Applying systemic approaches to developing markets

International Cooperation Thematic paper

2/2021

Applying systemic approaches to developing markets Caritas Switzerland’s Expertise

Context

Key messages • Poor and vulnerable people are often excluded from market economies – although the access to markets is essential to get out of poverty.

• The Market System Development (MSD) approach remains very valid in international cooperation because system change is the essence of largescale and sustainable development.

• Caritas Switzerland experiences positive impact resulting from the use of the MSD approach, and therefore strives to increasingly adapt this approach to fragile contexts1.

• In times of crisis (e. g. global pandemic or climate change), well-functioning agricultural market systems gain even higher importance to combat food insecurity and poverty.

High levels of inequality have a negative impact on economic growth in the long term, while marginalisation and the lack of prospects, particularly for the young generation, threaten stability, increase violence and poverty. Most people in the world today are integrated into economic processes, either as consumers, producers, or employees. Nevertheless, market systems often fail to benefit people already affected by poverty.

Poor and vulnerable people often cannot reap the benefits of market systems, e. g. they do not have access to market information, they are in weak negotiation positions or they cannot enforce or influence the rules. If the most vulnerable are employed at all, they often find themselves in poor working conditions. Even if the poorest gain access to markets, their participation in the economic system does not necessarily equal progress and an exit from poverty. The use of a systemic tool such as the Market System Development approach (MSD) helps to facilitate change in a sustainable, inclusive, scalable and transformative way.

Caritas Switzerland is increasingly working in fragile contexts and is committed to select adequate approaches to meet

Abbreviations ADA Austrian Development Agency FCDO Foreign, Commonwealth & Development Office HD-nexus Humanitarian-Development-Nexus MIS Market Information System MSD Market System Development SDC Swiss Agency for Development and Cooperation SIDA The Swedish International Development Cooperation Agency food insecurity and poverty.

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the objectives of alleviating poverty. MSD is not a new approach but applying it to projects along the humanitarian-development-nexus2 (HD-nexus) is rather novel and requires context-driven adaptations. It is particularly challenging to implement MSD in fragile contexts and when working with the most marginalized. Caritas Switzerland does not only emphasize financial but also social and environmental sustainability as essential criteria to making the MSD approach effective in those arduous contexts. For knowledge sharing purposes Caritas Switzerland follows and contributes to various MSD platforms and networks, such as the BEAM Exchange, the Donor Committee for Enterprise Development (DCED), the Swiss Agency for Development and Cooperation’s employment and income network (SDC e+i) and the training centre of the International Labour Organization (ITC ILO). This hands-on paper summarizes and discusses the experiences and lessons learned by Caritas Switzerland applying a systemic approach towards agricultural market development.

The understanding of Caritas Switzerland A market is any place where two or more parties meet to engage in an economic transaction. At the heart of a market system lies the exchange of goods or services, such as smallholder farmers selling crops, households buying domestic commodities, or labourers earning wages. Although poor people are the focus of the approach, understanding systemic approaches is done from a market perspective – e. g. looking at all the different actors within a system, and the interventions themselves (the project activities) often target other actors in the system. The MSD approach seeks to identify and address the root causes of system failure instead of just trying to fight the symptoms. Moreover, in an MSD project, measures are not only implemented at the producers’ level, as the inclusion of all systems’ actors is required. As a rule, the (MSD) overall objective is a system that is scalable and ultimately works and functions without involvement of the implementing agencies.

1D efinition of fragile contexts by the International monetary Fund (IMF): Fragile states have characteristics that substantially impair their economic and social performance.

These include weak governance, limited administrative capacity, chronic humanitarian crises, persistent social tensions, and often, violence or the legacy of armed conflict and civil war. In these countries the poor quality of policies, institutions and governance substantially impairs economic performance, the delivery of basic social services and the efficacy of donor assistance.

2T he use of the nexus approach means that humanitarian aid and the interventions of development cooperation can be more effectively geared to the overarching goal of sustainable human development. Depending on context, different combinations of humanitarian and development measures are applied.

