I was excited to see the announcement
that the UK’s Department for International Development (DFID) and the Bill & Melinda Gates Foundation are partnering to support “agricultural research projects to help small farmers increase their yields and incomes.” But I was also puzzled. Both DFID and the Gates Foundation have contributed to the advance market commitment (AMC) to promote the development and delivery of an affordable pneumococcal vaccine
for developing countries. The Gates Foundation provided financial support and Rajiv Shah, at the time with the Gates Foundation, served on the CGD working group
that developed the first detailed proposal for a vaccine AMC, as did a representative from DFID. Both organizations are also strong supporters in general of innovative financing mechanisms to make the delivery of aid more efficient and effective.
So I was somewhat surprised there was no mention of innovative financing mechanisms in the joint press release and to see that the two initial grants under the new partnership are of the traditional “push” variety, which subsidize the supply of research, rather than using a “pull mechanism” to stimulate demand for innovation. As discussed in my working paper
last year on innovation in developing-country agriculture, pull mechanisms like the AMC allow donors to pay upon delivery of a new technology and only to the degree that there is a demand for it. In contrast to traditional push approaches, pull mechanisms can promote competition for market share, thereby resulting in better and more affordable products. By linking payment to demand, they also give the innovator more of an incentive to tailor the product to what consumers want and will pay for, something that is often lacking with push mechanisms for R&D.
The absence of any reference to pull mechanisms is even more surprising since one of the grants is to Diagnostics For All to develop a test for the presence of aflatoxin in grain, which can cause hepatitis and liver cancer when consumed. Other parts of the Gates Foundation are currently exploring
how a pull mechanism could reduce the incidence of aflatoxin during production and storage, even under less than ideal conditions. Implementation of this project will necessitate development of a system for testing farmers’ soil for the presence of the biocontrol product that reduces the presence of aflatoxin. There are different kinds of markets for different commodities that are vulnerable to aflatoxin contamination—peanuts aimed at export markets are very different from maize for own-consumption—so It makes sense to tackle the problem from multiple angles.
Pull mechanisms are not appropriate for every case, but I wonder whether an advance market commitment or other pull mechanism was considered for the aflatoxin diagnostic. If so, I’m curious as to why it was rejected or, if innovative financial tools were not considered, why not? Fortunately, there is another $60 million to be disbursed over the next five years in this worthwhile effort to encourage agricultural innovation for poor farmers. I’ll be watching hopefully for signs of greater pull in the subsequent rounds.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise.
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