Outsourcing agricultural advisory services

Democratic development, decentralization and economic and political liberalization have led to a more important role for local governments and a greatly increased number of rural development stakeholders. One of these stakeholders, the private sector (including private entrepreneurs, non-governmental organizations (NGOs) and civil society organizations), plays an increasingly important role in the rural development of Sub-Saharan Africa.
A wide variety of both public and private service providers offer advice to farmers, while farmers gain their knowledge from many different sources. Therefore, a pluralistic advisory service system is already a fact of life for many farmers in Africa.

In the context of globalization, with an emphasis on competition, innovation is a prerequisite for agricultural development and hence rural development. Innovation is about knowledge and is the result of an interactive learning process between stakeholders. As such, the diversity of local stakeholders is both a challenge and a major opportunity for enhancing innovation. We use this ‘innovation system perspective’ for that part of the innovation system that is represented by the agricultural advisory system.
One of the emerging questions is: How can the advisory services system improve and more efficiently enhance innovation, and contribute to the overall strengthening of the innovation system?

A recent trend that we are currently observing is that agricultural advisory services are sometimes ‘outsourced’, or ‘contracted out’. Outsourcing services is a way of involving non-public services in pluralistic agricultural advisory systems.
Responding to emerging needs expressed by farmers, such as demands for entrepreneurial and facilitation skills, knowledge about value chains and information on sustainable production methods, requires a variety of stakeholders.

In this new context, service provision is no longer solely determined by the available supply or by the government, but increasingly by the users’ demands; the ‘service chain’ is ‘reversing’ (i.e. from being orchestrated by the public sector to being driven by clients and users).
The outsourcing of agricultural services is an institutional innovation in Sub-Saharan Africa, which facilitates both the supply and demand for services in an enabling policy environment.

The public sector in Sub-Saharan Africa and beyond is looking for ways to involve the private sector in agricultural service provision and/or to privatize service provision. Since outsourcing advisory services is a rather new phenomenon there is little known about where it can be implemented, the conditions under which it is helpful, and how it can best be implemented.

This dossier presents lessons learned on outsourcing agricultural advisory services to provide guidelines and direction for all kinds of organizations involved in demand-driven service provision, be it in agriculture (credit, other financial services, staff training, input provision, etc.) or in the social sectors such as rural health and education.

I.   Methodology and analytical framework

II.  Lessons learned

III. Guidelines

I. Methodology and analytical framework

The case study methodology offers a means of learning about a complex situation through extensive description and contextual analysis. Heemskerk, Nederlof & Wennink (2008) present the findings from case studies on outsourcing advisory services in Tanzania, Mozambique, Uganda and Mali:
• Tanzania: NAEP II Pilot Initiatives Programme (PIP);
• Mozambique: Outsourcing programme PROAGRI I;
• Uganda: NAADS outsourcing programme;
• Mali: PASAOP outsourcing of agricultural extension.
The case studies were documented by national practitioners in the respective countries.

An analytical framework was designed to analyse the case studies from an Agricultural Innovation System (AIS) perspective. An AIS involves a far broader set of stakeholders that provide services to the clients within the sector than the traditional research and extension agencies. Looking at outsourcing experiences from this perspective provide additional insights and lessons about agricultural advisory systems and how to make these beneficial for the rural population.Four main components form the basis of the framework for analyzing the use of outsourcing in agricultural advisory services in the AIS context:

