Why do agricultural value chains fail? Part (VIII): Will giving things free work?

Introduction

Subsidies are popular economic instruments in agriculture. Input subsides such as seeds and fertiliser and output subsides such as guaranteed price schemes are very popular. In addition agricultural insurance and Information and Communication Technology (ICT) are also gaining a reputation. They also could be given to farmers free or on a subsidised rate. 

The main objectives of a subsidy are to encourage adoption while increasing the affordability. A perfect example is the fertiliser subsidy in the agriculture sector. However there is enough evidence to show that subsidies if not carefully managed would yield negative externalities in the long run. 

Fertiliser was subsidised close to 90% and it motivated farmers to over use creating health and environmental negative externalities. In the end, most argue the fact that benefits of the fertiliser subsidy were shadowed by the costs. Even though fertiliser subsidy helped increased the agricultural production in the short run, failure to implement a succession plan pushed the subsidy program towards a failed state. 

Now imagine if the fertiliser was given 100% free. Surely the negative externalities will be much more and I am fully confident that the program will become politicised quicker than the subsidy scheme which was at 90% subsidised level. Therefore we can come to a testable hypothesis that giving things free would yield much more devastating impacts on farming on most occasions. 

This hypothesis is important when it comes to ICT. Interventions in this regard are increasing rapidly. The internet and mobile technology are being used to reduce the transaction costs that farmers face in different stages of farming. Improving the extension services, price discoveries, transport and logistics are been taken over by Internet and mobile-based applications. These interventions are very popular in the developed world and especially where commercial agriculture is being practiced to a greater extent. 

In recent years Sri Lanka also experienced many such interventions. However the success of most of these interventions are questionable. While the initial adoption rate was high many interventions died in the long run. A common characteristic of these failed attempts was that the “technology was given free”. Therefore the objective of this article is to explore and understand why it might not be a good idea to implement ICT interventions in agriculture sector for free. 

The idea is to take several areas where ICT interventions are being tried and understand what happens is things were given free. I would like to bring in my own research experiences as much as possible. My own experiences in this regard come from many engagements. I will not be acknowledging them individually, rather I will like to pay my gratitude to all those entities that allowed me to be a part of their experiences. 

ICT in agriculture 

extension services

Extension services are an important aspect of overall agriculture advisory services. There are extension officers appointed by the Government, mainly by the provincial agriculture ministries. They work closely with farmers providing them with the necessary guidance in farming. However, an area covered by a particular extension officer is large. Sometimes an officer is asked to cover more than one agrarian services area. There is a significant transaction cost involved in engaging with farmers frequently, especially in terms of travelling, coordination and organising. 

A popular ICT intervention in this regard is the community level campaigns. These ICT interventions allow agriculture extension officers to implement community level campaigns using low cost ICT technologies. The low cost ICT technology here is a SMS service. SMS-based campaign services allow farmers and agriculture extension officers to form a network and implement a campaign without investing much on coordination and face-to-face meetings. 

The SMS campaign will register farmers to the campaign and then will allow farmers to communicate with the agriculture extension officers and among themselves effectively. However a proper training is needed to get familiar with SMS platform and the communication and managing a campaign with the technology. 

Now let’s analyse this scenario in terms of “giving ICT intervention free”. In here what would be given out free is the SMS platform. A normal SMS platform will not be capable enough to hold a community level campaign. It needs a customised and tested SMS platform that is known to serve such purposes. A good example is “Frontline SMS”. These platforms will allow customising your campaigns and implementing them at a lost cost while being effective. 

What we want in this kind of an ICT intervention is a quick and wider adoption of the technology since this is not on something specific such as a particular crop value chain. These campaigns can be on anything that needs wider community level participation. Let’s evaluate two situations where the SMS platform is given free and at a cost. 

If this is given free following outcomes are possible: at the initial stage many farmers and extension officers will be motivated to undertake campaigns to share information. However, as mentioned earlier a training and level of dedication is needed to take part and implement these kinds of campaigns. As long as the transaction cost involve in doing the usual communication and coordination outweighs the cost of doing an SMS-based campaign, everyone will become a part of the campaign. However with the increase scope of the campaign, the management and coordination cost of SMS campaign will go up and farmers might be better off doing the business as usual. Therefore when things are free, the “clear incentive for people to take part and implement an SMS campaign is most probably the cost component only”.

Imagine if the SMS platform is given at a cost. For example to get trained on it, farmers can try out the platform on trial basis, let’s say a campaign of 500 SMSs per month will have no cost charged. This will give people enough incentives to try the SMS platform and get trained on how to successfully implement small-scale campaigns. 

