Attachment_5_-_Feed_the_Future_Uganda_Agricultural_Inputs_Activity_Strategic_Assessment_Report_2015.pdf

Feed the Future Uganda Agriculture Inputs Activity

STRATEGIC ASSESSMENT REPORT

June – July 2015

September 2015

This publication was produced for review by the United States Agency for International Development.

It was prepared by Marshall Bear and Reuben Banda, independent consultants contracted by Tetra Tech ARD

This report was prepared for the United States Agency for International Development. Contract No. AID-617-C-13-00001, USAID/Uganda Feed the Future Agricultural Inputs Activity.

Implemented by:

Tetra Tech ARD 159 Bank Street, Suite 300 Burlington, Vermont 05401 Telephone: (802) 658-3890

Feed the Future Uganda Agriculture Inputs Activity

STRATEGIC ASSESSMENT REPORT:

June – July 2015

DISCLAIMER

Views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

CONTENTS

EXECUTIVE SUMMARY ............................................................................................. i

BACKGROUND

Section 1: Findings and Conclusions

A. Findings

1. Ag Inputs Theory of Change

2. Some Adoption of CSBS Strategies but not Transformative

3. CSBS: A Tough Sell in Today’s Ag-Inputs Market Context

4. Cross Walk Assessment Findings with Systemic M&E Data

B. Conclusion

Section 2: Recommendations for the Way Forward A. Revised Theory of Change B. Guidelines for Re-framing Offers to the Ag-Inputs Market C. The Principles and Practices of the Facilitator D. Organizational Set Up E. Adjust M&E System with Revised Strategy and Offers

Section 3: Future Scenarios A. The E-Voucher Scheme B. The Hub/Wholesale Outlets In Rural Communities C. Fit of Innovations in the Content of the Ag-Inputs Market in Uganda

ANNEX A: Schedule of Meetings ANNEX B: Revised Theory of Change with Assumptions ANNEX C: Facilitate Cooperation to Improve Ag-Input Market Competition ANNEX D: Revised Outcomes ANNEX E: Outcomes Mapped to Offers ANNEX F: Condensed Strategic Assessment Terms of Reference

ABBREVIATIONS

AIA Ag Inputs Activity BGS Business Growth Specialist CLA Collaboration, Learning, Adapting CLU CropLife Uganda CPM Commodity Production and Marketing Activity CSBS: Customer Service Business Strategy DLG District Local Government EEA Enabling Environment for Agriculture Activity FISP Farmer Input Support Programme GMADDA Greater Masaka Agro-Dealers Development Association HQ Headquarters ICT Information and Communication Technology IFDC International Fertilizer Development Center ISTA International Seed Testing Association MAAIF Ministry of Agriculture, Animal Industry and Fisheries MITC Ministry of Industry, Trade and Cooperatives MOLG Ministry of Local Government M&E Monitoring and Evaluation NCBA/CLUSA National Cooperative Business Association NSCS National Seed Certification Service M4P Making Markets Work Better for the Poor PAES Private Agricultural Extension Services PDP Preferred Distributors Program RM Role Model Team NARO National Agriculture Research Organization NN Noise and Networks Team SME Small and Medium Enterprises SSP Spray Service Providers USTA Uganda Seed Traders Association UNADA Uganda National Agro-Input Dealers Association SMS Short Message Service SS Support Systems Team UNBS Uganda National Bureau of Standards URA Uganda Revenue Authority URSB Uganda Registration Services Bureau TF Target Firms TIN Tax Identification Number TIU Transparency International Uganda TOC Theory of Change TOR Terms of Reference USAID United States Agency for International Development USH Uganda Shillings

Feed the Future Uganda Agricultural Inputs Activity: Strategic Assessment Page i

EXECUTIVE SUMMARY

Context: In November 2012 Feed the Future Uganda awarded Tetra Tech ARD a five-year Activity to promote the responsible use of agricultural inputs in selected target districts. The goal of the Feed the Future Uganda Agricultural Inputs Activity is to increase the use of high quality agricultural inputs in Uganda through:

• Increased availability of inputs to farmers in Feed the Future target districts by:

• Improving reliability, efficiency and service provision in the agro-inputs supply chain

• Increasing the quantity and quality of marketing to farmers

• Increasing the production of certified maize and bean seeds

• Decreased prevalence of counterfeit agricultural inputs by:

• Supporting the development of E-Verification systems

• Strengthening supply chain relationships

• Increasing the capacity of domestic agriculture input associations to regulate, convene and advocate for their members

The Activity uses a market facilitation approach (see text box for a description), leveraging market forces to accelerate change in the agricultural inputs supply chain, to ensure sustainability and scale. The Activity is currently implemented in 18 target districts by 24 staff (including seven field based staff), and includes 29 desired outcomes implemented by three teams (the Role Model team, the Support Systems team, and the Network and Noise team). It also includes cross cutting activities designed to increase the participation of women and youth in the ag-inputs supply chain, and strengthen climate change adaptation. Building the capacity of agricultural inputs supply chain actors including wholesalers, retailers and industry associations, the Activity also focuses on finance and business services supporting the supply chain, and builds awareness of high-quality inputs through a broad spectrum of media channels.

