Systemic Change in Seed Markets

Updated: Aug 6, 2018

Seed has been a key area of interest for Katalyst for over a decade. The problems of lack of access, lack of quality, and lack of use were all clear. However, the reasons for this were complex and required both detailed analysis and experimentation. Would simply taking seeds to farmers who previously had no access increase usage? Were farmers not buying seeds because they had doubts about the quality? Were farmers not buying seeds where they were available, because of price, because of the availability of appropriate markets for their products, or because of lack of information on the potential benefits? In addition to work in other aspects of the vegetables market system, Katalyst began working in the marketing and distribution supporting functions in the seed market in 2008.

From analysis to intervention

Defining the innovation: Changing the way poor farmers access seed

Analysis led Katalyst to determine a number of interconnected factors behind the low levels of access, quality, and usage of improved seeds. Firstly, on the demand side, farmers did not see the benefits of using improved seed. The primary reason for this was determined to be that for those entrepreneurial farmers in an area who had experimented with improved seed, they did not have the knowledge or skills necessary to extract the maximum benefits from it. A good seed improperly used may not deliver any yield improvements at all. Due to the mechanisms for the transmission of information in communities, which typically involve word of mouth and imitation of lead farmers, consensus quickly develops that improved seeds are not worth investing in.

Secondly, and to compound the perceived low quality of seeds due to misuse, there is an actual reduction in quality due to poor marketing practices. As often detached and remote retailers of seeds are general retailers without specialist skills, storage practices can result in degradation. Further, these unspecialised and unregulated retailers commonly practice adulteration of seed, which limits the productivity impact.

Thirdly, the input companies themselves don’t see the market in poor and remote areas. In a rapidly growing market, the incentives to take risks in expanding to new markets are significant. Information on demand is poor. Further, companies are not aware of how best to reach these remote areas which had high transaction costs, making experimentation with new models expensive.

In summary, the risks on both sides of the seed transaction were perceived to be too great. The costs of investment in changing behaviour to new business models – as growers of high value vegetables or as distributors and marketers of high value seeds to new markets – were perceived to be too high.

Katalyst recognised that the functions of marketing and distribution in the seed market had to work differently if these constraints were to be overcome. A vision of the future was developed whereby seed companies would actively develop rural markets by both raising awareness of their products and ensuring that they were used correctly in order to maximise productivity. This would lead to repeat custom and develop the market further. In order to make this viable from an economic perspective for the seed companies, but also to ensure that it had a pro-poor impact, the market had to be of sufficient size and so Katalyst envisaged an integrated distribution model, combined with new marketing practices, which grew the market by expanding into more rural areas.

This new configuration of better performing functions within the seed system represented an innovation by Katalyst that would improve the performance of the inputs market so that the productivity, prices, sales, and ultimately incomes of poor farmers would increase in a sustainable way. Katalyst set about the challenge of identifying partners with the right capacities and incentives to bring the change about, and developed interventions in order to facilitate this behavioural change.

ADOPT: Piloting

The initial changes envisaged in the seed market had two components. Firstly, in seed marketing, seed companies needed to overcome the negative perceptions of improved seed in poor communities by showing that they actually worked in increasing productivity. In order to do this, in mid-2008 Katalyst identified five seed companies with whom they would partner to set up demonstration plots in poor communities to show that the seeds worked.

This tactic had multiple purposes. Demonstration plots have been shown to be effective in both increasing awareness amongst farmers and also transferring knowledge on cultivation practices which have then been implemented and resulted in improved productivity. Further, attending a demonstration has been shown to be as effective as running the demonstration plot in the adoption of practices (Duflo et al., 2004; Khan et al., 2009). Demonstration plots also give the programme assurances about the quality of the technology, in this case seed, in this specific context. These factors justify the use of demonstration plots as a tactic but the challenge consistently faced by demonstration plots is scale up. Scale being one of three key objectives in M4P programmes along with effectiveness and sustainability, the continuous replication of demonstration plots is not a way to address systemically the problem of marketing in seeds. As such, Katalyst decided to engage a number of partners in this initial pilot.