What is important here is the training that people would get. Once the scope of the campaigns become wider, people will have to go for higher capacities in terms of the number of SMSes and that’s where the cost on the platform would start to kick in. One might argue the cost of the SMS platform might discourage people from taking it up. But I would argue, it is better to have a lower adoption rate in the beginning with the long-term sustainability compared to a higher adoption with no sustainability at all. Therefore with cost factor involved people who would be adopting the SMS technology are the people who really need the services of the platform. 

For them, the cost in terms of managing and coordinating the campaign will be less than the incentives they have towards getting the services of the SMS platform. In addition, the training they received with the free quota of SMSes will allow them to reduce the discovery cost in doing a large scale SMS campaigns. Therefore it might be a bad idea to allow the SMS platform free for farmers and extension officers. At a certain point, there should be a charge involved. The argument here is that the farmers with the most need will adopt the technology eventually and those would probably be the ones that are willing to pay a price for it. 

ICT in agriculture 

information dissemination

Agriculture information can reach farmers through the agriculture advisory services, printed and digital media, training and awareness programs and the internet. Since the majority of our farmers are rural and economically deprived (in my review, these farmers are deprived in terms of disposable income, most of them are wealthy in terms of underutilised resources) agriculture information was predominantly given free. 

There are instances that farmers have to buy printed booklets from the department but at a very nominal price. Most information in theses booklets are taught free at the training and awareness programs hosted by the Department of Agriculture, hence farmers do not necessary loose anything. 

The hierarchical system of information dissemination is useful in using limited resources that the Government has. However one drawback of such a system is the relevance of the information. There is a possibility that the agriculture advisory service attempts to push what they think farmers want rather than what they actually need in terms of information. 

This is evident to a certain extent when farmers complain that the information on some agricultural value chains is outdated and the recommendations do not work anymore. Yet, I do agree with the point that agriculture information especially for the farmers who are economically deprived has to be free. They operate on low potential value chains, their disposable income is low, and they are tied with the vicious cycle of poverty and what is missing is someone charging them to give agriculture advisory service. 

Even if someone tries to promote payments for agricultural advisory services among these farmers I do not believe that they would have any success; there aren’t any clear incentives for farmers to spend money on that. Furthermore, involvement of ICT in these low potential value chains will also be minimum. 

On the other hand, high potential agriculture value chains especially the ones that are export oriented and focused towards organic agriculture or Good Agricultural Practices (GAP) gives enough incentives for farmers to pay and get the agriculture advisory services. In my view, these value chains have the ability to engage with a market driven agriculture advisory service. 

Information that these value chains have is unique. They are not published everywhere and not easily accessible. For example, the information on the GAP certification process is not something readily available for a farmer to access. Farmers have to learn this information from the Council for Agri Business (CAB) officers. The situation holds true for organic value chains as well. But both these types of value chains provide a great opportunity for a market driven mechanism (or let’s say the profit making private sector) to promote the use of ICT in information dissemination. 

Farmers who engage with these value chains are not necessary poor. On average a farmer who is in the GPA value chain and plant around 1,500 vines of cucurbits will have the potential to earn around Rs. 200,000-300,000 per season (season is between 65-70 days). Hence they have the potential to pay for an ICT platform, which would give them details on the cultivation guidelines and marketing. 

At the moment, the Department of Agriculture spends a huge amount of money in managing information dissemination in these value chains. I would like to elaborate this further with respect to the GAP value chain. 

There are 80 dedicated CAB officers and technical officers trained to administer this value chain. These officers visit farmers very frequently, sometimes more than four times per week. They are involved in major steps of the crop cycle and sometimes manage the relationships with the exporters. This results in larger transaction costs in terms of time, money and other physical resources to the Agriculture Department. 

Though CAB officers go beyond their limits to make this agriculture value chain success, retention of farmers in the value chain has been an issue. GAP value chain requires farmers to adhere to GAP standards otherwise the harvest will be rejected. Despite the efforts by the CAB officers to provide farmers with this information on a frequent manner rejections are still evident. 

One reason could be that farmers do not take this information seriously since they are given free at a greater transaction cost (I can vouch for this with my personal experience in the value chain). In my view, ICT interventions driven by the private sector suits best for these value chains. There are very clear incentives to do that: ICT platform that delivers GAP guidelines can easily reduce the transaction cost related to CAB officers personal involvement in information dissemination, farmers have necessary disposable income to pay for such an ICT platform to get required information and farmers will take the information seriously since they have to pay to get information. 

Therefore in my view and experience, agriculture information for low potential value chains with low-income farmers has to be free and should be driven by the department of agriculture. However agriculture information for high potential export oriented value chains with high-income farmer have to be driven by market entities and based on ICT platforms.

