An evaluation of a market entry model for agricultural input supplies in less developed countries
This paper attempts to examine the interactions between the public and private sectors found in agribusiness, specifically the agricultural input supply sub-sector at a worldwide level, by analyzing several programs in sub-Saharan Africa and examining one case-study in Zimbabwe in detail. The problems of marketing agricultural input supplies in less developed countries (LDCs) are well known, e.g. the lack of distribution networks and rural retailers; the lack of affordable finance and a rural banking sector; the lack of product knowledge in the smallholder market and low volume of input sales; high deposit requirements for Letters of Credit and the shortage of foreign exchange; poor rural infrastructure and a poorly organized private sector; and donor programs which interfere with the market.
A development approach known as The Agricultural Inputs Rural Guaranteed Enterprises and Training (TARGET) model is proposed in this paper as a means of addressing some of these problems. It comprises a credit guarantee fund and a retail-oriented, business training component aimed at manufacturers, distributors, wholesalers and retailers of agricultural inputs in LDCs. This idea draws on the writing of Edesess and Polak (1993) who argued that when product development is undertaken by private individuals or corporations because the return on their investment is sufficient to warrant the capital outlay, development programs need not and should not become involved. However, there are situations in which there is an “investment gap” and development assistance is warranted. In the basic TARGET Model, the “investment gap” occurs between the agricultural input suppliers and the rural retailers. It is at this point where the credit guarantee component of the TARGET model performs a critical function. The business development services are usually provided by NGOs.
The AGENT program in Zimbabwe is an example of this model in practice. It involved a partnership between the NGO CARE, local government and the private sector. CARE had the following responsibilities:
- Needs Assessment – mapping of potential areas,
- Organize orientation sessions with all concerned (e.g. Agritex, DAs, RDCs, communities),
- Identify and recruit rural retailers,
- Train rural retailers and introduce them to suppliers (wholesalers, seed companies and fertilizer companies),
- Provide partial guarantee,
- Regularly monitor rural retailers’ repayments and overall performance,
- Undertake random & comprehensive audits,
- Participate in the review of rural retailers’ performance to determine whether an rural retailer “graduated” to a full direct relationship with supplier.
The local communities/government authorities (e.g. Agritex, DAs, RDCs etc) assisted with identification of potential areas, identification and selection of rural retailers, providing feedback on rural retailers’ progress/performance, and providing advice and technical assistance to rural retailers (e.g. Agritex). The private sector (input suppliers, distributors and manufacturers) assisted with rural retailer selection, participated in training, procured and transported inputs to retailers as per orders, provided partial guarantees, and monitored the retailers’ performance.
The paper also describes the CNFA’s RAISE program in Zimbabwe and compares the methodologies. For example, RAISE has taken a more “hands-off” approach. It has trained and certified trainers to train the rural retailers. The RAISE program then provides a list of trained retailers to the suppliers. The RAISE rural retailers are left on their own to establish contact with the suppliers of their own choosing and apply for credit accounts with credit limits set by the retailer and supplier. The author concludes that the TARGET market entry model shows great potential to change the way public-private sector initiatives work together and he provides a list of recommendations for both businesses and public sector development organisations.