There were multiple reasons why Katalyst simultaneously engaged five partners, none of whom were the market leader. Such a strategy is not common in an M4P programme where it is generally assumed that one or two partners, often a lead firm, will demonstrate a new model to the market and other players within the market will begin to emulate and develop the model. In this case, mindful of the potential limitations to scale-up, Katalyst began with five companies who could all operate their own demonstration plots. This provided greater coverage but more importantly, in this nascent market, it would help reveal the competencies of various partners and develop competition amongst the firms. This was a relatively low risk and low cost intervention for Katalyst, and so the potential returns from involving multiple partners at this stage were greater than the costs.

However, as has been shown in other contexts, the impact of improved marketing through demonstration plots will have little sustained impact if the distribution system is inadequate:

[T]he low rate of adoption of the inputs was due to non-availability (Khan et al., 2009; 313)

Aware of the interactions between marketing and distribution functions, Katalyst recognised that seed distribution to remote regions was inadequate. Even if the awareness and knowledge were present, farmers wishing to buy improved seeds would have to walk for several kilometres in order to buy them.

Katalyst’s market analysis revealed that informal mobile seed vendors (MSVs) were being used to bridge this gap. These MSVs would buy bulk amounts of seeds from towns and then travel to villages, usually on a bicycle, to sell the seeds. This function was nascent and informal in the market. Problems remained of a lack of quality control and knowledge of these seed vendors. The seeds they bought were often adulterated and poorly stored. Katalyst attempted to overcome these challenges, at the same time as capitalising on the benefits of the marketing intervention in demonstration plots, by formalising these MSVs and linking them directly with seed companies.

There were many potential advantages to this formalisation. One of Katalyst’s most successful interventions in vegetables was the retailer training programme (RTP), whereby seed companies invested in the information function of the system. For Katalyst this overcame productivity problems caused by agricultural practices while for seed companies, it institutionalised retailers as a reliable source of knowledge and increased sales of their products accordingly. This model has been replicated across Katalyst sectors and in many other countries, by Katalyst partners, other companies, and other development programmes. Within the remote areas which were the subject of the seed interventions, contact with retailers as providers of information was limited. Hence, Katalyst saw an opportunity to synthesise the RTP and MSV aspects of intervention by utilising MSVs as a provider of information.

For seed companies, this would spread the benefits they had seen through the RTP into previously unreachable markets and consequently increase their sales. It would effectively lower the risk in entering these markets by increasing the probability of productivity gains from the use of their products being realised. For MSVs, they stood a chance of significantly increasing their incomes as a result of increased sales and increased margins on their products. For farmers, the core target of Katalyst’s intervention, they would now have access to inputs which were previously unavailable to them which would increase productivity and incomes if the marketing interventions were successful in creating demand.

For this intervention, Katalyst partnered with two seed companies, of which one did not pursue the intervention beyond the very early stages owing to an internal capacity issue. The remaining company was the market leader and was not involved in the marketing intervention. The nature of the distribution problem was such that it was too risky to undertake as an initial venture but was, in theory much easier to emulate once the concept had been proven – particularly for competitors whose seeds had already established a presence in some remote regions. In the initial stages, then, Katalyst needed an established partner who was willing and capable of shouldering this risk. There was an obvious theoretical risk in creating a monopoly by contributing to first mover advantage for the market leader. However, Katalyst’s analysis saw this risk to be minimal due to the nature of the intervention which was not technologically intensive, and the ownership of the information on how the model worked, which remained in Katalyst’s hands.

Results – Proof of concept

The goal here was to test that the pilot worked. Partners were willing to sign up and continue to engage in the activities throughout the pilot period. Projections on the number of demonstration plots, the number of people attending demonstrations and the number of MSVs trained were all assessed, together with a basic test of the theory of change; if actors change their behaviour in the ways envisaged (and at this point facilitated by the programme), would this improve the functioning of the seed system and consequently improve productivity and incomes?

