Fixing a Market Mismatch

This lagging market for fiber internet is just one of many examples of how the market for certain products or services sometimes stubbornly refuses to form or reach its potential, even amid strong demand, says Andrew Dillon, a development economist and clinical associate professor at Kellogg.

In a new paper that’s part of a larger series, Dillon and coauthor Nicoló Tomaselli—a PhD student at the University of Florence—seek to understand what it takes to create markets in places, like low-income countries, where they’re needed but conspicuously absent.

“We’ve tended to think about missing markets as a demand-side problem,” Dillon says. “For example, some farmers in low-income countries are poor so they might not have enough money to purchase the things they want, and that’s why markets don’t form.”

“But people haven’t thought about this problem as much from the supply side,” he continues. “We should also ask the question, ‘If farmers need to feed their families and fertilizer is such a useful product for them, why aren’t people trying to sell it to them?’”

In part, the answer comes down to what’s known as the “last-mile problem,” where the most-isolated and -marginalized communities often miss out on crucial services because it’s not cost-effective for companies to invest in the infrastructure needed to provide them. It helps explain why some rural households in the U.S. still can’t access high-speed internet, whereas clusters of new homes in suburban or urban areas have no trouble getting hooked up.

But the last-mile problem doesn’t tell the full story.

Dillon and Tomaselli analyzed purchasing patterns at one-day village fairs in Mali—where vendors sold fertilizer and other agricultural products that can help farmers with their crops. The researchers found that simply gathering a group of potential buyers (in this case, farmers) and sellers actually isn’t enough to grease a new market’s gears. It’s also just as important to address often-overlooked aspects such as the provision of financing tools and the timing of fairs.

“We often think of market access as a consumer having a market to purchase a desired product,” Dillon says. “But solving the last-mile problem also requires thinking about the timing of when products are offered to consumers, and their payment and finance options; it’s not just about having the opportunity to purchase something.”

Making adjustments

Roughly one-third of the West African nation of Mali is covered by the Sahara Desert, and like many countries in the region, its agricultural productivity is low. Yet the vast majority of people in Mali work in agriculture.

Fertilizers and other agricultural materials and equipment could make a dramatic difference to these farmers’ productivity and income, but farmers in the region use far less fertilizer than growers elsewhere in the world. This is largely because markets for agricultural products in rural areas are scarce and difficult to coordinate, given vendors’ concerns about the cost-effectiveness of traveling to sparsely populated areas.

Dillon and Tomaselli wondered whether altering how the buying opportunities are typically organized could drive village farmers to make more purchases, thereby enticing vendors to continue selling products at these remote villages.

The researchers worked alongside local partners in Mali to organize several one-day village input fairs in 2017 and 2018, where vendors of agricultural products like fertilizer could set up shop.

They randomly assigned 140 villages to one of seven groups. One group of villages held no fairs (the control group), and each of the other six groups held fairs with different timing, payment, and financing options.

Four of the groups’ fairs were scheduled right after harvest, when farmers were flush with earnings for the year. Of these four groups, two required buyers to provide a 50 percent deposit upfront for purchases to be delivered later (during planting season when farmers apply the fertilizer), and the other two required a lower deposit of just 10 percent. Two of these four groups also offered credit services from a local microfinance institution, whereas the other two did not.

Unlike the four groups that held fairs after harvest, two final groups hosted fairs later, during planting season, which is the normal time when farmers purchase fertilizer. One of these groups had access to credit services, while the other did not.

Better timing over better credit

The researchers used a combination of data from these fairs and from household surveys to track farmers’ use of fertilizer.

They found that farmers’ uptake of fertilizer was greatest at fairs that were held just after the harvest (when farmers had the most cash to spend) and that only required a 10 percent deposit. Having credit services available made little difference to farmers’ purchasing decisions at the harvest-season fairs. The total value of fertilizer used by farmers in the two groups that met both of these conditions increased by 24 percent to 28 percent, compared with the control group.

In addition, farmers who attended fairs held during the later planting season made about as many fertilizer purchases as these two other groups—as long as credit services were also available.

Ultimately, organizing markets earlier in the agricultural season was as effective as providing farmers liquidity through credit financing. Since rural finance is often limited in low-income countries, one of the most-effective ways to build agricultural markets facing the last-mile problem is to coordinate the timing of markets.

Buying fertilizer at these earlier fairs without credit, for example, may be more cost-effective for farmers since they are paying mostly with their own money instead of with a loan that carries interest. This also removes the need to coordinate with a microfinance partner, and it gives vendors a larger window of time to deliver the goods.

Above all, the researchers found that the farmers who purchased fertilizer saw a 52 percent increase in their production and a 60 percent uptick in agricultural sales.

“By focusing on market creation, the village input fairs provide a service to the agricultural dealers—creating business opportunities,” Dillon says. “But it’s also about providing a service to the farmers. They’re receiving access to products that can, in the long term, help improve their productivity and create more food security for themselves and their families.”

Scaling early success

Buoyed by the success of these first fairs, the researchers are now focused on replicating and scaling them. In the next phase of their work, Dillon says, the guiding question becomes, “since this works in the research, how do we then translate it to the real world?” In other words, how might these fairs eventually become self-sustaining?

He and his team are working to create local social enterprises and a global nonprofit organization to invest in making village input fairs while also measuring their effectiveness and then looping in more partners—like other nonprofits and governments—to expand these efforts.

They also plan to test the model in Ghana, Côte d’Ivoire, and Senegal.

Dillon notes that there will need to be greater participation in fairs if the markets are to drive change at the community level, which is a key goal of ongoing scaling research in this field. And this may require leaders and organizations involved in this work to identify more creative ways to publicize and build trust in these events, among both farmers and vendors.

“How do we create agricultural transformation?” Dillon says. “One of the things we need to understand, for this to have a wider impact, is how to drive up participation in these fairs. This is where thinking about marketing strategies becomes very important.”