The Activity is currently in the third of five years of program implementation. To improve future Activity performance and to ensure appropriate Collaboration, Learning and Adapting (CLA) of approaches and activities, the team invested in a strategic assessment of program outcomes to date, with three major objectives:

1) A review of progress and change in the agricultural inputs market system to date;

2) An assessment of overall progress towards achieving systems change; and

3) Recommendations focused on strategic, tactical, and organizational shifts, including a broad implementation plan to scale/crowd in more critical market players and functions.

The results of this assessment will be used to inform Year 4 and Year 5 work plans.

Marshall Bear1 and Reuben Banda2 conducted the strategic assessment. The team combines knowledge of the market systems approach and its application in agricultural input markets in similar market settings in Africa.

They chose methods that focused more on breadth (interviews of all market actors) than depth (interviews

1 An independent consultant based in Albuquerque NM with experience in design, evaluation, and training in the market systems approach.

2 The Managing Director of Musika, a Zambian-based market facilitation organization, with extensive experience in transforming the agricultural inputs market in Zambia in favor of the needs of small farmers.

Text Box 1: Market Facilitation [Market] Facilitation attempts to stimulate change in market systems without the project taking a direct role in or becoming part of the system.

Practitioners and donors using this approach try to minimize direct provision of goods and services by the project—focusing instead on changing relationships between actors in the value chain or introducing new ways of doing business that increase the local availability of needed goods and services.

-- USAID “Understanding Facilitation” Briefing Paper https://www.microlinks.org/blog/shifting-market-system-facilitation-approaches https://www.microlinks.org/blog/shifting-market-system-facilitation-approaches https://www.microlinks.org/blog/shifting-market-system-facilitation-approaches

Feed the Future Uganda Agricultural Inputs Activity: Strategic Assessment Page ii with agro-dealers, their suppliers, and customers) in order to understand how market system dynamics were affecting the Activity goal of increasing access to genuine agricultural inputs. The methods chosen explain why this report presents its findings in terms of observed trends and patterns of behaviors among market actors, instead of attempting to quantify the results of these behaviors using pro-forma financial statements.

The assessment team did draw heavily on the Activity’s systemic M&E data, because of its insights into the effects of the Activity’s interventions on facilitating market system change.

The strategic assessment was conducted from June 14th – July 3rd and was divided into three stages3:

1) Meetings with Kampala-based Ag-Inputs Activity staff and Commodity Production and Marketing

(CPM) and Enabling Environment for Agriculture (EEA) Activity leaders, followed by field visits to Feed the Future Districts in Mbarara, Bushenyi, Masaka, Mubende, Mbale and Iganga for interviews with key agricultural input market players and Ag-Inputs field staff (Business Growth Specialists, BGS);

2) A review of systemic M&E data both before and after key informant interviews, with a primary focus on understanding the systemic effects of Activity interventions;

3) A debriefing with all Ag-Inputs staff during the Activity’s Quarterly Review meeting from June 29th to July 3rd in Kampala.

Findings: The strategic approach taken by the Activity4 to date focused on the development of role models among agro-dealers, who shift their business practices from traditional trading to customer service business strategies (CSBS); enabling agro-dealers to adopt CSBS by increasing the provision of business products and services from their suppliers (e.g. preferred distributors) and third party service providers (e.g. ICT, working capital finance) and, to leverage professional (e.g. industry associations) and social networks to reinforce supply and demand for CSBS. It uses changes in desired agro-dealer behaviors and practices as proxies for CSBS adoption rates. The Activity reported “evidence of a small number of instances where Ag-Inputs directly influenced business changes” among agro-dealers5. What accounts for limited adoption to date?

The assessment found that the current dysfunction of the agricultural inputs market has conspired against the adoption of customer service business strategies by agro-dealers and their retail customers. The expanded presence and increased sophistication of counterfeits in the market is one major reason for this market dysfunction. Reputable district level agro-dealers and their chemical and seed suppliers have had to take extraordinary and expensive measures to protect their reputations and brands from being undermined by counterfeits. Input buyers increasingly source directly from their suppliers in Kampala rather than take the risk of buying counterfeits from a third party reseller. Input sellers increasingly sell direct to local retailers and farmer groups to limit the risks of their products being diluted by briefcase retailers.

This practice adds to already high transaction costs and undermines necessary cooperation between value chain actors to get quality agricultural inputs to smallholder farmers. At a firm level, agro-dealers – the focal point of the CSBS strategy - must increase sales volume at the least possible cost in order to stay in business.

This discourages the kinds of investments in better business systems and practices needed by agro-dealers. It also has undermined the Ag-Inputs role model strategy in the wholesale/retail portion of the agricultural inputs market.

