supply system, we also improved farmers’ access to markets by establishing farmer groups and facilitating contract farming mechanisms that have been proven as development tools in East Africa and other larger markets.
Thin markets require a particularly nimble and adaptive approach, where implementers must quickly recognize and respond to opportunities and potential partners and adjust approaches accordingly. However, the results can be catalytic.
Distribution networks in Timor-Leste are beginning to change with support from Project interventions. Instead of travelling two days for inputs, Domingos now goes to a town just one hour away. This is real progress, and the kickstart of a private sector-based input supply system that has the potential to transform the agricultural market system in Timor-Leste.