Successes and failures of institutional innovations for improving access to services, input and output markets for smallho...
Section 1              Section 2            Section 3              Section 4• Definition of        • The nature of      • ...
   Agricultural Research for Development (ARD) in Africa- dominated    by the traditional approach of linear research, ex...
   Innovation is a new way of achieving the tasks:     a process that comes up with solution to problems in a new manner...
   An innovation starts as a concept that is refined and    developed before application- to overcome main    failures an...
   Informal institutions     cooperative behavior sustained through reciprocal exchange      and repeated interaction   ...
   Institutions are a prerequisites for markets :- minimise transaction    costs, transmit information, mediate transacti...
Issue/Market Failure                    InterventionUnequal Access to Information           •Public interventions         ...
   No public institution, NGOs, or private institution has had    significant interventions to improve marketing of pigs ...
   Focus is on organizing smallholders into farmer    groups or producers organizations to overcome    market failures an...
   Active producer groups or associations- a reliable way of    improving access to output markets, inputs, services and ...
   New high-yielding crop varieties (cereals, legumes, and    root crops) being selected tested and adopted by    farmers...
   Certain conditions need to be in place, if    incentives for farmers to organize around    marketing are to be created...
   Lack of credit and high cost of credit are major impediments for adoption.   Limited access to information and source...
   Promote and enhance interventions that:       Encourage systemic and institutional change- the use of market-based in...
Successes and failures of institutional innovations for improving access to services, input and output markets for smallho...
Successes and failures of institutional innovations for improving access to services, input and output markets for smallho...
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Successes and failures of institutional innovations for improving access to services, input and output markets for smallholder pig production systems and value chains in Uganda

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Presented by Alex Tatwangire at the Workshop on In-depth smallholder pig value chain assessment and preliminary identification of best-bet interventions, Kampala, 9-11 April 2013

pigs, markets, value chains, crp37, Uganda, east Africa, Ifad, ilri, presentations
Presented by Alex Tatwangire at the Workshop on In-depth smallholder pig value chain assessment and preliminary identification of best-bet interventions, Kampala, 9-11 April 2013

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  • When farmers and other value chain actors are not deriving gainful exchange in the market, it means that there are no ideal conditions of market exchange, implying high transaction that are direct (increase with volume of exchange), disrupt exchange, and create opportunistic behaviour in form of cheating and free riding. Institutional innovations therefore create good institutions that improve market exchanges by minimising transaction costs at reasonable cost.
  • The flipside of innovation is obsolescence. An innovation becomes disruptive when it changes the rules of the game.Technology innovation is b y definition value-neutral. It can never be a step back, it may only render older technologies obsolete. Process innovation is about innovating the paths we are using. It is about how we may achieve our goals more efficiently and more quickly. Process innovation changes the responsibilities and the perceptions of the people involved in a process and the way they communicate and interact with each other. Process innovation can be harmful when it alienates the people involved from their work and their community.Product and service innovation are about innovating the shapes and forms of what we are offering. They are about improving the capabilities and design of existing products or introducing entirely new offerings. Whether product innovation creates actual value depends on whether the new or evolved product improves lives in a meaningful way.Business model innovation is about innovating the ways we are generating value. It is about who we are serving in which manner. Business model innovation is truly powerful and often disruptive to entire industries. Institutional innovation is about innovating who we are and why we are doing what we do. It is the most powerful form of innovation. Usually, it goes hand in hand with the definition of new concepts and new categories. It is about the DNA of organizations. It is about reconceiving strategy itself, about making stuff better instead of making better stuff.According to IFAD, an innovation is “a process which adds value or come up with solution to problems in a new manner”. To be innovative, an idea, a product or an approach has to be: new in the context it is to be applied; useful, according to the expected goal or to the problem to be solved, and; able to “sustain” after the test period. n innovation (a new idea, a new product or an approach) must be new in the context of geographical area, scale of operation, field, discipline, type of culture or type of businesses, must have an added value for their users and bring solutions to particular constraints or problems, and should have an up-scaling potential that is can be shown through its sustainability and efficiency beyond the test period.
  • Making Markets work for the Poor (M4P): temporary and catalytic interventions to overcome the main failures and constraints in markets that are important to the poor.Influencing the development of market systems so that they offer increased opportunity and benefits for poor people M4P features: Systemic and institutional change; the use of market-based incentives to leverage the “enterprise” contribution to development and ensure sustained impactSuccessful M4P interventions lead to sustained pro-poor growth, and better opportunities, incomes and choices for poor men and women
  • Good (economic) institutions are those that minimize these “transaction costs” at reasonable cost
  • Institutions: are thenorms, rules, and organizations that “govern” transactions. They are the mechanisms for mitigating the collective-action problems (among sectors, among workers, among firms, between firms and workers, between firms and officials) that lie at the heart of economic development. They may include arrangements that range from property rights, microfinance, business associations, and public agencies.Institutional innovation is therefore about changing the rules that make the seemingly impossible possible. In other words defying the norms and crossing the boundaries. Institutions: definitionsInstitutions are “the rules of the game in a society” (Douglass North)Institutions are "a set of humanly devised behavioral rules that govern and shape the interactions of human beings, in part by helping them to form expectations of what other people will do." Lin and Nugent (1995, 2306-2307). Can be formal (laws, regulations) or informal (patterns of behavior, conventions, moral codes)Institutional prerequisites for markets (I)
  • But institutions, like technology, must also change if development is to occur. Institutions in a community may range from property rights, norms, and the corresponding relationships between individuals that define the participation as buyers, sellers, renters, landlords, tenants, workers etcetera along a particular value chain. Noteworthy is that strong institutions reduce transaction costs of market exchanges between actors in the value chain, and increase internal differentiation in wealth accumulation, product formulation, and upgrading in value chains. Institutions stimulate a system of fair negotiation, trust, and enforcement of contracts that foster further investment, innovation, and local trade.
  • There is increasing evidence from both research and practice that one way for smallholders to overcome market failures and maintain their market position is through orga­nizing into farmer groups or producers organizations. According to Markelova and Meinzen-Dick (2009), when smallholder farmers act collectively, they become better positioned to reduce transaction costs for their market exchanges, obtain necessary market information, secure access to new tech­nologies, and tap into high-value markets that allows them to compete more effectively with large farmers and agribusi­nesses. Producer groups can simplify long marketing chains by connecting smallholders directly to markets, bypassing various marketing intermediaries.
  • It is widely believed that collective action in the form of producer groups can enable African smallholders to take advantage of the new value chains and deal with existing market imperfections. Certain conditions need to be in place, if incentives for farmers to organize around marketing are to be created and sustained (Markelova and Mwangi, 2010).
  • Successes and failures of institutional innovations for improving access to services, input and output markets for smallholder pig production systems and value chains in Uganda