Two other factors have contributed to the lower than expected adoption rates of the CSBS model. Selling agro-chemicals and seeds is seen as a “get rich quick” business. With a little bit of capital and a simple trading license, it is relatively easy for an individual to enter this business. As a consequence, there is a high degree of business births and deaths among start up agro-dealers. This “churn” creates competition for inputs with more reputable dealers, while also opening the door to more counterfeiting either through criminal intent or

3 See Annex A for the schedule of activities and people interviewed during the assessment.

4 Reference: Ag-Inputs Activity, Performance Management Plan, March 2015 5 See “Systemic M&E Quarterly Report Y3Q3.” See Table 1: Changes in Agro-Dealer Behavior and Practices” for a detailed accounting of changes reported as of January 15, 2015.

Feed the Future Uganda Agricultural Inputs Activity: Strategic Assessment Page iii simple agro-dealer ignorance. The Government – in this case the Ministry of Agriculture, Animal Industry and Fisheries (MAAIF), Ministry of Trade Industry and Cooperatives (MITC), and Ministry of Local Government (MOLG) -- has been ineffective in regulating the ag-inputs industry: its own licensing and standards regimes (e.g. E-Verification and seed certification) are weak; and direct government interventions in agricultural inputs supply (e.g. the free distribution of seeds) crowds-out private sector initiative.

Recommendations: The Ag-Inputs Activity should focus interventions on increasing barriers to entry into the agro-inputs business, to limit further growth of less credible agro-inputs dealers, including briefcase firms.

Barriers to entry are addressed in existing Ag-Inputs interventions (e.g. business licensing and tax registration campaigns with relevant public bodies) and others in the final planning stages (e.g. the anti-counterfeiting campaign, private sector-led E-Verification, and strengthened seed certification). These interventions should crowd out less credible businesses and counterfeiters, because the incentives (e.g. better supply arrangements, access to banking services to legally compliant businesses) and sanctions (e.g. threat of business closure and/or legal action) to comply with the rules will be greater than non-compliance. When the rules start to operate more effectively (once sanctions against counterfeits exceed the benefits of selling them), then agro-dealers and their retail customers are much more likely to adopt and upgrade business practices to serve farmers with higher quality and affordable inputs.

The Ag-Inputs team concurred with the assessment team’s findings and the overall strategic direction proposed, and began the process of revising interventions and work plans in July 2015. This report presents the assessment’s main findings, conclusions and recommendations, and outlines new initiatives for the last two years of the Activity.

Feed the Future Uganda Agricultural Inputs Activity: Strategic Assessment Page 1

BACKGROUND

Two key conceptual frameworks6 were used to guide the assessment of expected systemic changes brought about by the Ag-Inputs Activity: the Market System Matrix (Diagram 1) which shows all system functions (core, support and rules) and players in the agricultural inputs market; and the M4P Theory of Change (Diagram 2)7 which shows the c a u s a l model linking a market facilitation activity’s intent with actions.

Diagram 1: Market System Matrix was used to assess the system-wide influences affecting the adoption of a more customer oriented wholesale and retail functions in Uganda’s agricultural inputs market. This matrix pointed the assessment team to the weakness of public and private sector rules and their enforcement as a contributing factor to agro-dealer reticence to invest in a more customer centered business model and to use related support services.

Diagram 2: The M4P Theory of Change was used to assess the Activity’s theory of change as a way to understand how its actions, outcomes and organization were expected to lead to the Activity goal of better access to and use of quality agricultural inputs. This diagram was used to assess the Activity’s existing theory of change and how it may have guided overall Activity efforts to unrealistically leverage wider system changes based primarily on the efforts of agro-dealers and retailers.

The report is divided into two sections which correspond to the key questions outlined in the TOR8: Section 1 reports on the assessment’s findings and conclusions (the look back); and Section 2 discusses recommendations for the way forward including a revised strategy (theory of change) and its implications on operating tactics (offers of support), facilitation, internal organization, adjustments to outcomes and M&E data collection. The report closes (Section

3) with a discussion of innovations in agricultural inputs markets elsewhere in the region that could be relevant for Uganda.

6 Courtesy of the Springfield Centre Making Markets Work Training Program.

7 M4P stands for Making Markets Work Better for the Poor and was coined in a seminal DFID paper prepared for an ADB/DFID ‘learning event’ held in Manila in February 2005.

8 See Annex F for the TOR.

Feed the Future Uganda Agricultural Inputs Activity: Strategic Assessment Page 2

Section 1: Findings and Conclusions

A. FINDINGS

The assessment’s findings draw from three sources: (i) interviews with agro-dealers, suppliers and retailers of chemicals and seeds and their national associations9; (ii) interviews with Ag-Inputs staff in Kampala and with Business Growth Specialists (BGSs) in the field; and data from the Activity’s monitoring and evaluation system.

1. Ag-Inputs Theory of Change

The Activity’s underlying “theory of change” and its operational strategy first must be unpacked to serve as a frame of reference for the strategic and operational adjustments recommended by this assessment. Diagram 3: Ag-Inputs Theory of Change articulates the “implied” theory of change that has guided the Ag-Inputs Activity to date.

The logic is straightforward: If district town based agro-dealers buy-in, adopt, and expand the CSBS strategy and realize the benefits of increased sales and profits from delivering quality inputs to a loyal customer base, then their customers (trading center retailers) would follow their lead and adopt similar customer oriented business practices. Concurrently, the Ag-Inputs team identified suppliers who could serve as “role models” to other suppliers through the changes they make in their business practices, to support agro-dealer customer service innovations.

