The Market Systems Development (MSD) approach, normally reserved for rural development, has important lessons for tackling climate change. These are not limited to adaptation and mitigation but require an understanding of the ecological limits of market systems – and what it takes to change negative behaviours within that system.
Since Sir Nicholas Stern first expressed it in 2006, it has been stated many times that the climate crisis is considered “the greatest and widest-ranging market failure ever seen”.
In its sixth assessment report, the Intergovernmental Panel on Climate Change (IPCC) reports that finance forms a critical barrier to achieving gains in mitigation efforts, relying principally on government and other sources that are not providing sufficient funding. Applying a Market Systems Development (MSD) approach to engage the private sector can help drive adoption of mitigation and adaptation measures that are economically self-sustaining, and it has the potential to bridge part of the financing gap.
To learn more about the market systems approach, check out the BEAM Exchange, a specialist platform for knowledge exchange and learning on the topic: beamexchange.org
This blog is inspired by content found on the exchange such as:
- Features of a market systems approach
- Market systems embedded in nature
- In search of greener pastures: how can MSD projects better integrate environmental considerations?
An MSD approach seeks to change the way that markets work so that poor people are included in the benefits of growth and economic development. It aims to tackle market failures, such as through the removal of barriers for the poor to participate in market systems, and strengthen the private sector in such a way that creates large-scale, lasting benefits for the poor. It does this by working “… [to] modify the incentives and behaviour of businesses and other market players – public, private, formal and informal...” (The BEAM Exchange). It is an approach that aims to intervene indirectly through investment and innovation to create the conditions for sustainable effective behaviour change, leading to self-sustaining market systems. Creating such sustainable conditions can often be more challenging in typical donor-financed interventions once project or programme financing ends.
Tackling climate change by applying a MSD approach is not only about adaptation and mitigation but also about understanding the ecological limits of market systems – and what it takes to change the negative behaviours within the market system.
Let’s be realistic – money in the pocket of the farmer is the main driver for change and adoption of new, climate-resilient technologies in the agriculture sector. When I started my career 20 years ago, I promoted organic farming to conventional farmers in Sweden. They were generally uninterested with the information I provided on how you make the transition, and what technological innovations there were, until I showed them the last slide in my presentation: a simple budget with a very nice profit margin. At my next presentation, I started with that slide and had the full attention of the crowd throughout.
But money alone is not enough to make people change their behaviour – we have seen this over and over again in our rural development programmes.
There are a set of conditions that are necessary to achieve this change:
1. The MSD approach must be output focused.
It is too easy for a market systems analysis, repeatedly asking the question "Why?", to get stuck in the underlying input constraints.
The output market is the driver for change across the market system, if the output market can request certain quality or even parts of it be certified sustainable production methods, general interest will be generated.
Local markets will swallow the majority of produce and are of significant importance, but export markets (including different certification schemes with price premiums) can be a driver for the whole value chain and lift also local and regional production. We have a very good example of this in Tajikistan where we supported apricot producers and processors to attend a large agricultural fair in Dubai, bringing home signed contracts for quality produce which has since lifted the whole market and incentivised farmers to adopt climate-smart technologies that the project demonstrated.
In addition to being output focused, we also have to …
2. Understand the situation of the farmer and what other purposes the farm serves for his/her family.
A farm can be many things - a production centre, a home, a place where older people or children are cared for, an insurance policy, a bank, a recreational area, a timber source for construction, pride, tradition, community, security and sometimes even a prison. The farmer needs to take these aspects into account before investing in new technologies. We also need to have an understanding of all these aspects when designing our MSD approach or either we will be speaking to deaf ears or the technology will not be sustained after the project leaves.
We have to realise that the average age of the farmer is high across the globe. We conducted a national baseline survey in Kenya a few years ago that determined that the average age of farmers to be 64 years, which says a lot about their interest in taking risks and changing their current practices or even passing on the land to younger family members as this is usually their only retirement plan.