    1. 1. Successes and failures of institutional innovations for improving access to services, input and output markets for smallholder pig production systems and value chains in Uganda Alex Tatwangire (tatwangire@yahoo.co.uk) Smallholder pig value chains development project, ILRI Kampala Office “Workshop: In-depth smallholder pig value chain assessment and preliminary identification of best-bet interventions, Kampala, 9-11 April 2013”
    2. 2. Section 1 Section 2 Section 3 Section 4• Definition of • The nature of • Average revenue • Institutional innovations and input and output and costs innovations innovation marketing associated with recommended by processes. channels in marketing different Uganda. channels institutions: • Successes• Institutional innovations and • Pig farmers’ • Institutions that • Failures the functioning of participation in aim at improving • Major constraints markets. different access to services in the marketing and markets implementation channels. • Way forward for the SPVD project
    3. 3.  Agricultural Research for Development (ARD) in Africa- dominated by the traditional approach of linear research, extension and adoption that has failed to improve livelihoods especially those of the poor. The SSA CP introduced an Integrated Agricultural Research for Development (IAR4D) approach to address the challenges of the traditional approach of ARD. “limited impact of African agricultural research on the intended beneficiaries”. When farmers and other value chain actors are not deriving gainful exchange in the market, it means that there are no ideal conditions of market exchange- , implying high transaction that create opportunistic behaviour in form of cheating and free riding. Institutional innovations create good institutions that improve market exchanges- by minimising transaction costs at reasonable cost.
    4. 4.  Innovation is a new way of achieving the tasks:  a process that comes up with solution to problems in a new manner  Encourages the need to experiment and develop market opportunities.  Changes the way formal Research and Development (R&D) service providers function in terms of behaviour and roles.  facilitate efficient and equitable outcomes of economic development  enhances fair interaction of independent actors along the value chain. Innovation can be technological, institutional, or political:  Technology innovation - about innovating the tools at our disposal- about what we may use to achieve our goals.  Process innovation - how we may achieve our goals more efficiently and more quickly (changing the responsibilities and the perceptions of the people involved )  Institutional-about innovating who we are and why we are doing what we do.
    5. 5.  An innovation starts as a concept that is refined and developed before application- to overcome main failures and constraints in markets. Innovations may be inspired by reality requires:  Research  Development (up-scaling, testing)  Production  Marketing  Use Innovations respond to need and economic conditions: farmer cooperatives created in response to low prices The process of innovation requires:  the need to understand how existing institutions work, and how individuals react in order to introduce activities and products that serve peoples’ need and that are sustainable economically and politically.
    6. 6.  Informal institutions  cooperative behavior sustained through reciprocal exchange and repeated interaction  e.g., informal credit markets, village markets, community initiatives  Conditions under which these work?  Small setup costs, but rising costs as the number of participants and geographical scale increase Belief systems  behavior that is driven by internalized ideas about what is right  morals, religion, ideology … State institutions  Cooperation achieved through “third-party enforcement” of rules and contracts  Implicit force of state punishment
    7. 7.  Institutions are a prerequisites for markets :- minimise transaction costs, transmit information, mediate transactions, facilitate the transfer and enforcement of property rights and contracts, and manage the degree of competition. Institutions are the norms, rules, and organizations that “govern” transactions:-mechanisms for mitigating the collective-action problems that lie at the heart of economic development. Market institutions can be defined as rules of the game, enforcement mechanisms and organizations that facilitate market interaction, coordination, contract formation and enforcement The poor are dependent on poorly functioning inefficient markets for the livelihoods. Need well functioning markets that support competition, lower the costs of doing business, and provide incentives for trade and investment.
    8. 8. Issue/Market Failure InterventionUnequal Access to Information •Public interventions •Market Development / private participation (e.g. ICT, credit bureaux etc) •Collective action and network development•Excessive Costs and Risks of •Risk reductionTransactions •Guarantees•Coordination failures – no access to •Value chain interventionssupply chains /hierarchies •Institutional innovation e.g. Contracting,•Indivisibility (minimum Collective Actiontransactions sizes) •Market facilitation and Development