1. The enabling environment for outsourcing
   
2. The advisory system and outsourcing services
   
3. Outsourcing operations
   
4. Performance of the advisory system and services
   

II. Lessons learned

1. The enabling environment for outsourcing
   • 1.1. Policy and legislation
   Outsourcing advisory services by the public sector requires demand-driven priority setting as well as downward accountability to create a client-driven service provision system. In order to make this happen, decision-making has to be brought closer to the clients. Decentralization of planning, procurement and monitoring and evaluation (M&E) of agricultural advisory service provision at the local level are essential to make participation possible;
   • 1.2. Institutional reform
   The principle stakeholders in outsourcing advisory services are: local government authorities, (public and private) agricultural service providers, and farmers’ groups/organizations. A desired future scenario in many countries is a situation in which farmers’ organizations directly contract service providers without interference from local government authorities (except to provide funding). The changing roles of the three main stakeholders require funding, procurement and service provision functions to be separated, thus leading to the need for institutional reform.
   • 1.3. Capacity development
   A system of advisory services that uses outsourcing to acquire new knowledge and experience via new stakeholders requires strong emphasis on capacity development to promote the further evolution of these institutional innovations. Institutional capacity development to enhance the interaction between the three main stakeholder categories is urgently required. Strengthening the capacity of farmers’ organizations is also a priority, as well as the need to develop local government capacity to administer a system based on outsourcing and performance contracting. Contracted private agricultural service providers may need support in terms of capacity development.
    
2. The advisory system and outsourcing services
    • 2.1. Organizing the demand
   In all case studies, the agricultural advisory services system is moving from a situation in which demand is determined by the public sector, to a system in which stakeholders such as NGOs but also farmers’ group and organizations are influencing the agenda of the overall system. The demand for advisory services can be further mobilized by supporting the collective action of farmers.
   • Client differentiation and inclusion. The programmes of outsourced services need to be tailored to the varying needs of specific farmer categories, in particular female farmers, disadvantaged farming households, and families affected by disease.
   • Quality of demand. The challenge of appropriate demand articulation by smallholders is to strengthen market access and their empowerment in the value chain, while respecting and enhancing their livelihood systems.
   • Articulation of demand. In order to allow for proper client participation in the planning and M&E of advisory services, much more effort is needed to develop a level playing field in which farmers and their organizations play the role of the client who is demanding quality and, if unsatisfied, is in a position to effectively influence service provision.
   • Managing diversity in demand. Both priority setting and aggregation are needed to develop realistic plans for supply of advisory services.
   • 2.2. Responding to the demand
   • Variety of service providers. Additional service providers (private sector, NGOs, farmers’ organizations) can be brought in via outsourcing.
   • Organization and pluralism. The new pluralism in agricultural advisory service providers has, to some extent, enabled public sector providers to break free from their more restrictive administrative controls and, in some cases, to actually go private.
   • Interaction and coordination. An important role for the public sector is to facilitate planning and M&E, primarily emphasizing equitable access to services. Agricultural advisory services need to have strong links with national and international knowledge institutes (in both the public and private sector) in order to be able to offer up-to-date advisory services.
   • Competency and capacity. Service provision needs to be mainly based on comparative advantages and complementarity, rather than on replacement and competition. Opening up the system should lead to clients having access to new skills in business orientation, multi-stakeholder facilitation, community development, farmer empowerment, agro-processing, mindset change, a change in learning and a new attitude (‘business unusual’). Involving new stakeholders is also expected to contribute to interactive learning. There is a need to resolve the issue of identifying facilitation skills to ensure high levels of interaction among various stakeholders and the effective transfer of knowledge between providers, users and other incidental beneficiaries. A deliberate effort must be made to help the weaker service providers to acquire the capacity to participate in the outsourcing system based on realistic contracts.
   • 2.3. Role and responsibilities of the various stakeholders
    • Supply. The private services have often demonstrated poor interaction with (frequently public) research services and with local government, resulting in concerns about continuity, exit strategies for time-based contracts, institutional memory and learning. The overall challenge is to transform the agricultural extension services from the old stereotype of connecting researchers and farmers, to the new innovative mode of discussing and working with farmers, researchers and the business community in a participatory manner to identify viable solutions.
   • Demand. Empowering farmers’ groups is essential - not only for planning and M&E, but also for procurement, co-financing and (eventually) direct contracting of services. In practice, farmers’ organizations have often acquired a role in planning and are being effectively represented, but they still have little influence over the actual contracting process.
   • Governance. Only contracting at the local level (with strong involvement by the local government) allows for downward accountability and transparency. Important challenges for the local government remain, such as building capacity to manage a pluralistic outsourcing agricultural advisory services system, as well as enhanced accountability and private sector involvement.
   • Facilitation. Facilitation capacity for interaction between farmers’ organizations, research and service providers, entrepreneurs and other stakeholders, needs to be perceived as neutral. The public sector needs to identify qualified facilitators for multi-stakeholder learning in the innovation process.
   
