Rural Business Development Services

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KIT Dossier Rural Business Development Services

Last update: Tuesday 27 March 2012

Bringing agriculture to the market

The World Development Report of 2008 (World Bank) marked the end of a trend of global neglect of the importance of agriculture for development. In many settings, agriculture is an engine of rural economic growth, reduces rural and peri-urban poverty, and provides both urban and rural food security. Agriculture is particularly important in the group of agriculture-based countries that are home to over 500 million of the world’s rural poor. Moreover, one billion poor are food insecure.

These days, improved market conditions (due to urbanization), more sensitive policy environments, and innovative civil society initiatives provide new opportunities for effective, inclusive, sustainable, and bankable agricultural development. One of the main challenges is now to facilitate access of small producers to markets. To seriously meet this challenge, smallholders must increasingly be addressed as managers of small or medium enterprises in value chains (KIT, various authors, including Heemskerk, Peppelenbos, and Wennink, for references see KIT's involvement in this dossier). Or, in other words farming is changing from a way of life to an agri-business orientation.

The transformation of extension

Before 1990, agricultural extension was considered a public good that was delivered by public sector agencies and funded from public sources. Extension was supply driven and generally considered ineffective: poor farmers did not benefit much and commercial farmers hardly felt a need for it.

During the 1990s, investments in extension diminished, while some services were outsourced following a market-driven, fee-for-service strategy. This resulted in a decrease in overall service delivery and a decrease in access by the poor, especially in agriculture-based countries in the South. For these reasons, from 2005 onwards, a new approach took shape, that of decentralized, pluralistic, market-oriented business development services (RBDS), also known as market-oriented agricultural advisory services (MOAAS) or market-oriented agricultural extension (MOAE). There are many parallels with other approaches such as extension-plus and pluralistic services. Pluralism here means that the advisory and supply services can be provided by private service providers, the public sector, or by civil society organizations (CSOs), and that these are not only complementary but are synergetic based on public-private partnerships.

Rural (agri-)Business Development Services

At its most basic, extension provides information, knowledge, and technology to facilitate learning by farmers and relevant market (traders, processors) and supply services (financial, inputs, seeds) to improve profitability, productivity, and sustainability of the farming systems concerned. From an innovation systems perspective, extension may also facilitate collaboration of farmers with research and agribusiness to develop new skills and practices in organization, technology, and management. This, too, is intended to enhance farming system performance.

In the past, agricultural extension was provided as a public service. Over the past two decades extension services have evolved toward pluralism, which means that extension is now also provided by the private sector and public-private partnerships. As a result of the emergence of RBDS providers, extension services increasingly have become private services that somehow must be paid for. This presupposes a willingness-to-pay on behalf of the farmers or other market actors. To ensure this is the case, service providers necessarily must become demand-driven or client-oriented. Another, rather practical approach is to embed payment for advice or information in the price of a delivered good or service (seeds, fertilizers, pesticides, and credit) or produce (e.g. levies on export crops). Examples are provided in the box below:

Smart and sensible differentiation in payment will be necessary to avoid elite capture. A third sector (i.e. neither public nor private) provider such as a non-governmental organization (NGOs) may receive public funding from the government for its services. At the same time it will demand commercial fees for its services from private sector farmers and companies, but it may provide services free of charge to another third sector NGO or to a farmer-based organization (FBO).

RBDS may cover a wide range of services and objectives, including information (about technologies, research, markets, inputs, financial services, and climate or weather), training, advice, business development or business management, linkages among chain actors (involving social learning and brokering collaboration), policy development, and gender equality. The basic functions of RBDS relate to the enhanced agribusiness orientation of production, marketing and processing, including intensification, specialization, up-scaling, mechanization and the rationalization of the use of natural resources , which may also help to mitigate climate change. They must be demand-driven in order to increase the likelihood that they are sustainable. They must also be contextual and client- or location-specific since development and market opportunities differ from one place to the other. Finally, they may receive some public funding to address poverty, gender and inclusion issues . This pro-poor and equity orientation justifies public funding.

During establishment, RBDS may temporarily need additional support in the form of external assistance or funding. Part of the attractiveness of RBDS is that the approach has a clear exit strategy for the possible development agencies involved in their establishment. This marks a paradigm shift from projects based on the desire to help poor farmers to an approach aimed at encouraging chain actors to provide market access for small producers and rural employment. However, public funding is likely to be needed for some time to come if inclusion is to be maintained as a public good. The question at some point in time in the future will be: what is cheaper publicly funded RBDS or social safety nets?

Current status of RBDS

Despite their compelling intervention logic, RBDS are not yet very widespread. Structural reforms towards pluralistic, demand-led and market-oriented extension systems are long overdue in most countries. Yet, the World Bank has started to invest in extension reform in a number of countries worldwide. According to Davis (2008), pluralistic extension systems are in operation in Ghana, Kenya, Malawi, Mozambique, Rwanda, and Uganda. National governments of Brazil, China, Ethiopia, India, and Indonesia have also restarted to invest in rural advisory services. However, little is known of the status and performance of advisory services in sub-Saharan Africa and elsewhere.

There is an urgent need to fill this knowledge gap by studying the performance and mechanisms of delivery of specific RBDS services offered. Such a study will bring to light the factors that contribute to successful performance along selected value chains, identify ways to overcome certain constraints, and look at the issues of sustainability, poverty alleviation, and inclusiveness.

Pluralism is almost certain to prevail and deepen with respect to organizational forms, methods and institutional structures. Some of the strongest demands for ‘more extension’ are coming from unexpected areas: expansion in the provision of climate information, growing food security programming, the changing aid-for-trade agenda and comprehensive reform in global agricultural research for development (Christoplos, 2010).

References

FAO_2011_market-oriented

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For questions or suggestions about this dossier, please contact the editor, Sjon van 't Hof, at s.v.t.hof@kit.nl.