On the marketing side, between the five partners, over 400 demonstration plots were established and over 150 field days for the sharing of learning in strategic locations were conducted over a period of two seasons. Almost 12,000 farmers were exposed to demonstration plots with many more involved in field days over this period and programme calculations show around 22,000 to have used the seed to their benefit. For two of the companies for whom data is available, sales increased by 13 – 14% in those areas of the country, although there is no clear attribution to the demonstration plots. This was achieved despite environmental problems of droughts and floods in several areas.

On the distribution front, 55 MSVs participated in a residential training programme which was co-funded by Katalyst and the seed company and was then followed up by regular meetings between the MSVs and the seed company. The MSVs mirrored the role of retailers under the RTP and so 180 lead farmers were supervised by the newly trained MSVs to develop demonstration plots. These were complemented by 1000 smaller demonstration plots within homesteads which were customised for these remote areas and more appropriate to that context. A small programme study of MSVs reported an increase in sales of 20% overall, and an increase in sales of improved seed of 50 – 70%. Farmers using the seeds have reported an increase of 10% in yields.

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As defined in the opening section of these case studies, the components of systemic change are non-linear. The subsequent sections, therefore, do not necessarily follow chronologically or in isolation. In attempting to broaden the impact of a change in a sector, new partners will have to transition through adaptations of the original model and in increasing the resilience of a change by observing and facilitating the response of other supporting functions and rules.

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ADAPT: Institutionalisation of change

Intervention design is always a collaborative effort between a programme and their partner and attempts to align incentives behind a shared vision. However each partner will always have their own objectives, and realities frequently change as new ideas are introduced, the programme reduces support, and market realities evolve. A sign of a robust change in the functions of a system is when partners continue to invest in and develop a model after the programme has exited.

By definition, in Adapt, Katalyst looked for evidence that change was institutionalised rather than taking actions to institutionalise change within partners. With the Expand and Respond components of systemic change, at the actor level, each new actor to become involved in the innovation will have to firstly adopt and then institutionalise the change. These actor level changes are addressed separately within the relevant section.

Results

On the marketing side, three of the five pilot companies continued to utilise demonstration plots in the areas tested with the programme at the time of last measurement in 2012. Most of these have been adapted from the exact model conducted with Katalyst to suit the company’s needs. One company found the process too expensive for the returns generated and ceased to use demonstration plots. This, in part, justifies the use of a multi-partner approach to piloting in a nascent market. The other partner seed companies have invested further in these marketing methods, adding other marketing tools such as promotional materials and signboards to the demonstration plots to increase their effectiveness in attracting farmers. One firm has moved to crop specific promotion and, through new marketing techniques in these rural areas, has effectively created a market for a new variety of cucumber.

In terms of distribution, MSVs have now become an integral part of Katalyst’s partner’s business model. Fourteen of the MSVs trained with Katalyst were incorporated as dealers of the seed company and a further four as sub-dealers, all targeting seed sales in rural areas. The partner continues to offer training to MSVs and sees them as a part of their distribution network to expand into rural areas. Further, the more successful of the two partners has developed a model specific to MSVs which was not part of the original innovation. MSVs have a different pay and commission structure than other distribution outlets which has been seen to incentivise greater professionalism. Other actors required to sustain their behaviour change include the MSVs themselves. Katalyst data suggests that all MSVs have increased their profitability as a result of the shift in business model, and the proportion of higher quality seeds in total sales has increased.

EXPAND: Greater benefits to more people

AAER is a framework for analysis of existing impact, and for planning around how to increase it or make it more resilient to shocks. Expand can happen in many ways as documented in the opening chapter of these cases, and Katalyst continued to monitor the extent of impact from their interventions beyond the pilot period. The gains from the initial marketing and distribution interventions were strong. MSVs have grown significantly and there are now an estimated 4,500 operating in Bangladesh, supplying an average of 125 farmers each. That provides a total of 700,000 farmers who now have access to seed who previously did not, and the emulation of formalisation and the delivery of embedded services through MSVs means that more and more of these people have access to improved seeds and skills in how to use them.