    9. 9.  No public institution, NGOs, or private institution has had significant interventions to improve marketing of pigs and pig products along the value chain in in Uganda.  Few organisations have been engaged with restocking and formation of farmer groups - include: NAADS, World Vision, and Child Fund.  The formation of farmer groups has failed to generate the anticipated collective action. NAADS has not attempted to promote the marketing of inputs and pig products:- no focus on traders, input dealers, and processors”  Other institution Include: the East Africa Diary Development Project (EADD), Foodnet, VECO, IBI-Trust, the Sub-Saharan Africa Challenge Program (CIAT-Africa, Agricultural Research Institute Kabanyolo, Africa Highlands Initiative (AHI), Huntex Industries Company Limited-Kabale, Kabale Local Government, NARO – KAZARDI, Makerere University, and ICRAF.
    10. 10.  Focus is on organizing smallholders into farmer groups or producers organizations to overcome market failures and maintain their market position by:  acting collectively  become better positioned to reduce transaction costs for their market exchanges  obtain necessary market information  secure access to new tech-nologies  tap into high-value markets that allows them to compete more effectively with large farmers and agribusi-nesses.
    11. 11.  Active producer groups or associations- a reliable way of improving access to output markets, inputs, services and in acquisition of skills that are vital for improved production and management. Formation of farmer groups at village level:- village clusters represented on District/LG IPs Lead farmers appointed by groups : to test, demonstrate or provide learning sites for alternative technologies Producers linked to processing/major companies - so that they become contract growers. Farmer groups sourcing inputs and marketing produce collectively University students undertaking research - requested by local communities and the feedback of results to farmers Seed loans by seed companies being repaid in kind with seed donations also being made to other farmers, pass-on-seed scheme Sustainable intensification in smallholder dairy business though institutional innovative system (in this case, the “dairy hub marketing”).
    12. 12.  New high-yielding crop varieties (cereals, legumes, and root crops) being selected tested and adopted by farmers in all Pilot Learning Sites (PLS) Double bagging of grain to prevent weevil damage (from Purdue University) R&D converting an indigenous sorghum porridge to a non alcoholic “Mamera” sorghum juice now sold in local supermarkets Potato washing, grading, packaging using local materials and marketing in hotels and supermarkets Increasing use of organic and inorganic fertilizer and basins- the development and sale of vegetable boxes by agro-dealers, contain seed, fertilizer and chemicals sufficient for 0.1ha with credit being available for their purchase.
    13. 13.  Certain conditions need to be in place, if incentives for farmers to organize around marketing are to be created and sustained Producer/farmer groups can simplify long marketing chains by connecting smallholders directly to markets, bypassing various marketing intermediaries.
    14. 14.  Lack of credit and high cost of credit are major impediments for adoption. Limited access to information and sources of technology, higher cost of inputs. Limited or no skills of the various players in the chain- a high learning cost Low quality agricultural produce, inadequate supply High transaction costs- high market risk and cash flow problems. Poorly organized market for crop and livestock products Domestic market for local foods, including pork exists, but is disorganized – many players in the value chain Low participation of cooperatives, associations and farmer groups. Price variability, low volumes, lack of buyers, and low business skills. No standards for marketing products, linked with knowledge & information Disorganized markets that can’t provide a win-win situation for all the players in the value chain. Failure to transform the raw foods into some form of processed, branded, easier to move and that can fetch better prices. Limited ability to transform our products to take advantage of our infrastructure conditions.
    15. 15.  Promote and enhance interventions that:  Encourage systemic and institutional change- the use of market-based incentives to leverage the “enterprise” contribution to development  improve governance and participation- mechanisms for improving access to operating capital; and effective strategies for risk management and enhancing the business skills of the Producer Marketing Groups.  Attract more direct participation from the private sector  Build advocacy capacity and alliances with “change agents”  Sensitize members on the democratic principles of participatory group governance through elections  Provide initial start-up capital to kick-start their operations, and to encourage members to increase their registration fees for membership to raise the necessary minimum capital.  Encourage increased annual contributions to the PMGs by the membership.  Train and equip PMGs with business skills to facilitate effectiveness and accountability in running the PMGs as business enterprises.  Register PMGs as legal business entities and not as self-help groups, which restricts their ability to access essential business services.  Enhance the ability of the PMGs to access working capital through access to financial credit: - encourage formal financial institutions to extend pig inventory credit services to PMGs.

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