Payment for Results: A Different Way of “Doing Development”
Background: The AgResults initiative
Payment-for-results is an approach that’s been around for a while, but hasn’t been leveraged extensively in agricultural market systems development. The AgResults initiative, conceived of in 2009 and launched in 2013, set out to change that. A 152-million dollar project funded by USAID, Australia, Canada, the United Kingdom and the Bill and Melinda Gates Foundation, with World Bank as trustee, AgResults’ diverse projects have tested and refined payment-for-results (PfR) approaches to scale uptake of promising agricultural technologies and develop inclusive, sustainable and dynamic markets for those technologies. Rigorous external evaluation has supported the development of an evidence base on the potential and limitations of PfR approaches, and identified core best practices to inform their ongoing deployment.
I served as qualitative and gender lead on AgResults’ external evaluation from 2013-2023, focused on private sector engagement, market and gender inclusion outcomes. In this role, I helped to design and implement the evaluation approach, working in close collaboration with the broader evaluation team to build a robust evidence base on PfR’s potential and limitations. Our findings showed that, in the right context and with careful planning and design, PfR can be a uniquely powerful tool to spur private sector investment that leads to the development of inclusive, sustainable and dynamic markets for promising agricultural technologies, as well as for scaling uptake of those technologies among smallholder farmers.
Theory and findings: The potential of PfR
Traditional approaches to private sector-led agricultural development often attempt to “push” firms to adopt new practices or enter new markets by subsidizing, demonstrating, facilitating, enabling, educating and motivating. In contrast, PfR approaches like AgResults seek to “pull” private sector actors into the market by offering them incentives to invest their own resources in pursuit of outcomes that are consistent with both their own and development interests.
Temporary financial incentives are offered to firms to de-risk their entry into markets for which they perceive an underlying business case, but for which constraints, such as limited availability or low awareness of the technology, limit investment at scale. The incentives are paid to firms based on their results (PfR). The results that trigger payments reflect meaningful outcomes associated with the development of markets and/or adoption of the targeted technology — for example, the volume or value of commercial sales of the targeted technology to smallholder farmers — rather than inputs or efforts, such as presentation of trainings or construction of a facility.
PfR approaches like AgResults were conceptualized on the expectation that they have the potential to be more effective, relevant and cost-effective than traditional “push” approaches. They were also expected to be more conducive to long-term private sector participation in and sustainability of the markets whose development they induce. Ex ante analyses hypothesized that they might not be highly inclusive of women, given that women tend to participate in commercial market systems at lower rates than men, but early results have shown the picture to be far more nuanced than that and have helped to identify design approaches that can increase inclusiveness.
Ten years of rigorous and comprehensive evaluation have shown that PfR approaches have the best potential for success when the private sector perceives a strong business case for investing to develop a market for the targeted agricultural technology and when constraints to development of the market are within the manageable interest of the firms pursuing the incentive.
Application: The practice of PfR
AgResults Kenya On-Farm Storage Project
In Kenya, AgResults launched a competition that catalyzed private sector investment to develop a commercial market for and scale uptake of improved on-farm storage products, such as hermetically sealed bags and bins, among smallholder farmers in order to help reduce postharvest losses of staple foods. The competition attracted nine competitors, including domestic and international firms with diverse business models and widely varying scales of operation. Rigorous external evaluation attributed to AgResults a 23 percentage point increase in market penetration in Kenya’s eastern region and a 6 percentage point increase in the Rift Valley region, amounting to more than 220,000 smallholder farmer households purchasing storage products than would have occurred without the project. The market that emerged was highly inclusive — smallholder farmers accounted for more than 90% of buyers, and female-headed households had a 3.7% higher uptake of the products than male-headed or dual-headed households. A sustainability assessment revealed that the market continued to grow and evolve following the end of the competition. Two-and-a-half years after the project ended, the assessment found that sales had increased more than 250% since the project’s end, there were new entrants to the market, ongoing product innovation and an overall decrease in the real price of the storage products sold. With the continued development of the market and sales of the storage products following AgResults’ conclusion, total project cost per metric ton of storage sold fell from $25.43 to $7.15 per metric ton of storage sold.
AgResults Vietnam Greenhouse Gas Emissions Reduction Project
In Vietnam, AgResults launched a competition to motivate private firms and nongovernmental organizations to develop and disseminate greenhouse gas (GHG)-reducing rice production systems among small-scale rice farmers in the Red River Delta, with the objective of reducing GHG emissions. In Phase 1 of the competition, participants’ systems were tested for GHG reductions and yields (relative to a nearby test plot using traditional local rice cultivation practices), with the best-performing systems qualifying for Phase 2. During the second “scaling” phase, participants competed for seasonal and end-of-project prizes that were calculated based on the number of farmers utilizing their systems, the systems’ yields and GHG emissions reductions achieved.
By the final season of Phase 2, project data verified 18,878 farmers cultivated 2,351 hectares (ha) of rice using AgResults systems, and the evaluation found that AgResults farmers had 14% higher yields and 10% higher net harvest value than comparable farmers who were not involved with AgResults. Emissions estimates, which were deemed unreliable by both the project manager and evaluator, showed modest reductions in GHGs compared to projections.
A striking contribution of AgResults’ Vietnam project was that it motivated profit-driven companies to develop and disseminate rice production systems to reduce GHG emissions, despite there being no clear business case for such investment. The most successful competitors — who were also found to have sustained and further expanded their promotion of the systems two years after the project’s end — developed a business case for promoting the systems by successfully leveraged overlap between promoting their GHG-reducing system and maintaining control over production processes through contract farming to ensure the quality of the rice they procured.
Similarly, farmers were expected to be reluctant to adopt such systems since they do not directly bear the costs of emissions from their rice production, and because there were no direct financial incentives to reward them for adopting the systems. Widespread adoption of the systems was motivated by competitors who contracted farmers to produce rice using the systems. At the same time, farmers cited direct benefits from using the systems, including improved yields, reduced costs and better quality of rice produced. Our sustainability assessment showed the farmers’ continued use of the systems depended heavily on continued engagement by competitors, but that many farmers continued to use elements of the systems even if they no longer worked with competitors because of the benefits they experienced.
The project’s scale and cost-effectiveness improved significantly between the end of the project and the follow-up sustainability assessment due to competitors’ continued promotion of the systems among AgResults farmers and dissemination to new farmers. Two years after the project’s end, single-season application of the systems had increased by 270%, net hectares cultivated with the systems since the start of the project more than tripled and the total project cost per hectare cultivated using the systems fell from $474 to between $106 and $156 (depending on assumptions regarding missing data).
AgResults is an innovative initiative that has demonstrated that PfR has the potential to catalyze the development of sustainable and inclusive markets for agricultural technologies, and to scale uptake of those technologies. Transformational and sustained change is possible, particularly when the private sector perceives a strong underlying business case for investment into a market and the project can create incentives that motivate them to push past initial impediments to realizing that investment. While this blog post has highlighted the potential of PfR by highlighting some of its notable successes, our evaluation findings over the past 10 years have also shown that PfR is not appropriate for every development context, problem or innovation. Nonetheless, the rich and burgeoning evidence base that AgResults’ external evaluation has helped to establish suggests that, where deployed successfully, the markets, uptake and impact of a PfR approach are catalytic, transformational and sustained.