   
3. Outsourcing operations
   • 3.1. Procurement
   • Farmers’ involvement. Ideally, the client of agricultural advisory services, the farmer/entrepreneur, the farmers’ organization or the community, recruits and contracts the service provider directly, but smallholders in Sub-Saharan Africa often lack the necessary means, capacity and power to supervise procurement of the required services. However, farmers are becoming more involved in the procurement of services in countries such as Uganda.
   • Tendering. An element of competition has been incorporated into all the different outsourcing arrangements. Most case studies have developed a mix between tenders and open calls for proposals. A large number of potential agricultural service providers are still excluded from the contracting system for a variety of reasons (e.g. a lack of tender preparation skills or familiarity with procedures, costs, location, etc.).
   • Competition. The dynamics of the competitive process can be complicated: on the one hand the competitors need to learn from each other and develop partnerships while, on the other hand, the process encourages providers to keep knowledge to themselves. Competition needs to be limited to the call for proposals, and should not affect implementation or cause problems for interactive learning. Premature formation of local alliances can also threaten the competitive element. A major general concern is the control of transaction costs for the competitive process, hence the need to use short-lists based on local registration of agricultural advisory service providers.
   • 3.2. Funding
   • Co-funding arrangements. Co-financing of services by private agricultural service providers is limited. The challenge for real co-financing lies in the contribution by farmers, farmers’ organizations and private agricultural service providers through public-private partnerships.
   • Length of contracts. Most agricultural advisory service contracts are of a relatively short duration (generally just a few months). The challenge is to achieve a balanced mix of direct benefits from short-term services and indirect benefits from long-term services (addressing long-term issues, such as environmental and natural resource management constraints).
   • Disbursement arrangements. In practice, disbursement is often problematic only for administrative reasons, requiring some financial muscle with the agricultural service providers to guarantee continuity of services. This leads to the conclusion that outsourcing programmes require capacity strengthening in management at the local level, together with total fiscal decentralization, in order to avoid disbursement problems.
   • Incentives. A special issue concerns the provision of incentives for potential agricultural service providers who are still attached to the public extension system. The need for service provision in remote, distant areas and for problematic target groups, that is difficult to meet through public services, could be a reason for providing additional incentives for implementing contracted advisory services 
   • 3.3.  Implementation
   • Learning strategies, monitoring and evaluation (M&E). Most outsourcing programmes are initially implemented as a learning process, but there is often too much pressure to achieve short-term poverty impact at the expense of thoroughly documenting the procedures and methods followed, learning specific lessons and converting these into generalized enhanced practices that are relevant to others practitioners. This process requires well-established learning strategies, and effective M&E to ensure continued opportunities for ‘learning by doing’.
   • Exit strategies. Outsourcing programmes require exit strategies, particularly in the case of short-term contracts.
   
   
4. Performance of the advisory system and services
   • 4.1. Efficiency and effectiveness
   Efficiency enhancement is expected to be achieved by making use of the entrepreneurial and other skills which are envisaged to be more widely available within private, rather than public, agricultural service providers, while attracting at least some modest levels of co-financing from the organizations and clients involved. Effectiveness can be enhanced as contracting is related to performance management and clear targets must be agreed, while contracting non-public service providers brings in new knowledge and skills, achieving enhanced results through complementarity.
   • 4.2. Performance and sustainability of the system
   All case studies indicate that the main gap is the required capacity at organizational level (local government authorities, farmers’ organizations and non-public agricultural service providers), as well as the need for institutional capacity development, including more efficient stakeholder configurations and sustainable programme funding. A crucial remaining role by the public sector is to provide services for which there is an advisory service market failure; clear public sector roles need to be established in terms of functions, thematically and geographically, in order to avoid collapse and discontinuity. As yet there is little information available on the impact of outsourcing on rural innovation, primarily because most cases are still at the pilot phase.
   • 4.3. Performance and accountability of agricultural service providers
   The case studies suggest that greater emphasis is needed on downward accountability of contracted agricultural advisory service providers. Farmers’ organizations and other clients are the only stakeholders who can effectively monitor the performance of these service providers.
   