The MSD approach3 is a development framework aiming to improve the functioning of markets in a pro-poor manner.

The performance of markets, which consists of a so-called core function (e. g. the value chain), supporting functions (e. g. information, infrastructure, skills & technology, related services) and rules (standards, regulations, laws and informal rules and norms), can be improved by enhancing the services and goods that market actors, including the poor, produce and share (Figure 1: Market Analysis Framework of peanuts in Chad). The common rationale is to produce scalable longterm changes through addressing the underlying causes of the poor performance of specific markets that matter to the poorest and extremely vulnerable communities.

Vulnerable people at all levels, including consumers, producers, and employees, can benefit from improved market functions through enhanced access to markets, market information, financial capital and business support. Inclusive markets can thus help smallholder farmers, small entrepreneurs, and vulnerable employees to increase their income through increased production and sales, cost reduction and better working conditions. Importantly, the approach aims to facilitate change but does not take on a role of its own in the system.

MSD has a long history in development cooperation and is widely recognized and used by Development Agencies (e. g.

SDC, ADA, FCDO4, SIDA). The approach has a large importance for both donors and implementers because direct payments or provision of services are supplemented or replaced

by targeted investment in market development; the latter can increase the benefit-cost ratio and contribute to a sustainable improvement in the livelihoods of the poorest, especially in mid- and long-term interventions.

SDC and FCDO reaffirm the system change message in 2020 in their updated operational guideline for MSD: “the central message of the approach remains valid and powerful. System change is the essence of large-scale and lasting development”. In line with this message, Caritas Switzerland has selected the MSD approach continuously as a priority to combat poverty in its International Cooperation Programme Strategy 2020–2025. Together with its partners, Caritas­­Switzerland supports its beneficiaries to increase their income through improved value chains, enhancement of capabilities, better quality and conditions of employment and inclusivity in agricultural markets, especially for women and minorities.

“An MSD approach requires system actors to adopt and implement new practices based on incentives from within the system. This tends to take more time than a direct approach, but over time the impact is more likely to be sustainable and at a greater scale.5” 3T he MSD approach is also widely known as Making Markets Work for the Poor (M4P) or Inclusive Systems Approach.

4 Formerly DFID 5M arket Systems Development (MSD) Approach, a brief introduction, Swiss Agency for Development and Cooperation (SDC), 2019.

System actors Association of processing industry

Bank

•

•

Credit system and payment

Research Institute

•

Supplier of production materials

•

Production

•

Research and ­development

Information about the market Mechanisation

Media company

•

Coordination

Functions

Processing

Consumer organisation

Marketing

Consumption

Value chain

Labour organisation / Trade union

Hygiene standards and practices Pricing ­practices

•

Public health system

Rules

Import- and export regulation Standards for food safety

Agricultural policy

•

Ministry of Agriculture

•

Certification body

•

Municipal authority

•••

System actors Figure 1: MSD Market Analysis Framework (by the example of the peanut market system in Chad)

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Concept and Theory of Change

An MSD project starts off with an in-depth analysis of the market, the market constraints, and a careful assessment of the potential partners. Market actors such as smallholder farmers’ associations, private businesses, governmental agencies, research institutes, and civil society organisations are the entry points for interventions. Based on the in-depth analysis, the project then typically develops several targeted short-term interventions with a small group of market actors.

A close collaboration of all the actors is crucial for the success of the MSD approach and the various roles and (financial) responsibilities are analysed and have to be clarified in a participatory process. With successful MSD project implementation, the market actors have gained access to information, tools and services needed to improve the production and processing of their products as well as market-related services and business contacts to enter higher added-value markets. Over time, the MSD interventions that have proven to be successful (i.e. adopted and adapted by the partners) are scaled up (so that a much larger number of beneficiaries profit: i. e. expansion of the intervention) and solidified (i. e. other actors in the system are encouraged to respond, so that the changes last beyond the duration of the project). Interventions that are less successful will need to be improved or they will be cancelled.