At the start of the Activity, most agro-dealers could be characterized by their use of simple trading practices and, as a consequence, they lacked any knowledge (or interest to know) about their customers. Agro-dealer customers would be greeted by a person behind the counter with little or no formal training, with no stock of the customer’s preferred brand, leaving them with no choice but to purchase whatever was in stock. Despite these drawbacks, the Activity chose district based agro-dealers as the leverage point to bring about the desired change in the ag-inputs market because of their numbers – at least 2,500 agro-dealers of varying size and sophistication - and their reach throughout Feed the Future districts.

The Activity identified agro-dealers who were willing to adopt customer service business strategies and offered them a bundle of services. These included workshops on CSBS, linkages with ICT firms, SMS aggregators and radio stations for better management and marketing, equipment demonstrations and cost share support for joint marketing or technology adoption. Simultaneously, the team identified suppliers of agro-chemicals and seeds to explore “preferred distributor programs” and carry out plant clinics for agro-dealers who were making the shift to customer-oriented strategies.

9 Uganda Seed Traders Association (USTA), Uganda National Agro-Input Dealers Association (UNADA, and CropLife/Uganda.

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2. Some Adoption of CSBS Strategies but not Transformative

Quarterly reports have documented10 and this assessment confirmed some of the positive change that have occurred in the first three years of the Activity. Individual agro-dealers of different sizes and sophistication are adopting CSBS in whole or in part, and providing better service to their customers11. Examples include:

• In Mbale, an agro-dealer expanded utilization of their customer records to identify customers to be trained in tomato disease management and develop demonstration gardens.

• In Masindi, an agro-dealer has been utilizing its customer records for SMS marketing, which has drawn attention to his business from many farmers in the region and most recently new customers among ginger farmers.

• An agro-dealer in Masaka has started outreach campaigns based on crops grown and areas of production for different farming systems. The firm has contracted extension workers and developed training materials.

• In Jinja, an agro-dealer has been assisting a local association of maize farmers to forecast seed requirements for next season, based on last season’s maize sales.

• A woman-owned agro-dealer in Lira has been maintaining and updating a very simple, efficient and effective business system to manage inventory and calculate her daily, weekly, and monthly sales and expenses, and ultimately, calculating profits for the first time.

While some evidence exists of individual agro-dealer adoption and use of CSBS strategies, adoption rates have not approached the breadth (scale) or depth (continuous adaptation and investment) required to transform the ag-inputs market from simple trading practices to improved sales and added value service strategies. In fact, the last Quarterly Report (April 2015) concluded: some target firms have not yet seen the value of developing and utilizing customer management systems.

3. CSBS: A Tough Sell in Today’s Ag-Inputs Market Context

The assessment team found that the CSBS model is a very tough sell in the current context of the ag-inputs market system:

• Frequent price wars between reputable firms and counterfeiters have squeezed margins;

• Many new (and mostly unqualified) entrants in the “agro-dealer” space have increased competition for customers; and

• Higher real costs of doing business due to frequent trips by agro-dealers to Kampala to source products directly from suppliers squeezes margins further.

Diagram 4: CSBS A Tough Sell in Today’s Market Context is a synthesis of the many interviews conducted with agro-dealers in the course of the assessment. This table looks at two variables – profit margins and sales volume – to compare and contrast the business strategies envisaged by Ag-Inputs at the start of the Activity with what appears to be the current, and dominant, business strategy in use today by agro-dealers.

Envisaged Future Business Strategies: At baseline, a simple trading model might be positioned in the high margin/low volume quadrant in the diagram. Agro-dealers didn’t invest much in attracting and/or keeping customers so their costs would be low and margins high. This low-volume approach creates incentives to sell

10 Source: Ag-Inputs Quarterly Report of April 15 from data compiled in the M&E system.

11 Reference: Ag-Inputs Quarterly Report April 2015.

Feed the Future Uganda Agricultural Inputs Activity: Strategic Assessment Page 4 dated or fake products to raise margins, and customer service takes a back seat, creating a revolving door of customer dissatisfaction. Activity interventions were expected to increase consumer demand for better quality ag-inputs from its very low base12 and this in turn, would require agro-dealers to shift their business strategy from low volume/high margin to high volume/lower margin. This shift would be revealed in Activity data on changes in agro-dealer behaviors and practices and be rewarded with more sales from a loyal customer base.

Diagram 4: CSBS A Tough Sell In Today’s Ag-Inputs Market tells the story of this shift by following the gray arrow from the Status Quo (1) in the upper left quadrant to the Future Vision (2) in the lower right quadrant.

The core assumption ((3) Why?) behind this shift is that the ag-inputs market would perform its function by rewarding quality performers while sanctioning counterfeiters and less credible agro-dealers.

