The World Bank Report No: AUS0001493 . Southern Africa Regional Agriculture Risk Financing Framework Improving Agriculture and Food Security Risk Financing in Southern Africa Lessons learned May 18, 2020 AGR The World Bank © 2017 The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some Rights Reserved This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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The World Bank Improving Agriculture and Food Security Risk Financing in Southern Africa Lessons learned May 18, 2020 The World Bank Lessons learned from developing innovations for agriculture and food security risk financing through challenges The lessons below stem from the elaboration of four innovation challenges for agriculture and food security risk financing carried out by the World Bank and its partners between 2019 and 2020, which gathered proposals from the private sector, NGOs, academia, international organization, research entities, and others. They highlight the principal challenges innovators were faced with, as well as key information for future challenges. As mentioned in the report, there are several advantages to innovation challenges, including finding “out of the box solutions�, opening the field to new contestants, generating positive spill overs to other areas, and efficient risk allocation. However, innovators often face challenges that are difficult to resolve on their own. Some of these lessons raise underlying development issues, for which strategic and long term vision and actions are needed. As such, these lessons learned are addressed not only to potential innovators or vendors, but also policy-makers and stakeholders who are involved in improving agriculture risk financing in the region. 1. Gender in agriculture innovation: In some SADC countries, women are 70 percent of smallholder farmers. However, innovators working at the nexus of water and agriculture sometimes struggled to reach women as customers, clients, and employees (at both the staff and management levels). Nevertheless, many innovators became profitable in part because they incorporated design and marketing feedback from women to address the specific challenges women face. In many cases, women using proposed innovations benefitted more than men because of the time savings realized in cooking, collecting water and performing other on-farm labor. 2. The focus on poverty reduction was challenging for some innovators. Often, innovators faced competing needs to create financially sustainable enterprises while meeting the needs of people who are often neglected or ignored by water/agricultural technology providers. In many instances, the innovators created credit and end-user financing systems that allowed farmers to place a down payment and then pay the remainder of the cost in installments. Some innovators made significant progress on working with smallholder farmers, but more incentives are needed to reach this segment. 3. Clear communication and detailed expectations led to the successful implementation of innovation challenges. In the first challenge, failures to communicate often led to misaligned expectations. To strengthen the partnerships, the second challenge started early on to build alliances with other donors, governments, private sector and universities, all committed to a consensus-driven process where partners were involved in all major challenge decisions through email, weekly calls, and periodic in-person meetings. This was also true of interactions between the donor partners and the World Bank team. The World Bank 4. Acceleration support services must increase an innovator’s technical capacity and the milestones must be realistic but ambitious. Milestone-based funding, paired with acceleration support services, delivered greater program and individual innovator impact than development dollars alone. The experience demonstrated that grant funding alone did not lead to very many innovators reaching sustainable scale. Rather, from both awardee surveys and program reporting from others, there was little to no evidence that grants contributed to strengthening innovators’ operations (i.e., by expanding innovator market shares, product development, etc.) beyond providing an influx of cash. There was evidence from the investment community that milestone-based funding worked well if paired with technical assistance. 5. To scale, innovators must define their customer segments and validate their assumptions on the value they deliver to customers, distribution channels, and cost structures. A key challenge for innovators was that they often didn’t know their customers nor did they understand their needs. In some cases, an innovator would request sales and marketing support without a clear understanding of the value proposition of their product or service from the perspective of their customers. In multiple instances, innovators had not conducted the customer surveys and interviews to get a large enough data set to clarify the pain points, and did not create a value proposition that addressed those pain points. The World Bank’s coaching and technical assistance helped innovators recognize that their products and services needed to be demand- driven, rather than supply-driven. NGOs and nonprofits need to develop viable business models early in development. Those that focused on financial sustainability and developed viable business models in the earliest stages of their innovation’s development were more likely to have reached their milestones. The roadmap of support drove innovators’ tenure with the Challenge program. As a result, innovators better understood how to engage with customers and which problems needed to be solved. 6. Agriculture innovation systems, in particular related to agriculture risk finance, should introduce a preferred-vendor mechanism. An efficient mechanism would be a rolling admissions mechanism to qualify and onboard vendors who come at the top of the innovation challenges. During their acceleration support planning process, the government can invite the vendor to apply to the system and qualify them for membership. This rolling admissions mechanism can enable the government to better align to the timing needs of the innovator, rather than force them to wait until another formal call for vendors is conducted. This way, potential innovators can enter the program with the confidence that the program places a priority on utilizing innovator-preferred vendors when vendors currently available in the system do not best fit the need. 7. One gap in the innovation challenge structure was the lack of a formal strategy to engage the investor community and create a variety of partnership mechanisms. The World Bank team attempted to create investor-innovator connections through bespoke support engagements as well as matchmaking events held previous to the launch of the challenges. None of those efforts achieved the desired outcomes, for various reasons. In the case of bespoke support, The World Bank the connections were made through a single support provider, which did not bring an investor network directly relevant to the technology and geographic circumstances of the innovators. In the case of the matchmaking events, the investor audience participating was composed of the networks of mostly innovators which were not consistently appropriate for these specific innovators. 8. Without baselines, evaluations are hindered. In many cases, innovators did not provide, nor did the Bank team collect, initial baselines. Thus, it is very difficult to recreate an accurate view of an innovator’s impact after their award. However, the Bank team managed to collect data where it otherwise would have proven difficult by incorporating questions related to the expected change in field evaluation surveys for a number of innovators. In the future, for similar programs or international development projects, baseline measurements should be proactively gathered. This can be done by requiring the innovators at the onset of a program to provide a baseline themselves, or to answer a tailored questionnaire with all the needed baseline data included to determine the average income levels, levels of crop production, and other necessary information. This baseline data can then be tracked with updates to the information provided in subsequent questionnaires, to determine a more accurate return on investment for a program in relation to its economic impact on customers/end users. As innovators can expand rapidly and change choices of crop selection and production patterns, semi-annual reporting should include new farmers and establish baselines for large numbers of incoming customers/end users from a particular region or country. This also would improve data monitoring and collection methods for innovators.