   
   

III. Guidelines

Lessons learned from recent experience collected in Uganda, Tanzania, Mozambique and Mali and more broadly in other countries both inside and outside Sub-Saharan Africa, have yielded a set of guidelines that may help in implementing an effective system for outsourcing. These guidelines can be grouped into three categories: A. developing the context, including purpose, policies and the enabling environment (steps 1-3); B. managing the outsourcing system (steps 4-7), and C. capacity development (step 8).

Eight steps to successful outsourcing of agricultural advisory services by the public sector:

Step 1: Planning
Assess the risks of various outsourcing policies; announce the initiatives outsourcing initiative to all stakeholders and collect feedback; form and train the outsourcing team in the agricultural sector; engage advisors and facilitators; identify and acquire resources, information and project management capacity; set objectives; organize the planning process for priority activities or services to be outsourced.
Step 2: Exploring strategic implications
Understand the existing advisory service programme and its organization: vision, core competencies, structure, transformation tools, value chains, strategies; and define decision rights, contract length, termination dates, etc.; as well as alignment of the outsourcing initiative with other programmes.
Step 3: Analysing costs and performance
Measure activity costs and estimate future project costs, as well as opportunities for cost-sharing; measure existing and estimate future performance, as well as the cost of poor performance; determine costs/performance benchmarks, as well as specific risks, asset values, total costs, pricing models, final targets.
Step 4: Selecting agricultural service providers
Set qualifications and evaluation criteria; identify providers; screen and certify providers for short-listing; draft and organize calls for proposals; evaluate proposals based on qualifications and costs; perform due diligence; select a provider (based on total costs and the short-list of providers), and review with stakeholder management committee.
Step 5: Negotiating terms of  contracts
Plan negotiations between relevant parties, involving higher levels; prepare terms of reference for all parties; negotiate contract: scope, performance standards, pricing schedules, terms and conditions and announce relationships between stakeholders (MoU).
Step 6. Transitioning of roles and resources
Adjust roles of all stakeholders and plan transition to new roles; Address transition issues such as communication, human resource development, availability of inputs and resources; interact with staff managing the outsourcing system, service providers and farmers’ organizations; provide facilitation capacity; start the contracting process.
Step 7. Managing relationships
Adjust management styles; organize supervision and M&E; communicate and interact with all stakeholders; define and design the learning process (meeting agendas, meeting schedules, performance reports); perform supervisory role; confront stakeholders with poor performance; solve problems in the outsourcing system; build partnerships.
Step 8. Capacity development
Strengthen capacities to implement steps 1-7; individual capacity strengthening based on knowledge skills and attitudes; organizational capacity strengthening of the key stakeholders; institutional capacity strengthening and capacity to interactively learn and innovate. Central to this is the "performance data collection / evaluation / feedback / improvement loop", which is based on downward accountability and client assessment of services provided.

These guidelines are directed at the public sector, more specifically the local level managers of the public system of agricultural advisory services, operating on the basis of demand by farmers’  organizations within the context of (central and local) government policies for contracting out agricultural advisory services to private service providers.

This dossier is a spin-off from Heemskerk, Nederlof & Wennink, 2008, Outsourcing agricultural advisory services: Enhancing rural innovation in Sub-Saharan Africa. Bulletin 380, published by KIT Publishers - Royal Tropical Institute.