Market Systems Approach during Russia’s War on Ukraine
Before Russia’s full-scale invasion, Ukraine was a major producer and exporter of agricultural commodities, being the fifth-largest global wheat exporter and accounting for 12% of global corn exports, 20% of rapeseed and nearly half of sunflower oil. Some countries, including the world’s most populous, relied greatly on Ukrainian agricultural products. Pre-war, Ukraine supplied a stunning 48% of Algeria’s wheat imports and at least a quarter of wheat imports in Bangladesh, Egypt, Indonesia and Pakistan.
The war was a shock to Ukraine’s society, economy and agriculture. As of July 2023, 17% of Ukrainian territory was still occupied. Roughly 174,000 km² of land are contaminated with explosive ordnance, an area twice as large as Austria. Demining may take 10-30 years and cost around $37.4 billion. So far 2.5 million hectares of agricultural land are damaged, but that’s not the final number, considering ongoing heavy fighting. Exports have been severely constrained due to port closures and severely reduced port operations. As a result, in 2022, Ukrainian agricultural exports dropped by $4.3 billion (15%).
But, the downfall could’ve been much worse. As Ukrainian agriculture is crucial for the country’s economy, plays an important role in global food security and provides food and income for Ukrainians, the Ukrainian government, market actors, international organizations and technical assistance projects focused on providing ongoing support to help the sector withstand the shocks of war, continue operations, recover and build resilience.
Agriculture Growing Rural Opportunities’ approach
As USAID’s flagship agricultural activity in Ukraine, Agriculture Growing Rural Opportunities (AGRO) focused on adapting its projects to the new circumstances. AGRO is one of the activities under USAID’s Agricultural Resilience Initiative-Ukraine (AGRI Ukraine), which works to bolster Ukrainian agricultural production and exports and to help alleviate the global food security crisis exacerbated by Russia’s brutal war on Ukraine. Operational since November 2019, AGRO is an integrated agricultural and rural development activity that applies a market systems approach to accelerate the economic development of rural Ukrainian communities. The approach has also helped to model, plan and implement AGRO’s response to the war.
Create multiple feedback loops with stakeholders to co-design and monitor the activities. The situation in Ukraine continues to be unpredictable, with night missile attacks, destroyed infrastructure, electricity and communications disruptions, tension and psychological exhaustion. Wartime conditions make it difficult to access affected communities and areas where technical assistance is most needed; damaged infrastructure, roadblocks, checkpoints and military operations make it harder for AGRO to monitor and plan activities.
To respond to this challenge, AGRO established multiple communications loops with the private sector, central and local governments, and nongovernmental organizations (NGOs) that allow us to get reliable data and verify needs on the ground. AGRO keeps in close contact with local partners directly (first, local market captains such as big processing enterprises, grain traders, inputs and service providers, associations, the Ministry of Agrarian Policy and Food, big influencing agricultural media, etc.) and indirectly through numerous events. On AGRO’s request, Vikāra Institute designed an Emergency Market System Mapping and Analysis (EMSMA) methodology by adapting the Emergency Market Mapping and Analysis (EMMA) Toolkit to integrate ways to maintain and improve market system competitiveness, inclusivity and resilience. AGRO reiterates the EMSMA every quarter and conducts other surveys and assessments to understand the situation, emerging challenges, partners’ needs and readiness to adapt activities in a smart way.
AGRO also has detailed and multilevel monitoring plans for its activities and engages local partners at all levels of co-designing, monitoring, learning and adapting activities.
Rely on market feedback to prompt the response. Another limitation is the speed of interventions. Despite the situation that often requires emergency response, AGRO remains a technical assistance project and must follow all proper regulations; the market systems approach is also known as a long process. To ensure the fastest response, AGRO relies on partners’ knowledge and solutions, building on projects that emerged from the market and adjusting its activities to catalyze and de-risk those projects that the system has elaborated itself. We give our partners the leadership to select what they believe is the most crucial in the market system development at the moment; catalyze and de-risk their investments with our research, additional expertise, co-investments, and adaptive management practices.
De-risking private sector investments motivates businesses to invest and develop in a challenging time, which is a foundation for future recovery and growth of Ukrainian agriculture. At the time of war, private sector co-investments in joint projects with AGRO rose from $1.37 to $3 per each dollar co-invested by the activity. For instance, in blended finance, for each dollar invested by AGRO, the private sector is expected to facilitate $4.20 of trade credit to small farmers purchasing plant protection products, seeds and fertilizers, with a collective expenditure of about $12 million. Ukrelko, part of the Louis Dreifus Company, is ready to co-invest about $5 million in a joint project in grain processing and expanding grain elevators capacities with AGRO’s investment of about $1 million.
Learn and develop together with your partners. As the war continues and new variables emerge on the market again and again, AGRO tries to always be ready to adapt. AGRO learned to plan several scenarios so that if the situation changes, plan B is in place and ready to be implemented. AGRO usually selects several similar projects under a competitive process for its co-investments to diversify investment, mitigate the risk and avoid rebalancing the market. We also engage all sorts of collaborating, learning and adapting (CLA) and adaptive management tools, including frequent after-action reviews, quarterly pause-and-reflect sessions, stakeholder events and documenting cases and lessons learned. AGRO had to learn to embrace failures and always be ready to adjust or begin in a different way.