A system is changing when the interventions trigger the market and lead to market uptake and vice versa (Figure 2). The performance of private and public institutions is strengthened creating an enabling environment for new business in the sector, further contributing to economic growth and employment

opportunities. Instead of (mostly) intervening directly (e. g. providing trainings or contributions to infrastructures), Caritas Switzerland contributes to system change through its strong focus on creating incentives and influencing the behaviour of market participants. Caritas Switzerland takes the role of a facilitator, enabling actors who are already participating in the market system (e. g. input suppliers) to enhance their services or products (e. g. provide embedded services) in order to address certain underlying problems that exist in the market system and that negatively affect the project’s target group (e. g. access to information). Because the work of Caritas Switzerland is often reaching conflict-affected and fragile areas, where certain market actors such as small businesses, processors or associations do not exist or are just (re-)emerging, its interventions are accordingly diverse and can also integrate approaches like the Sustainable Livelihood Approach6 or the Graduation Approach7.

6F urther reading: Sustainable Livelihoods Guidance Sheets, Department for International development (DFID), 2000.

7 Further reading: Thematic Paper “The Graduation Approach by Caritas Switzerland in Migration Settings”, Caritas Switzerland, 2021.

Theory of Change

Challenges

Interventions

•H igh level of poverty •N o or little private sector •N o economic growth • M arket constraints

Effects and Outcomes

System change Interventions based on identified market constraints

Market uptake Business model Market trigger

• I mproved performance of the private and public sector • I ncreased inclusivity in the agricultural market system (access to markets, market information, financial capital and business support) • Improved economic growth • Increased income

Figure 2: The theory of change to reduce poverty through system change in Projects of Caritas Switzerland

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Impact

Poverty reduction

What we do

Since nearly 20 years, Caritas Switzerland has geared its projects towards connecting producers of food and other local products to local, national, regional, and international markets.

The engagement of its work with agricultural value chains traditionally focused on the establishment of producer organisations and skills development. While these remain important, a systemic approach is increasingly being applied to further increase the scale and sustainability of the interventions. Caritas Switzerland is working in 15 different countries and in many of them the MSD approach and/or principles are applied (Figure 3).

In fragile or very poor contexts, Caritas Switzerland focuses first on the affected people (i.e. more direct interventions) and over time in collaboration with its partners, starts addressing more systemic problems (i.e. facilitating systemic actors to change their behaviour or services). In South Sudan for example, people need to regain confidence in the stability of the security situation first, before they would be able to invest in

new activities. In a multi-sectoral and climate-smart project in Mali, one of the systemic barriers to market access are the high levels of illiteracy, therefore literacy courses formed part of the project activities in the first phase. Subsequent phases emphasise the broadening and deepening of partnerships, increasingly self-financed activities, and producer/partner-led changes. In Kosovo, Caritas Switzerland works with systemic interventions from the start. An increased use of business development services as well as climate-resilient agricultural practices, have been identified as some of the interventions needed to strengthen producers and other market actors’ position. In Mali and Ethiopia, the SAWEL project supports smallholder farming families to enhance food and economic security through entrepreneurial, market oriented and agroecological production. Partners share knowledge about good practices, tools and methods. The lessons learned are used subsequently to influence regional policy decisions.

MSD implementation along the Project Cycle and in different projects of Caritas Switzerland (February 2021)

Projects

1. Acquisition Acquisition of projects with a focus on MSD approach

Haiti Staff members of value chain projects have been trained on MSD

2. Project Rationale Setting the strategic framework for a project that uses a market systems approach

6. Monitoring & Evaluation

3. Analyse, identify and research

Establishing effective processes and procedures for monitoring and measuring results

Exploring and explaining why a selected market system is failing to serve the poor

5. Intervention and Adaptation Intervening in systems in ways that support and encourage lasting change

Project Cycle

Bosnia & Herzegovina Developing concepts for systemic market development in rural areas