Many young family members do not have full access to the family land to be creative, entrepreneurial or invest in the land – in Uganda and Ethiopia my colleagues are piloting a simple but interesting system of formal rental agreements within the family – called an intergenerational business case for land lease – with the aim of alleviating some of these perceived tensions within the family by applying a business concept.
Another important aspect to address climate in MSD programmes is the fact that …
3. Diversification is essential to climate resilience.
How do we combine that with our selective value chain approach?
Farmers across the globe have more than one income stream, but in MSD we often focus on supporting one or a few of these value chains, which actually speaks against climate resilience as a diverse farm is more resilient to both environmental and economic shocks.
Do we need to change our approach to a more farm ecosystem one? How can we do that effectively? In The Agro Biodiversity Initiative in Lao PDR, we saw successful results working with a community approach over 12 years to target a mix of income streams. This enabled the community to shift their land use to more sustainable systems and realise the value from the community forests.
We talk a lot about climate-smart innovations, however in our programmes it is important that we …
4. Demonstrate innovative technologies in combination with a grant to get over the threshold of resistance.
As part of farmer training and interaction with the buyer, we can introduce climate smart technical innovation that is ‘new to the farmer’ and provide a grant fund where farmers or farmer groups can apply for small amounts of money to test technical innovations.
All demonstration of new technologies have to come with an economic cost‒benefit analysis as achievable economic benefits for farmers are key to sustainability beyond donor intervention (The BEAM Exchange). Climate technologies that are not cost effective for the farmer in the medium-to-longer term but important for the watershed or community will need government support or other innovative financing.
We are also well aware that …
5. Nothing will change without climate-positive policies, laws and their enforcement in place.
Most countries today have signed international climate agreements and have pretty good policies and legislation in place to protect the environment and stimulate climate resilience.
However, a policy or law means nothing if it is not enforced. Enforcement can be done either through penalties or incentives. Subsidies can be an incentive if used correctly or a direct hindrance to uptake of improved technologies. Enforcement can be driven by the private sector – through price incentives, rejections etc. and a close collaboration with the government system is needed.
Many MSD programmes however, work outside the system, contradictory to what the approach really is about. There are several ways to "do development" and donors often have a tendency to work in certain ways, e.g. USAID, FCDO UK and SDC often establish parallel projects only engaging in enabling environment through lobbying and supporting advocacy groups. The EU, on the other hand, works from within the government system, sitting physically at the Ministry - but not really working with an MSD approach. Neither approach is enough to fully realise its targets. The government system needs strengthening from the inside, human resource capital to be built up, and institutional development set up in a such a way as to enable the enforcement of the laws. But the private sector also needs to be engaged to take more sustainable corporate responsibility and market systems strengthened to cater for climate positive solutions.
We are now seeing that changing political environments and market supply/demand can change behaviours quite fast …
6. The emerging food crisis due to the war in Ukraine adds another dimension and can actually drive change to more climate-friendly alternatives as the cost and availability of some products have drastically changed the market structure.
One example is that within the Commercial Agriculture for Smallholders and Agribusiness (CASA) Programme - a FCDO-funded project seeking to increase investment to smallholder agriculture systems, where we are suggesting to promote insects as an alternative protein source for chicken and fish feed in Malawi as a direct response to the current food, feed, and fuel crisis as a consequence of the war in Ukraine.
Together, these conditions can create a positive environment for adoption of climate smart technologies and promote climate-resilient market systems. NIRAS will continue to seek opportunities to facilitate these conditions for behaviour change at notable scale through the implementation of flagship programmes applying MSD approaches such as the SDC-funded Markets and Seeds Access Project (MASAP) in Zimbabwe and Zambia which aims to promote climate resilient crops such as sorghum, millet and cow pea.
Mutual success and growth assured for fish farm and smallholder farmers in northern Malawi as partnership is saved from derailment