From the interventions in product development (see Respond), it can be seen that mini-packs are now the predominant form of vegetable seed retail by seed companies and, without Katalyst intervention, this has become mainstreamed within the market.

Nevertheless, Katalyst recognised that there was still scope for penetrating further into poor communities. There were evidently some farmers for whom the demonstration plots did not deliver sufficient incentive to purchase seeds, did not deliver sufficient knowledge to realise productivity impacts from improved seed, or who were not reached by demonstration plots. Further development of the marketing mechanism was necessary in order to target these farmers.

Two years after the end of the initial marketing intervention, when it was clear that practices had been institutionalised within some of the initial partners but that there was still potential for further penetration of improved seeds into remote areas which the market was not realising, Katalyst developed an intervention with two of the initial partners from the demonstration plots intervention. These partners clearly exhibited an interest in reaching poor and remote markets but did not possess the knowledge of how to reach them nor sufficient risk appetite for experimentation. Katalyst developed new marketing methods, with the help of technical expertise, which were piloted by the partner. These were as simple as flipcharts and videos but were locally appropriate and new for the sector. However, these flipcharts contained vital information which had not previously been delivered but provided a vital incentive for farmers to invest in new seed technologies – cost benefit analysis of switching to new seed varieties. While this may have been verbally relayed by some extension agents or other information providers, this was displayed in a relatable format so that farmers could easily understand the potential benefits of investing more in improved seeds.

By Phase 3 of Katalyst, in 2014, gains from marketing and distribution interventions, together with the further refinement of the product development function, were significant. Katalyst had learned a great deal about the requirements of poor people and how businesses could cater to their needs to improve the seed system. However, a country with the size and diversity that Bangladesh has, requires different approaches for different regions. Poor farmers in vulnerable and peripheral regions of Bangladesh were still not able to access or use the required quality of seed to boost their incomes.

For seed companies that were still growing significantly, in part because of accessing the poorer markets which Katalyst had targeted previously, entering into these peripheral markets was not a priority despite the potential commercial gains. Katalyst partnered with the same company that had been successful in both the MSV and mini-packs (see Respond) interventions, to synthesise the MSV, mini-packs, and marketing interventions for implementation in the Chars – river islands with marginal land highly susceptible to flooding – region. This area had not, to date, seen any benefit from previous interventions due to its low income levels, geographical isolation and the climatic difficulties it experiences.

Here, Katalyst partnered with the market leader, owing to the significant risk involved in targeting this region, to implement simultaneously all of the marketing, distribution, and product development innovations in the Chars region. Owing to the risk involved, Katalyst had to bear a larger proportion of the total cost, but in investing a quarter of the total cost, the partner clearly saw potential in the market and was willing to commit to experimentation. This activity finished at the end of 2015 and so results are limited and provisional.

Results

Actor level institutionalisation

In marketing, the two partner firms continued to invest in the new techniques after Katalyst support had ended. They each continued to experiment with a mix of tools to establish which were most appropriate for their own use.

Further, beyond the partner firms, there is evidence of uptake of these tools to access new market segments by other firms in the market. One major seed company has developed their own range of flip charts, videos and presentations in line with those trialled by Katalyst, with a view to improving their marketing in rural areas to increase the size of the market.

In distribution, MSVs have spread organically throughout the sector and their formalisation is becoming the norm.

Impact level change – contribution to poverty reduction

As ever with this component of systemic change, there are multiple dimensions which affect the overall impact, and quantification is challenging. There are those affected by the direct interventions in order to facilitate expansion of the impact of the original innovation. There are those impacted indirectly, such as farmers within the networks or the farmers who attend a training or workshop and improve their productivity as a consequence. There are also farmers who benefit because they are reached by the firms that imitate and emulate the intervention of Katalyst who then, in turn, have a cascade effect within their networks.

