3.4.4. Leverage Points
Leverage is the process of targeting an intervention at points in a system that can generate broad change throughout the value chain. Leverage points can generally be found in four different locations in the value chain system. Each location has advantages and disadvantages:
- Economic structures typically have well-defined organizational nodes through which product, actors and resources flow. These nodes are usually at aggregation points in the value addition process, such as when smallholders deliver product to a processor or a trader, or when input providers deliver inputs to a group of farmers. It is at these structural points that projects can foster wider changes in behavior by shifting the incentives related to the way the aggregation process is conducted.
- Social structures are different from economic structures in that potential leverage comes from social status or position in a community. Building upon the influence a person has in a community can be effective, however, it is critical to understand the social and political incentives that form the basis of influence in a community.
- Economic incentives can be highly effective at fostering systemic change. An important tool in gaining leverage is competitive pressure. Using early adopters as models to show others that they need to change or be out-competed is very effective. In this context it is critical that the offer of project assistance is open to all lead firms: the project should not be seen as favoring one firm, but to be responding to that firm’s efforts to change. Competitive pressure has to be grounded in behavior that leads to industry competitiveness and is driven by the firms themselves.
- Social incentives are similar to economic structures, but carry the same caution as with social structures. Just as solidarity groups leverage social incentives to limit defaults, social pressures can be used to foster change in behavior. The key is understanding the social incentive(s) that will be targeted to foster greater behavior change.
Economic Structure Resulting in Leverage: A project assists a cotton firm to promote and facilitate access to tillage and spraying services for its 100,000 outgrowers. The farmers begin to access these services for all of their crops.
Economic Structure Not Resulting in Leverage: A project provides direct training to smallholder farmers selling to a cotton firm.
Social Structure Resulting in Leverage: A local input provider selects a community member with substantial influence to be one of his community agents. The agent’s social influence transfers to the input provider, enabling the community to have confidence in pre-paying for orders.
Social Structure Not Resulting in Leverage: A local input provider requests a local chief to participate in a promotional event. The chief gives a speech on how he will get donor support for agricultural inputs at a substantially reduced cost. The input provider is unable to effectively present his message and leaves the promotion without sales and with no identified in-community agent.
Economic Incentives Resulting in Leverage: A local input provider takes on a community agent scheme as a means to access the smallholder market. His sales increase substantially, forcing his competitors to adopt or lose market share. Competitors begin adopting a community agent structure in order to compete for the rural smallholder market.
Economic Incentives Not Resulting in Leverage: An abattoir sees little value in engaging smallholders directly as most of his supply comes from his own stock. He only needs smallholder cattle to fill supply gaps for low-grade meat. Through agents he can outsource the problems of dealing with numerous smallholders and benefit from the low cost of meat due to predatory buying practices.
Social Incentives Resulting in Leverage: Community social norms provide incentives to invest reactively to solve problems and disincentives to invest proactively to generate individual income. A veterinarian develops a marketing pitch to focus on reduced mortality and morbidity – solving problems. Community members sign a contract to put 115 cattle on a health scheme and pre-pay for 6 months in advance.
Social Incentives Not Resulting in Leverage: After initial contract signing for 160 animals, a veterinarian refuses to spend any more time than is required in the community or hire an assistant to increase presence in the community. The community begins to withhold payments and complains of the quality of service. Eventually, the community reveals that they like the services, but feel uncomfortable paying for a service unless the vet business invests in building the community’s trust.