Current Business Strategies: The core assumption has proven to be invalid. The incentives to cheat continue to outweigh the cost of sanctions ((5) Why?). Counterfeiters appear to be able to parry every thrust by sophisticated suppliers to protect their brands13 and they face few if any reprisals (Text Box 1) even when their base of operation is known.14 Farmers are as price conscious as ever and, according to Ag-Inputs BGS’ s, they knowingly purchase counterfeits: If there is a good chance I’m going to buy a counterfeit anyway, why buy the more expensive counterfeit15. And, those farmers who are more quality conscious are reluctant to enter the market for fear of being cheated.

12 Uganda has one of the lowest rates of fertilizer application (1.8 kg/ha) and use of improved seed (10 – 15% of farmers) in Sub- Saharan Africa (IFDC 2008; World Bank 2014).

13 Seed supplier NASECO spent USH 200 Million ($58,000) on tamper proof packaging only to find that counterfeiters were able to replicate the same tamper proof, rendering the new packaging useless.

14 Occasionally Uganda National Bureau of Standards (UNBS) conducts police raids and seizes fake product. In a recent June 15 raid at Container Village UNBS could not physically remove the goods for lack of transport. Source Doug Griffith, EEA.

Feed the Future Uganda Agricultural Inputs Activity: Strategic Assessment Page 5

The agro-dealers who were interviewed, many who have been in business for more than a decade, reflected that if they must increase their sales volumes by capturing new sales in known markets just to survive (follow the purple arrow from (1) Status Quo in the upper left to (4) New Status Quo in the lower left quadrant) and, if they want to grow, they must expand sales through geographic expansion into more distant and costlier areas to serve existing and new markets (follow the purple arrow from the (4) New Status Quo in the lower left quadrant to ( 6 ) Future Vision Sell More to Grow. in the lower right quadrant).

This form of “bad” competition does not lead to innovation around quality and customer service but instead stimulates more cheating either through criminal intent (see Text Box 2) or simple negligence by unqualified new entrants and causes many credible and experienced agro-inputs dealers to knowingly make unwise and unsustainable investments in order to protect their reputations and their brands.

K-M ubende, a third generation family owned agro-dealer with two shops in Mubende, recently hired, trained and equipped two “field workers” with motorcycles to sell inputs directly to farmers and associations. From a systems perspective, one would applaud this investment in outreach to farmers, until one learns that the main reason for this investment is to by-pass trading center stockists in order to protect K-Mubende’s inputs from dilution, and to protect his reputation and brand.

Bukoola tried to implement a preferred distributor program in one district but because of the jealousy invoked among agro-dealer customers who were not chosen as preferred distributors, it was then abandoned.

The company dropped a more efficient distribution system in order to retain loyal customers in the district.

The firm feared the loss of customers due the pressing need to keep expanding quantity because of low margins.

Ironically, credible agro-dealers are shifting their business strategies from high margin/low volume to high volume/low margin, as was anticipated by Ag-Inputs, but not to differentiate themselves by quality and customer service but rather to go after more sales in a very competitive and confused market. Profits that might otherwise have been invested to improve CSBS related systems, such as customer databases, inventory control, financial management, or joint marketing with suppliers, are being used, instead, to invest in more costly direct sales strategies.

Text Box 2: Innovations in Cheating Bukoola’s Marketing Manager reported incidents of alarming frequency of “unhappy” customers with a “receipt” in hand demanding refunds of ineffective “Bukoola” products purchased from a “distributor”. Turns out there is a brisk trade in counterfeit “receipts” of favored brands ranging from agro-chemicals -- Bukoola has 40% of the agro-chemical market – to seeds, cosmetics, whiskey and computer parts. To counter this trend, Bukoola opened its own branch in Container Village to offer buyers a genuine alternative to both fake “products” and fake “receipts”.

Text Box 3: We caught them red-handed but so what!!

One seed company executive, posing as a farmer, lured a counterfeit seed trader into a trap.

The trader arrived at the appointed destination and offered to sell a 30 kg bag of “high quality” maize seeds professionally packaged (the brand read The Best Maize Seed Company, India and the UK) for a price of USH 1,800/kg or far below the actual market price of USH 4,500/kg for hybrid maize seed. The cheats were caught red-handed with a sack full o f maize kernels but the seed exec couldn’t afford the high costs and delays to file a court action, opting, instead to press coverage and sending out alerts.

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4. Cross Walk Assessment Findings with Systemic M&E Data

The assessment concluded that the current strategy of transforming agro-dealers from simple trading to customer service oriented businesses is not working at sufficient scale to bring about meaningful wider system change. This finding is confirmed by the information contained in Tables 1 and 2 below which were compiled from systemic data collected and analyzed by the Activity.

Table 1: Changes in Agro-Dealer Behaviors and Practices reports data on changes in internal practices made by agro-dealers in the six month period, August 2014 – January 201516. From this table, it is reasonable to conclude that approximately 10 – 25% of target firms have made changes in key aspects of business management, over a five month period. Some of the changes were major, such as the purchase of a customized business management software package17 while other changes were quite minor such as the purchase of receipt books, which allow agro-businesses to track sales, and also allow customers to request refunds if products are not effective. Even though the data shows that a higher percent of target firms have adopted internal business management changes than non-target firms, the percentage of adopting firms is well below what Activity staff had expected at this stage in implementation.