4. Design and plan Identification of partners, incentives and interests of actors (skills will framework), plan sequencing of activities

Syria Crisis Response – LARMA Livelihood Assistance in Recovering Markets Uganda – ALENU Action for Livelihood Enhancement in Northern Uganda South Sudan Increased resilience for the conflict- and drought-affected population through the restoration of livelihoods Ethiopia and Mali – SAWEL Enhancing food and economic security through entrepreneurial, market oriented and agroecological production Ethiopia Integration of smallholder farmers in coffee and honey markets and influencing market systems Mali – KITA Improving market access, income generation and climate resilience for farmers and their families Kosovo – SIRED Facilitation of more sustainable and inclusive market systems and economic development in rural areas Chad – SODEFIKA Development of peanut, sesame and shea butter value chains and markets

Figure 3: For the sequencing and implementation of the MSD approach Caritas Switzerland orients itself along the Project Cycle. Learnings from the more advanced projects are integrated into the early stages of other MSD projects (February 2021)

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Case Study

Chad is one of the poorest and most fragile countries in the world8. 78 % of its 14 million inhabitants live in rural areas.

The SODEFIKA project (Soutien au développement des filières karité et arachide au Tchad) is implemented by Caritas Switzerland (lead partner) and SWISSAID. It is a 12-year SDCfunded project that has started in 2015. The project aims to promote the development of value chains and market systems of peanut, shea and sesame in the Southern provinces of Chad in cooperation with local actors and the Chadian authorities. Up to date, the project has benefited more than 90,000 households and more than 630,000 people, of which 53 % are women.

Along with the formalisation and professionalisation process of more than 100 cooperatives (i.e. entailing training for improved quantity and quality of production, coordinated sale and improved storage of products), several longer-term interventions have led to systemic changes, including for instance the set-up of a local Market Information System (MIS).

The broadcasted information can be accessed by the entire population of the project region via local radio stations. The cooperatives assume responsibility for the collection of market data through external facilitators and cover more than 90 market sites in the project area. The MIS has noticeably strengthened the negotiating power and decision-making capacity of producers, cooperatives, and family businesses

Figure 4: Production of shea butter in Chad

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vis-à-vis other actors, especially towards traders. Another systemic element of the project is the facilitation of new partnerships with institutional actors (e.g. The Chamber of Commerce, Industry, Agriculture, Mines and Handicrafts, which has led to the legal recognition of cooperatives and the provision of various services in their favour (e. g. access to a micro-credit system)). MSD interventions and value chain activities in this project have resulted in increased incomes of smallholder farmers9, the outreach to an increasing number of beneficiaries (scaling up), as well as an increasing number of new actors are becoming more involved in the targeted value chains and are responding to new opportunities that have emerged (solidification) (e. g. Le Centre de Contrôle de Qualité des Denrées Alimentaires who started offering a training programme for semi-industrial processors for quality groundnut oil production). In the coming years, the project will strengthen its achievements made so far and focus among other aspects on the financial sustainability of the market actors, especially smallholder farmers and cooperatives.

8A ccording to the Human Development Index of the United Nations Development Programme (UNDP), the country ranked 187th out of 189 countries in 2020.

9M SD interventions contributed to increased income. The total average income per household has increased by 46 % at the end of phase one (n=195) in comparison to the baseline.

Conclusions

Especially in times of crisis, e. g. climate change, resource scarcity, instability and violence or a global pandemic, the importance of well-functioning and inclusive agricultural markets is indisputable. Caritas Switzerland considers MSD as one of the key approaches in achieving sustainable development for the benefit of the poorest and most vulnerable. The experience in Chad and other projects has demonstrated that MSD not only increases the benefit-cost ratio of interventions but could also help to achieve change in a sustainable, inclusive, scalable and transformative way. Applying the MSD approach in Chad has helped to identify and address underlying causes of development and market constraints (e. g. lacking market information), and to select adequate interventions (e. g. MIS or partner led changes) with the potential to address systemic problems, which have prevented the poor from benefitting from the sector and earning a decent income.