Katalyst measured two of these levels, with further measurement prohibited by the lag between intervention and emulation. Overall, 1,011 farmers were seen to have received increased income in the year following Katalyst intervention through their exposure to the new marketing methods used in the events facilitated by Katalyst and their partners. An additional 2,865 within their networks were seen to have realised a total income increase of USD1m based on a Katalyst investment of USD25,000. If the uptake by competitors of these firms continues and is successful in increasing penetration of seeds into more marginal areas, the true impact figures are expected to be far greater.

In terms of accessing more people through the geographical expansion to the Chars, a total of over 15,000 mini-packs (see below) had been sold in the first year of the intervention, with many of them sold by MSVs. Interestingly, in addition to an income increase for farmers purchasing seed, there was also a decrease in cost owing to reduced losses and better agricultural practices.

RESPOND: Making change stick

With the performance of the marketing and distribution functions having improved in the areas targeted by the programme, Katalyst realised that uptake was not as high as had been hoped. Market analysis revealed that the price of seeds and capital requirements for farmers were so high as to make repeated purchase unfeasible for many at this time. It did not appear, based on this analysis, that it was an information problem, or an issue caused by the informal rules around purchasing of inputs as many farmers were aware of the potential benefits. It was merely a question of affordability for what were very poor farmers.

Two potential reasons for this were a lack of suitable financial products including pre-financing of inputs and a lack of appropriate products to cater to poor consumers. Credit markets do function in rural areas of Bangladesh. Typically, loans are taken from informal sources and used for consumption smoothing. Formal credit providers, which are sparse in the poorer rural areas, tend to be for larger production investments such as livestock or land (Duong and Izumida, 2002). Given that the target group are those who have little or no experience in growing higher yielding, more technically demanding varieties, pre-financing was likely to be difficult and connection to potential providers limited. Katalyst saw flaws in the product development and market information functions of the system i.e. potential providers of seeds were not aware of the existence of a potential market and had not developed appropriate products to explore it. These functions had failed to respond to the growth and potential of poor[1] rural seed markets and product offering remained largely undifferentiated. Aware of experience elsewhere in miniaturisation allowing access to products for low income consumers, Katalyst sought to introduce a smaller, more affordable packet size of quality seeds to the market which was more appropriate to poor consumers. In integrating this with the gains already made in marketing and distribution methods, Katalyst were able to increase the penetration of these higher yielding seed varieties into new markets.

Katalyst selected two partners with whom to pilot the intervention, one of whom had been involved in the marketing intervention and one of whom was involved on the distribution side. Both practices had now spread within the sectors and so were now part of the business model of both partners. Seeds were initially made available for 35 varieties of vegetable in packets around one tenth of the previous standard size, costing USD0.13 – 0.25. These seeds were distributed through the mobile seed vendors meaning they were targeted at the poorest and most remote communities who had both limited access to seed and limited ability to pay. Structuring the deal with partners is always important but here, it was necessary to ensure that learning from the intervention belonged to the programme and could be disseminated sector wide as quickly as possible. The Katalyst commitment of USD45,000 was directed at the technical elements of the intervention, leaving the companies to pay for all capital and human resource expenditure. This meant that Katalyst retained the learning from the intervention. In order to expand the impact of the intervention, Katalyst facilitated a workshop with a wide range of stakeholders including potential competitors who then, recognising the returns available, began to offer mini-packs independently.

By 2014, gains had been realised from the compound impact of marketing and distribution as well as the response in terms of product development. These gains had begun to be expanded through tailoring the models to new regions with different challenges. Katalyst’s ongoing analysis revealed an opportunity to expand impact further. Certain small, low capacity farmers were still not maximising productivity gains from using improved seeds. For seed companies, this risked damaging the reputation they had worked to build through better marketing and distribution. There were also potential sales that were being missed through not properly catering to these segments of the market. Even amongst those who continue to buy, they might buy more if they realised bigger gains through proper use.