The last line in the table, # Firms whose changes targeted farmers directly, could be interpreted to mean that agro-dealers are by-passing instead of working through trading center retailers to serve the end consumer. While this practice may be necessary in the current market context, it adds to the system’s inefficiency and further invalidates the Activity’s original theory that agro-dealers would be a good entry point for creating change amongst retailers.

In sum, the table shows that improvements in business practices have been neither widespread nor transformative.

Table 2: “Churn” of wholesaler-supplier relationships shows a high degree of discontinuity in wholesaler and supplier relationships from season to season (39% from Season 1 to Season 2 and 45% in Season 2 that did not appear in Season 1).

Agro-dealers, much like their customers, are price sensitive and will switch to suppliers who offer slightly better prices and terms of sale, especially credit sales.

16 Investigations conducted by the M&E team of target and non-target firms.

17 The vendor who has sold/installed/trained agro-dealer buyers in this USH 1 million ($315) software package reports that they use only a fraction of the software’s capacity to manage their business better.

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Text Box 4: Agri-Voices – interviews with farmers airs in more time slots than ever before.

“ We have recently started live “on air” programs during agriculture fairs or other big events. Our audience wants more technical information on agriculture and so, we offer call-in shows with agriculture experts. Politics and entertainment holds the greatest interest for our audience but agriculture topics are becoming increasingly popular and we could do more with sponsorships.”

Mubende, Heart FM Manager

Adoption of CSBS would indicated through season-to-season continuity in agro-dealer/supplier relationships based on trust, reliability and services.

The assessment team did discover some evidence of desired systemic change: some change can be attributed to the solution seeking behavior of market players in a difficult market context; other changes can be attributed to the work of the Ag-Inputs team (see example below).

Local Initiatives in Creative Problem Solving: With support from the Ag-Inputs Activity, the Greater Masaka Agro- Dealers Development Association (GMADDA) was created by 12 local agro-dealers. They formed a support group largely because of the failure of their national association, UNADA, to meet their local needs.

They have taken joint action to:

• Fight counterfeits by reporting cheats to local authorities;

• Pool their resources to offer spraying services to members; and

• Organize a sophisticated bulk buying scheme with input suppliers and local banks, which failed to get off the ground because of a lack of member capital.

The presence of similar self-organizing local associations that have managed to get through the early and difficult stages of formal registration represent opportunities to foster wider systemic change in the future.

More Thirst for Knowledge: Table 3 Why Agro-Dealers Report Receiving More Product Knowledge shows that agro-dealers are actively seeking more product knowledge from their suppliers, possibly to pass on to their customers or to protect themselves from counterfeits. Whatever the driver, this data signals a positive trend in support of a system that could value knowledge embedded in the sales transaction.

Some suppliers have also invested in building the product knowledge of its customer base. For example, Bukoola organized six plant clinics – as part of company promotional events -- with agro-dealers in Central and Eastern Uganda, which were attended by a total of 335 individuals in all six locations. A new entrant into the Ugandan market, Osho Chemical Limited, a Kenyan based firm dealing in agro, veterinary and public health related chemicals, has major plans to use education based promotional strategies to build its brand around quality and reliability.

Audience-Led Programs in Agriculture Are Taking Off: Twelve radio stations in Feed the Future districts continue to air and invest their own resources in weekly audience-led agribusiness programs that reach more than 12 million listeners, most of whom are farmers. Besides helping individual firms to market themselves, media has and will continue to play the role of drawing attention to cheats and those who protect them, while also shedding a light on positive changes in agriculture and the ag-inputs market.

Heightened Awareness of Rules/Regulations by Ag-Inputs Firms: Right now the ag-inputs market system suffers from a lack of enforcement mechanisms for existing formal rules, especially the lack of any legal recourse to arrest, jail, or fine counterfeiters. Nonetheless, messages from government to small businesses on licensing, tax, and registration compliance are reaching agro-businesses. The Uganda Revenue Authority (URA), for example, conducts very aggressive campaigns to educate small businesses on the benefits, costs, and risks of not securing a Tax Identification Number (TIN) as a first step to paying tax on their business earnings.

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Coalition Building in Support of Private Sector Led Rules: The Ag-Inputs Activity is poised to launch two very important initiatives: E-Verification of agro-chemicals through a foreign private company licensed by UNBS; and a private sector alternative to the government’s seed certification program. Interviews with agro-dealers, seed companies, and agro-chemical suppliers indicated broad support for such initiatives, even though it will add nominal costs to their operations.

This report now shifts from an assessment of Ag-Inputs’ current strategy to recommendations for a revised strategy that would focus attention on raising barriers to entry into the agro-inputs market, and establishing standards for ag-inputs firms who wish to enter and stay in the ag-inputs market. E-Verification, seed certification, and initiatives that aim to formalize agro-dealers are precisely the type of interventions which the Ag-Inputs team needs to focus on now, in order to facilitate eventual greater adoption of CSBS by agro-dealers and links to providers of SMS marketing, working capital finance, spray services, and other critical support services.