Caritas Switzerland has collected valuable insights through the implementation of MSD in fundamentally different contexts: various degrees of fragility, in different political environments, to different target groups – from refugees to most marginalized, in situations where (formal) private sector does or does not exist, from short-term to long-term crises. The application of MSD is particularly challenging in highly fragile contexts and where we find unequal power relations. It is more challenging to use MSD with certain target groups, e. g. the most marginalised, and it takes longer to see results, and not all projects (including those of Caritas Switzerland) have been able to achieve its objectives for various reasons (e. g. because some intervention may be useful in theory but less in practice, or due to mismanagement, lack of skills etc.).

actitivites for the sustainable use of natural resources such as e. g. the introduction of agroecological principles10.

• Social responsibility: Recognition of the crucial role of social responsibility of implementing agencies towards project beneficiaries, e. g. providing rural people with better job security and and fair remuneration.

• Formalisation process of informal economies: Where formal economies create barriers for inclusive markets, Caritas Switzerland puts particular emphasis on formalisation processes, e. g. by supporting the legalisation of markets, promoting informal business activities, influencing standards for registrations for informal business activities, etc.

• Participatory processes: Caritas Switzerland empowers, includes, and supports its beneficiaries and partners, focusing particularly on women and youth and working with participatory processes. By doing so, local actors assume responsibility for project management and thus ensure that change continues beyond programme duration.

• Leveraging local companies: Strengthening local companies/actors is not only a powerful driver for creating jobs and income, a strong private sector can also become a powerful actor in the national policy dialogue, thus contributing to improving the general economic policy framework, as pursued in the SAWEL programme in Mali and Ethiopia.

• Seeking innovative solutions: Caritas Switzerland recognises that stimulating economic growth alone does not necessarily benefit the poorest, and thus seeks innovative (e. g. technologies for renewable energy) and courageous solutions to tackle wealth inequality and environmental challenges.

Caritas Switzerland builds upon several key factors to consider when planning and putting in practice successful MSD Projects: • Careful and holistic assessment of the context and the applicability of specific interventions: Assessments at the beginning of the project are to be carried out by interdisciplinary teams (e. g. market assessment and climate research or market and gender assessment).

• Working in fragile contexts and at the HD-nexus: Emergency relief is required to save lives but can only be a short-term solution. Long term solutions mean improving systems to reduce economic and social vulnerability. Depending on the context, Caritas Switzerland may initially offer some direct support, working directly with producers on skills development or organisational capacities, before shifting towards a more facilitatory intervention, including many other systemic actors.

• Environmental impact of interventions: Caritas Switzerland strives for a sustainable MSD approach including

Making market development work in fragile contexts requires continuous adaptations to the approach and Caritas Switzerland is in an ongoing learning process and further developing and adapting the sequencing of MSD interventions along the HD-nexus. A compendium of project findings in various settings will be composed, combined with analysis of lessons learned from MSD interventions. Caritas Switzerland is convinced that the application of systemic approaches to developing markets, often in combination with other successful approaches, will further increase the impact and effectiveness of its programmes and projects – for the benefit of the poorest and most vulnerable.

10 A groecology is an integrated approach that simultaneously applies ecological and social concepts and principles to the design and management of food and agricultural systems.

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Rahel Wyss Knowledge Manager Income E-mail: rwyss@caritas.ch

Rob van Hout Senior Advisor Income E-mail: rvanhout@caritas.ch

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We provide professional, effective and efficient help to people in need irrespective of their political or religious beliefs, gender or ethnicity. The aim of all programmes is to reduce poverty, strengthen people’s resilience, ensure that their rights are respected and expand their capabilities to realise their life goals. We are an independent Swiss aid organisation and a member of Caritas Internationalis, a network comprising more than 160 national Caritas organisations.

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Photos: Fabian Biasio, Luca Zanetti Cover photo: Wednesday its market day in Bokoro town in Chad. People from the surrounding villages come to sell their goods.

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