Not all MSVs were part of formalised training provision schemes and some were of a very low technical capacity. There was also an issue in that different people learn differently. An MSV who tells a farmer how to plant and care for a crop at the time of seed sale might not be as effective for some farmers as having something they could refer back to. Here, then, Katalyst partnered with a new seed company, one that had begun to implement many of the innovations within the market that had been introduced through their competitors, demonstrating their entrepreneurship. The idea here was to address the remaining problems around skills in the input market through the function of marketing, in order to increase sales and usage of seed and ultimately increase incomes. Katalyst and their partner redesigned seed packaging so that it contained detailed but accessible information on use and care in local languages.

Results

Actor level institutionalisation

The intervention in product development has been transformative for the sector. The two partner companies have now made mini-packs part of their core business model. Indeed, 71% of the seeds sold by these companies are now in the form of mini-packs. Between them, the companies now produce 127 varieties of seed and have produced almost 2 million packets in total. They have further developed the packaging so that it is customised for the mini-packs which should increase the appeal. All this has occurred while sales of regular pack sizes have been maintained.

Evidence on institutionalisation within non-partner seed companies is not yet quantifiable, but is nevertheless clear. Mini-packs are now the predominant form of seed retail in rural areas of Bangladesh, available from a wide range of seed companies. Some of this was demand driven. Seed dealers approached seed companies asking for mini-packs having seen their competitors benefit from their sale. There were, therefore, additional dimensions to the expansion of impact.

In terms of the agricultural skills within the inputs market, the intervention to improve marketing is still in progress and so results are limited and provisional.

Impact level change – contribution to poverty reduction

None of the interventions undertaken by Katalyst can be isolated from the context of the systemic constraint they addressed. The interventions in marketing and distribution put in place the foundations for outreach to be increased significantly, but the introduction of a new product, which addressed problems of product development and market information, built on this foundation to change the sector, and resulted in huge increases in access to seed for poor farmers. Within three agricultural seasons of introduction, almost half a million households had purchased mini-packs, resulting in an additional USD14m of vegetables produced. This resulted in both increases in sales and decreases in purchases of vegetables for consumption which amounted to an average of USD15 per farmer per season. Further, the changes in industries offering related agricultural inputs which now also offer mini-packs means the impact level changes on poor farmers are magnified significantly.

Summary of impact

Katalyst have indisputably changed the seed system and therefore increased the productivity and incomes of hundreds of thousands of poor farmers. They have done so in a sustainable manner where the system is robust and the changes they have facilitated will continue to adapt to external factors.

Figure 6: Timeline of interventions in the vegetables sector



References

BANGLADESH BUREAU OF STATISTICS, 2012, Statistical Yearbook of Bangladesh 2012, 32nd Edition, Statistics and Informatics Division, Ministry of Planning, Government of the People’s Republic of Bangladesh, Dhaka.

DUFLO, E., KREMER, M. & ROBINSON, J. 2004. Understanding technology adoption: Fertilizer in Western Kenya, preliminary results from field experiments. Unpublished manuscript, Massachusetts Institute of Technology.

DUONG, P. B. & IZUMIDA, Y. 2002. Rural development finance in Vietnam: A microeconometric analysis of household surveys. World Development, 30, 319-335.

GIBSON, A., 2006, Bringing Knowledge to Vegetable Farmers: Improving embedded information in the distribution system, The Katalyst Cases (1), Dhaka.

KHAN, A., PERVAIZ, U., KHAN, N., AHMAD, S. & NIGAR, S. 2009. Effectiveness of demonstration on plots as extension method adopted by AKRSP for agricultural technology dissemination in district Chitral. Sarhad J. Agric, 25, 313-319.

VANITHA, S.M., 2013, Vegetable Statistics, Technical Bulletin No. 51, Indian Institute of Vegetables Research, Uttar Predesh.

[1] Katalyst define ‘poor’ as earning less than USD2.5 per day or holding less than 2.49 decimals of land.

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