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“There’s something awfully screwy going on around here” — Finding the missing piece in a market system analysis.

Authored by

Olaf Kula
Olaf Kula
Senior Vice President, Private Engagement

After leading ACDI/VOCA’s West Africa regional office for 8 years in Ghana, Mr.

Kula is now building a portfolio of private sector clients from the food, feed, and extractive industry sectors committed to socially inclusive and environmentally sustainable development. He also provides leadership and practical solutions for ACDI/VOCA’s research in market systems approaches to accelerate economic growth and poverty reduction. Mr. Kula has worked with commercial banks, established a factoring program for microfinance loans, and created a rural loan brokerage service, an inventory credit facility, and multiple loan products adapting best practice to local environments. He has managed several microenterprise and SME development projects and a U.S. credit union. Formerly, he managed the USAID AMAP BDS project and served on the SEEP Network’s Board of Directors. He has an M.S. in Agricultural and Natural Resource Economics and a B.S. in Agricultural Economics from the University of Missouri. He is fluent in French.

The Leveraging Economic Opportunities project (LEO) has recently completed market systems assessments in Cambodia, Guinea, Sierra Leone, the Democratic Republic of the Congo (DRC), and Timor-Leste. This blog is the second in a series that draws lessons from these assessments.

Like many baby-boomers, I was at least partly raised by cartoons on television. Remember Elmer Fudd, once again fooled by Bugs Bunny, saying, “There’s something awfully screwy going on around here?” Coolly chomping a carrot, Bugs Bunny replies, “Aaah, it could be you, Doc.”  

No one wants to be Elmer Fudd.  But often, I have had that Elmer Fudd moment.

It happens whenever I conduct a market system study. I learn that a particular market system is supposed to be supportive of investments and innovation. The laws and policies are in place, infrastructure is good, labor is skilled, and the productive resources are accessible. Yet investments and services are missing, innovation lagging, and technology absent. In other words, something awfully screwy is going on.

Markets tend to work quite efficiently regardless of where they are, as long as the following conditions are met:

  1. The policy and regulatory environment is transparent, supportive, and stable, allowing market actors to respond to supply and demand.
  2. The essential resources required for production are in place.  
  3. Critical infrastructure is in place and functioning.

Picture a market system with all of the above.  You would expect to see robust domestic and foreign investment in agricultural production and services, but somehow the investments and services seem absent or surprisingly weak.

We know something is screwy, but what and why? And, more importantly, how do we go about seeing what the root cause is?  What is the key thing that must change in order for markets to grow and thrive? If we limit our analysis to what we see in a market system, we are likely to be as fooled as Elmer Fudd. 

A good market systems analysis will ask the question: Does the landscape of market actors in multiple and intersecting value chains make sense given what I have read and been told? 

If the answer is no, then the analyst must ask what is missing from the picture and what the root cause is behind what is missing. Though the following two examples come from agriculture, these observations apply to non-agricultural systems as well.

Photo Credit: USAID/Michael Gebremedhin

Example 1: Horticulture in Cambodia 

From experience we know that commercial and export-oriented horticultural producers are more likely to introduce efficient production technologies and improved environmental standards than smallholder farmers supplying domestic markets. They are also better informed about what the market wants.

Moreover, the high capital investment needs of large-scale horticulture and land access constraints favor the development of contract production systems in which larger commercial farms transfer knowledge and technologies to smaller farmers in exchange for timely delivery of quality products.

In Cambodia, in contrast to its neighbors, there is no large-scale export horticulture, despite favorable climate, water access, labor, and infrastructure. The government is ostensibly encouraging agribusiness investment. Yet Cambodia remains far behind its neighbors in horticultural productivity and the generation of foreign exchange through the export of horticultural commodities. Clearly something is missing from this picture. But what?

A member of the LEO value chain assessment team called several horticultural buyers for EU supermarkets. They were keenly aware of the potential benefits of producing vegetables for export from Cambodia. However, the perceived lack of transparency and cost of registering and securing land and water rights, as well as other start-up costs, are significantly higher than in neighboring countries, keeping commercial horticulture investors away from Cambodia. 

Example 2: Cereals production in Guinea

Guinea is in the process of a remarkable and commendable transformation from a closed economy, hostile to private investment, to a more open one. Almost 70% of farm households cultivate small plots by hand with no access to improved seed, fertilizer, or other inputs. With low yields and no access to improved technologies, most are unable to feed their families, let alone generate a marketable surplus. In this type of landscape, there is so much missing it can be difficult to find the root cause.

The LEO team had to ask themselves which missing piece is holding all the others back? A root cause analysis led the team to realize that the missing piece was a robust seed supply chain and the inputs needed to optimize improved seed yields. Without improved seed and appropriate inputs, there can be no surplus; without surplus, there is no demand for labor-saving technologies; with no labor-saving technologies, farm sizes will remain sub-subsistence in size. Without an increase in yields, Guinea will continue to import an increasing share of its growing domestic maize and rice demand, and it will be unable to respond to the growing demand for maize from its neighbors to the north.

While Guinea has a new Seed Law, this law must be operationalized in a way that encourages innovation so that small farms in Guinea can begin to triple and even quadruple their current yields.

Good analysis requires a comprehensive understanding of all the functions and actors operating in the system and the environment in which they exist. It must be quantitative to understand the magnitude of potential demand, which is the source of all opportunities.  It must also be qualitative, to understand the way in which multiple market actors interact with each other and with the environment in which they operate. But a solid understanding, both qualitative and quantitative, of all the parts of the system is insufficient. Analysis of what is missing from the system is also necessary.

Photo Credit: USAID/Michael Gebremedhin