ICT-related research 

in the agriculture space

ICT interventions in the agriculture space are increasing. Ideally these interventions should be based on sound scientific research. We are talking about farmers adopting an ICT platform so that they can reduce the transaction costs involved. For an ICT platform to be successful in the agriculture space it is important that the transaction costs involved are identified and farmer’s incentives to be on that ICT platform are also identified. Any platform that fails to do so will fail greatly after implementation. Therefore I can’t stress enough on the importance of the scientific research in this regard. 

However we have seen many ICT platforms introduced without properly planned research. Now the question is “if ICT interventions run in to risk of failing without a proper research, then why are most interventions implemented without research?’ To answer that question one must have first-hand experience in doing such work. I present my view based on such experiences.

An ideal research design to see the adoptability and effectiveness of an ICT platform is an “action research”. Randomised Control Trials (RCTs) are the best way to go about it but it is very difficult to implement. Research that involves farmers and ICT will take time. In my view we need to at least allow farmers to get exposed to the ICT intervention for a significant amount of time, until the researcher is confident enough. 

This time varies based on the value chain that you’re focused on and on the ICT intervention. As rule of thumb, farmers need to be exposed to the ICT intervention at least for two to three cropping cycles. Because of the time and the administrative difficulties what is implemented most of the time are “quasi-experiments”. I do not want to get in to detail on how to do a quasi-experiment; there are enough books written on this and anyone interested can simply Google. What I want here is to point out the difficulties in implementing such experiments and then rolling out the ICT intervention in the agriculture space. 

In a quasi-experiment there has to be a control and an experiment group. Control group will not be exposed to the ICT intervention and experiment group will be fully exposed. After some time a regression method such as Difference-In-Difference (DID) or Propensity Score Matching (PSM) will be employed to see the effectiveness of the ICT intervention (this is just a basic summary, the process is not this simple). 

People who are in the control group do not have to do anything extra in terms of the experiment. Our focus here is on the experiment group. What we want from the experiment group is to fully engage with the ICT intervention during the experiment period. Whether that engagement would significantly change some pre-identified outcome variables or not will determine the success of the experiment and the suitability of the ICT intervention. 

Farmers work on incentives. If we want them to take part in the experiment, we want to give them enough incentives to take part. We can lecture them on the future benefits of the ICT intervention (reduction of transaction costs and improved efficiency and all that) but they would need something to take part in the experiment. This can be in terms of monetary incentives (monetary incentives are very common on RCTs) or physical. 

For example, if we are experimenting on a mobile-based application that works only with smart phones, we might have to give smart phones to the farmers who are in the experiment group for free. On one hand smart phone ownership is low among farmers and on the other hand farmers might not be comfortable with having a mobile app in their own phone where a third party can monitor the use of a mobile app. They would obviously have questions on whether that third part can look in to the other uses of the smart phone, for example the use of Facebook, Google and YouTube. 

I have seen where experiments fail when the ICT interventions are introduced to their own phone. At the end of the day the ICT intervention is to be used with their own phone, but during the experiment incentives kick in and farmers would want everything given free at that stage. This does not mean that giving a smart phone free does not have any risks. If the experiment involves giving a smart phone to use I bet the first question that farmers would ask is “is this phone to keep or are you taking it back?” If you are thinking in terms of incentives the correct answer is “yes, you can keep it”. Still you would run in to the risk of farmers selling their phones or mortgaging them. But this is the vested risk in quasi-experiments and you, as a researcher, have to live with it. Hence doing scientific research with ICT interventions are really not easy so most would do shortcuts.

But the real issue of giving things free comes into the picture when the experiment is a success and the ICT platform is ready to roll out. An ICT intervention that would come as a result of an intensive experiment can be implemented in two ways. It can be an open access resource where any farmer who has the required ICT infrastructure (in this case a smart phone) can adopt or it can be tied up to a telecommunication provider (a private entity) and any farmer who is interested in it can pay a subscription free and use it. 

One could easily be motivated to advocate giving the ICT technology for free. But we need to think of the transaction costs and incentives. The ICT intervention is to minimise/eliminate the transaction to the farmer. Therefore the ICT intervention has a value. Adaptation of the ICT platform will only be a success as long as farmer realises the value. That value is the price that the farmer has to pay to use the ICT intervention. Hence it should not be given out for free. 

Summary

There is no direct answer to the question: Will giving things free work? In terms of ICT interventions in agriculture, it is important that we realise the basis for an ICT intervention in the first place: transaction costs and incentives. What should be given free, to whom it should be given free and how market driven mechanisms should control the ICT interventions in agriculture should be looked at in terms of these costs and incentives. ICT interventions in agriculture work better when farmers are in a position to realise their value.

(The writer is an agriculture and environment economist. He can be reached at [email protected] and 94 77 986 7007).