Markets for the poor: the gap between theory and practice

Within development circles, there’s a common, if recent, mantra that the key to reducing poverty in the global South lies in investing in agriculture. Increasingly that investment focuses on building bridges between small-scale farmers and private markets in approaches known as ‘markets for the poor’.

Article, 06 April 2011

30 March 2011

Over the past decade, the theory behind these approaches has quickly developed based on a growing number of production and value chain analyses that have helped build models for supporting smallholders in agricultural markets.

But how sound are these theoretical frameworks when it comes to implementing approaches on the ground? What does making markets for the poor mean in practice?

The latest ‘provocation’ seminar from IIED and Hivos, held in Paris on 30 March and hosted by the Netherlands Development Organisation (SNV) and the Institut de Recherches et d’Applications des Méthodes de développement (IRAM), heard that when it comes to explaining reality, our theories and analyses can often fall short.

Tales of the unexpected

Two speakers shared their experience of trying to make markets work for the poor in the developing world. Olivier Renard from IRAM described a project in Vietnam that aimed to penetrate the international bamboo market by producing high value-added products locally. The theory was quite simple: replicate the very efficient and dynamic Chinese model in Vietnam and take away some of the market share, drive up prices and improve incomes for local farmers.

But in practice, things didn’t quite work out like that. Attracting big companies to invest in processing units to convert bamboo into higher value-added products was difficult in Vietnam, where resources were not secure and high quality bamboo was scarce. Increasing incomes was similarly challenging — “the fact that an increased demand will impact prices paid to farmers is far from being evident,” said Renard. “Even if you increase the proportion of bamboo going into higher value-added products from 10 to 15 per cent, it has no real impact of the prices paid to poor farmers,” he added.

And Renard also emphasised the fact that, in China, the bamboo value chain benefitted from very strong long-term government incentives — such as public research, tax exemptions and incentives for foreign investment, and public-private partnerships — which are absent in Vietnam.

On the other side of the world, in Nicaragua, Harm van Oudenhoven, entrepreneur and coordinator of the Tropical Commodity Coalition, faced similar challenges in converting theory into practice to make markets work for the poor.

“Theories and models, especially production chain and value chain analyses, seem less and less relevant,” he said, adding that “when confronted by real life conditions of doing business… there is nothing more annoying than someone with a pen and paper drawing you a diagram of how it should work according to a linear theory.”

In Nicaragua, this ‘real life’ includes antiquated bureaucracies, contradictory laws, constant power cuts, stolen telephone lines, impassable roads and sloppy government agencies. “Two exports in the past year failed due to spelling mistakes,” said van Oudenhoven.

Pragmatism and power

Running a small business in these conditions has little to do with theoretical production chain analyses and models. “We used no log-frame and no results-based management. It was simply getting things done that needed to be done by any means possible,” explained van Oudenhoven.

Other participants in the seminar echoed this need to be pragmatic. Pierre de Lapasse, from oil and gas giant Total, said that to do development as a private company you must deal with your own problems and those of your operators first. “If development projects are not directly related to business, they have little chance of success.”

It’s not just a question of pragmatism. Often it is power that stands in the way of making markets work for the poor in practice. Earnán O'Cleirigh, from the OECD’s Development Assistance Committee (DAC), which has been working to promote pro-poor growth for more than a decade, suggested that while there’s no shortage of sound theoretical solutions for making markets work for the poor, none of these will be put into place unless poor people become influential in decision-making processes.

Making markets work for the poor is not about coming up with a fail-safe solution on paper. It’s about finding ways of empowering the poor to implement solutions that can work in practice. And that is perhaps where the development community can make a difference. “We are powerful actors in a situation where the people we are trying to benefit are very disempowered actors,” said O’Cleirigh: “what can donors do to try and facilitate poor people becoming more powerful?”