The Stigma of Subsidies
This post is the first in a Microlinks-Agrilinks collaboration series for "Markets Month," which will explore market systems trends throughout the month of July.
We have a stigma problem in the market systems community — the stigma of subsidies. We are almost ashamed to say the word and certainly embarrassed to admit that we use them, but our projects are inherently subsidies. As implementers of a market systems facilitation approach, we design our projects to be sustainable with built-in exit strategies for our support. We minimize direct involvement with value chain actors, only engaging where needed and avoiding inserting ourselves into the market system. But to really learn from each other on how to implement market systems facilitation, we need to talk more about project subsidies and where and how we use them to effect systemic change and engage public and private market actors. This point was emphasized by participants in the USAID Market Systems Global Learning and Evidence Exchange (GLEE) in Dakar, Senegal in early June.
When we talk about our work, we tend to conceal our subsidies and instead accentuate the shifts in the behavior of market actors and changes in the market system that result from our facilitation, talking in vague terms about our role. Of course, there are many contexts in which is it appropriate to focus on our impact, but within the market systems community and especially when we are sharing learning at conferences and in blogs, we can deepen our mutual understanding by talking about the thing we instinctively want to hide. We should center our conversations on subsidies — where they are applied, what measures we take to ensure they are “smart,” and how we design subsidies to strengthen the inclusiveness and development impact of our activities.
There were many of these direct discussions at the Market Systems GLEE on how project subsidies have been engaged, including the work of the USAID Southern Africa Seed Trade project. The Seed Trade project has supported Zambia’s national seed authority, the Seed Certification and Control Institute (SCCI), to create an online seed lab that greatly reduces the time and cost of registering, testing, and certifying seed by making it possible for seed companies to apply for seed growers’ licenses online, enabling seed inspectors to submit their inspection reports in “real time,” and granting seed companies online access to their testing results. The platform also eliminated the gray market for seed certificates from strengthened processes. The resulting cost savings benefit seed companies and the improved access to affordable quality seed benefits producers in Zambia and across the region. The online seed lab has also strengthened Zambia SCCI’s application for Organisation for Economic Co-operation and Development (OECD) accreditation, which would further expand opportunities for Zambia seed exports.
The subsidy provided by the Seed Trade project was specifically targeted to establishing the online seed lab platform. This meant supporting the cost and providing technical assistance for not only the development of the technical infrastructure but also the design of the locally owned system around the platform. The online seed lab instituted significant positive changes in the processes for seed registration, testing, and certification in the country adhering to the highest OECD and International Seed Testing Association standards. It was designed from the outset with local ownership, as the system is entirely managed by the SCCI and the design ensured incentives of the different stakeholders aligned for sustainability. The subsidy reduced the risk of initial investment for the start-up cost of the system. As a government institution, SCCI lacked the resources to fund activity development, and the incentives did not align for the private sector to fund the development of a new model for an IT function of the government. The project has now withdrawn the subsidy from the online seed lab, and it is independent and fully functional, and is utilized daily by hundreds of users. The limited maintenance cost of the system is paid for by the private sector through the licensing fees of companies registering seed varieties. These firms have the incentive to ensure the sustainability of the platform by covering the maintenance costs because they directly benefit from reduced costs, faster license processing times, and the opening of external markets.
This activity emphasizes many of the best practices for subsidies identified at the Market Systems GLEE, including being strategic when engaging subsidies and only employing them when there is justification such as demonstrating a new technology or service model. This means not engaging where there is a business case for private investment and private actors have the capacity to overcome any constraints for investment themselves. Subsidies should be highly targeted with specific objectives and time limits; be withdrawn during the project cycle; and identify exit strategies from the onset. In this case, the system was designed so the maintenance costs are covered by incentivized actors within the market system.