Adaptation to the wartime reality included revision of our priorities, target groups and types of interventions based on the market actors’ needs:
- Immediate Response: Activities that are immediately in demand for crisis response. Many of these activities focus on food security and production support.
- Early Recovery: Activities that are likely to be necessary in the six months following the cessation of active fighting to ensure proper orientation for market recovery.
- Long-Term Recovery and Rebuilding: Activities that focus on longer-term economic recovery and resiliency post-conflict and require more complex tools/adaptability, depending on various post-war scenarios.
As the situation evolves, all three levels are enacted simultaneously depending on whether the area has active fighting, is occupied by Russia or has been liberated by the Ukrainian Army.
AGRO’s approach in action: Be not a solution, but a catalyst for positive changes
USAID launched AGRI-Ukraine in July 2022. While AGRO pivoted its approach as soon as the war began in February, it scaled these efforts under AGRI-Ukraine. This required analyzing the agricultural segment, identifying target commodities and their major issues, and defining interventions oriented toward both emergency response and longer-term development.
Due to Russia’s occupation and attacks, Ukraine lost a substantial amount of grain storage capacity and faced a large deficit as the fall harvest approached. Under AGRI-Ukraine, AGRO purchased supplemental storage materials, grain packing and unloading machines, and modular storage units, which it provided to competitively selected local agricultural service providers. Providers distributed 7,808 storage sleeves to farmers, who paid market-based fees for the accompanying packing service, preserving market-based service provision and expanding local providers’ capabilities. This enabled farmers to store about a million metric tons of grain and export it over time, helping them earn much-needed revenue, creating jobs for Ukrainian workers and easing the global food insecurity crisis.
The war also reduced local availability of inputs and substantially increased prices, with fertilizer prices more than doubling. To help farmers address market gaps as the 2023 spring planting approached and winter crops faced a critical point in their growth cycle, AGRO worked through a competitively selected local market actor to distribute fertilizers and high-quality sunflower and corn seeds to about 8,200 micro to medium farmers. AGRO opted for such direct delivery after determining that such emergency-related direct delivery was essential to help the market system to survive in the critical time, when longer-term solutions were not feasible or sufficient. To build longer-term resilience and capacity, AGRO complemented these distributions with consultations, training and guidance on production technologies during the season.
AGRO also implemented an initiative with sub-awardee the All-Ukrainian Association of Communities (AUAC) that harnessed public and private sector contributions of in-kind goods that were critical to maintain livelihoods and agricultural production, but were not sufficiently available in local markets due to the war. AGRO support enabled AUAC to carry out timely distribution, ensuring communities can access goods, production tools, seeds, etc. To date, AUAC has distributed 1,400 metric tons of critically necessary donated goods, including 10.8 metric tons of seeds, 22 metric tons of veterinary drugs, 17 modular houses and 223 power generators to 450 communities. Other communities received boats, rubber boots, wheelbarrows, gas cylinders, shovels and bottled drinking water after the Kahovka dam destruction. To support sustained recovery, AGRO provided micro and medium farmers with informational, analytical and legal support to survive and thrive in the conditions of war. By implementing this timely emergency assistance and early recovery with and through AUAC, a grassroots-level association with a network of partners across rural communities, AGRO contributed to the socioeconomic restoration of the liberated territories and supported market system resilience. By supporting rural communities and helping people stay living in their homes and country, AGRO helped ensure that businesses still have consumers, workers and suppliers to continue operating despite the war.
AGRO maintained market systems approaches along with targeted direct delivery, but adjusted our partnership approach, such as expanding into co-investing with large grain enterprises, which hadn’t previously been the focus of the international technical assistance as they were mature on their own. With the war, large enterprises faced disruption in operations, supply chains and export channels and sought new tools to adapt to the situation. For AGRO, it became the opportunity for partnerships and co-investments in maintaining and rebuilding the core of Ukraine’s agriculture sector. We’ve launched several big co-investment projects on grain short- and long-term storage and processing, which allowed us to incorporate small producers into formal supply chains and cooperation, make systemic improvements in the system of production creating added value, and in this way start rebuilding the agri-system better. This includes co-investing with local businesses in increasing storage capacities in elevators and we expect to invest up to about $10.2 million to engage 15-18 large businesses in these projects and smaller farmers as their suppliers. AGRO also is co-investing with local businesses to develop processing of grains, oilseeds and legumes into food, fodder, industrial products and biofuel to diversify and expand their markets. AGRO anticipates providing up to $10 million and engaging smaller farmers through these co-investments.
All this AGRO implements within the same approach: build as much as possible together with the private sector, but don’t make assistance the center of solution — it should be catalytic. As the overall agriculture sector is experiencing major shocks, it creates new challenges and opportunities, a pain point, forcing businesses to invest to stay alive by adapting to the new reality. International technical assistance’s role is to foster the changes that encourage those investments that make the market system more competitive, inclusive and resilient.
Altogether, AGRO cooperated with the government, public institutions and civil society to verify needs and coordinate assistance with other players and donors. As the situation evolved, AGRO returned a great focus on maintaining reform progress (irrigation, open data and cadaster) and, in parallel, supported rural communities and addressed their emergency needs, remembering that infrastructure, human resources, skills and technologies are part of the market system wheel and are crucially needed to support the system’s resilience and make the system work.