B. CONCLUSIONS

The assessment concluded that the Ag-Inputs Activity should re-formulate its strategy in order to achieve its goal of increased access to and awareness of quality agro-inputs by maize, bean, and coffee farmers. The strategy needs to shift from its current dedicated focus on changing the behaviors and practices of individual agro-dealers, their suppliers and customers to a more urgent priority on getting the rules of the game – public, private rules and informal business norms – to operate more effectively.

The current dysfunction of the agro-inputs market -- due to the pervasiveness of counterfeits in the system as well as a high number of less credible businesses entering and exiting this market -- conspires against the adoption by agro-inputs firms of new, more customer oriented business practices aimed at establishing long term trusting relationships when, in fact, mistrust dominates the agro-inputs market system. Mistrust has upset value chain relationships: suppliers of agro-chemicals and seeds are by-passing district town agro-dealers and selling directly to retailers or farmers to protect their brands and reputations; and agro-dealers and retailers are reticent to buy from suppliers’ agents and source directly from Kampala suppliers, to ensure the purchase of genuine products18.

The Ag-Inputs team is already well positioned to take the kind of actions needed to advance this shift in strategy. Past initiatives to formalize agro-inputs business with relevant licensing and tax authorities needs to be better coordinated and accelerated; and, planned initiatives to put in place private sector-led E- Verification (for agro-chemicals) and strengthened seed certification regimes could be game changers in reducing the pervasive presence of counterfeits in the market.

This shift in strategy will not overcome system wide problems overnight. However, the actions cited above when combined with others19 – heightened media attention on counterfeits, stronger quality demand signals from farmers, name and shame tactics by peers (farmers, agro-dealers, suppliers) – should create better market conditions within the next year for the Ag-Inputs team to return to its goal of enabling the adoption of customer service and business solution strategies by all firms in the core market required to increase farmer access to and proper use of genuine ag-inputs. In short, the goal remains the same but the theory of how desired change is more likely to take place is different.

18 Container Village in Kampala is assumed to be the hotbed of counterfeit products, from electronics to agro-chemicals. Little is known about how this black market operates – who buys how much of what – and how it penetrates the agriculture market. These questions were outside the purview of this assessment; however, there are at least 11 research initiatives on this topic with which Ag- Inputs needs to link. (Source Martin Fowler/USAID).

19 The adoption of new government policies and regulations promoted by EEA and better practices by off-takers of maize, beans, and coffee will also contribute to the improved functioning of the ag-input market system.

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SECTION 2: RECOMMENDATIONS FOR THE

WAY FORWARD

When the incentives of a significant number of market players -- farmers, retailers, agro-dealers and suppliers of chemicals, seed and fertilizer -- are aligned around quality and reliability of ag-inputs, only then will the goal of increased and sustained access and use of quality agricultural inputs be achieved. The Ag-Inputs Activity has been working with core value chain and support service actors to realign their incentives and build their capacities to deliver quality inputs, but it has been doing so in the face of a very strong headwind of market dysfunction. Still, this goal remains valid and doable. The Ag-Inputs Activity needs to revise its strategy – or theory of change – to arrive at this destination or at least get a lot closer to it in the remaining two years of the contract.

This section of the report opens with a discussion of the revised strategy by unpacking the theory of change upon which it is based. A revised strategy carries with it many operational implications in terms of focus, market partners, offers of support to them, facilitation tactics and roles, organizational set up, and the outcomes used to track progress and adjust actions. The operational implications listed below were reviewed with the Ag-Inputs team and addressed in part by means of facilitated work planning sessions during its last Quarterly Review meeting20. These points below will be addressed in order:

• Urgent focus by all teams on actions that facilitate coordinated efforts by both the public and private sectors to get the rules of the game (formal and informal) to operate more effectively.

• Reframe all current Activity offers to the ag-inputs market to facilitate better cooperation among market players to advance better forms of competition that reward quality and compliance with the rules of the game.

• A more pro-active interpretation of the Activity’s role as a facilitator to “lead” the market system change process from behind the scenes and, if required, to temporarily take on market roles with a valid justification and a credible exit strategy.

• Retain the current organization structure – the three HQ teams and field based BGS’s – but put in place mechanisms to improve inter-team communication and involvement in planning and implementing Activity activities.

• Adjust the M&E system to ensure outcomes are aligned with the revised theory of change and the reframing of the Activity’s offers to the ag-inputs market.

20 The Quarterly Review meeting was held in Kampala from June 29th – July 7th. Marshall Bear presented the findings/conclusions from the assessment and facilitated a number of planning sessions addressing the operational implications of the revised strategy until his departure on July 4th.

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A. REVISED THEORY OF CHANGE

Diagrams 5 and 6 offer a comparison of the current versus the proposed revised theory of how change is more likely to occur in the current context of the ag-inputs market in favor of increased access and proper use of quality ag-inputs. At first glance, the reader might think that the two theories of change are so similar as to be indistinguishable from each other. A more careful review reveals significant differences with major implications with respect to Activity operations.

A general theory of change underlying Diagram 5 (the blue boxes) is that enterprises must grow before wider system change will occur. Most enterprise support programs are founded on this theory: private sector firms will innovate and lead the way for other firms to follow; the demonstration effect of innovators and early adopters will influence change in other system functions – rule setters will create a more enabling business environment and support service providers will see it in their best interest to support the growth of this innovation. Ag-Inputs’ current strategy is guided by this general theory as represented by the sequence of change depicted in the red boxes: innovative agro-dealers would lead the way by showing their competitors, suppliers, and customers the bottom line benefits of adopting CSBS; this would crowd in more adopters which would eventually lead to a shift in the norm on agro-dealer best practices; this shift would crowd-in more services demanded by agro-dealers to continually improve their systems and practices; and crowd-out counterfeiters and agro-dealers still using simple trading practices.

Ag-Inputs operations have been guided by this theory of change: BGS’s identify, mentor, and coach agro-dealers willing to adopt and implement a CSBS. The Role Model team identifies and works with suppliers of chemicals and seeds to create new type of relationships between them and agro-dealers. The Support Systems and Noise & Networks teams pilot test a range of value added services designed for greater management efficiency (e.g. ICT based systems), better marketing (e.g. SMS and radio promotions), more formalization (e.g. business licensing/registration) and new revenue enhancing services (e.g. spray services and/or equipment sales).

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This concentrated focus on agro-dealers was a strategic use of Activity resources to catalyze a change process that isn’t working, for reasons of ag-input market dysfunction and the absence of any real incentives for cross cutting service providers -- including SMS aggregators, banks and government agencies -- to target a small sub-set of SMEs (see Text Box 4 and quotes from Ag-Inputs staff).

Ag-Inputs’ strategy needs to change and so does the theory of change that guides it, to reflect current market systems and system dysfunction.

Diagram 6: M4P Theory of Change represents the general theory associated with the market systems approach (the blue boxes). It posits that: (i) enterprise growth is a necessary but not sufficient condition to bring about poverty reduction;

and, (ii) sustained enterprise growth requires a foundation of better functioning market systems that work for poor people, as both consumers and suppliers of goods and services.

M4P practitioners focus their resources on bringing about wider systemic change using a mix of interventions: piloting new business models, getting the word out to competing and supporting firms with incentives to learn about innovations, addressing disabling rules (e.g.

government regulations, private sector standards and informal rules embedded in the socio-economic context) to encourage more adoption, adaptation, and expansion of Activity supported innovations, with a declining use of Activity resources.

The above describes WHAT Ag-Inputs is doing:

what’s different is the WHY behind these interventions. Under its current strategy, Activity interventions aim to facilitate changes for target firms whose collective demonstration effects will cause the market system to improve. Market systems change is not the focus, but a hoped for result of Activity innovations.

In the revised strategy – Diagram 7: Ag Inputs Revised Theory of Change21 -- the focus of all interventions in the near term will be to raise the barriers to entry and impede growth of less credible businesses in the supply, distribution, and sale of ag-inputs in order to demonstrate that incentives and sanctions to comply with the rules of the game22 are far greater than non-compliance.

The push to promote adoption of CSBS directly with agro-dealers will take a back seat to other more important interventions: anti-counterfeiting campaigns beyond the work of the existing Transparency International Uganda (TIU) hot-line; formalizing ag-input businesses; launching E-Verification and seed certification services; strengthening demand-side signals for genuine agricultural inputs; exploring alternative distribution models with input suppliers; and testing alternative models of working capital finance and spray

21 See Annex B for a more detailed unpacking of the theory of change with assumptions.

22 These include formal government rules/regulations; formal private sector rules (e.g. E-Verification, seed certification); and informal rules and business norms (e.g. peer pressures name/shame counterfeiters).

Text Box 5: Why Target Agro-Dealers?

Our business registration campaigns could not focus just on a small subset of SMEs – agro- dealers – when our Government partners are looking to register/license all SMEs.

After his pitch session with agro-dealers, the SME aggregator said it was a waste of his time to pitch only 11 firms when his monthly sales targets are 10 times greater.

Feed the Future Uganda Agricultural Inputs Activity: Strategic Assessment Page 12 service provision that meet the tests of scalability. The Ag-Inputs Activity is well positioned to advance the revised strategy guided by an improved theory of change as they already know the market players.

At its June 2015 Quarterly Review meeting, the Ag-Inputs team began the process of aligning operations with this revised strategy by: (i) adjusting interventions or offers of support to the ag-inputs market; (ii) cross checking and revising Activity outcomes against the new strategy and updated offers; (iii) reviewing their role as market facilitators; and (iv) revising internal staffing structures to best advance Activity goals in the remaining 2.5 years of the Activity. The report now turns to a discussion of this assessment’s contribution to work plan outputs that were developed by the Ag-Inputs team during its Quarterly Review meeting.

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B. GUIDELINES FOR RE-FRAMING OFFERS TO THE AG-INPUTS

MARKET

The findings from this strategic assessment urge the Ag-Inputs team to focus and sequence its offers of support on facilitating better cooperation between all ag-input market…