This in-depth case study, of DEGRP agriculture project A behavioural economic analysis of agricultural investment decisions in Uganda, takes a detailed look at the types of impact the project helped bring about and how these were achieved, paying particular attention to the communications and engagement strategies employed by the research team to realise their impact aims.
This impact case study looks at what has been achieved by a DEGRP project examining innovation in business and industry in low-income countries.
Led by Xiaolan Fu from the Technology and Management Centre for Development, Oxford University, the project has had far-reaching impacts, from influencing policy in Ghana, to contributing to the formulation and implementation of Goal 9 of the Sustainable Development Goals.
THE RESEARCH CHALLENGE
‘Innovation’ is considered a key driver of economic growth. According to economists, the development or use of innovations - new or improved products, production processes, or even business practices - enables firms to increase their productivity, which in turn leads to higher Gross Domestic Product (GDP).
Innovation is thought to be particularly important for low-income countries. It’s argued that without it, low-income developing countries will not be able to transition away from low-productivity activities, such as resource extraction, to more profitable, high-productivity activities such as manufacturing and services.
Yet understanding of innovation in developing countries is currently quite limited. Not enough is known about how much and what kind of innovation is occurring; whether or how these innovations are spread; or what ultimately drives firms to innovate.
Gaining a better understanding of these issues is essential if governments are to develop and implement the right strategies and policies to support growth-enhancing innovation.
THE DEGRP RESEARCH
In response to this challenge, DEGRP researchers embarked on an investigation into the determinants, sources of, and barriers to innovation in low-income countries, with a focus on Ghana. Although now categorised as a low-middle-income country or ‘LMIC’, Ghana was until recently considered a low-income country, and therefore constitutes a good case for examining the role played by innovation in boosting economic growth.
Between November 2013 and January 2014, the research team surveyed more than 500 businesses to find out more about how and why they innovate, and what constraints they face. The firms researched ranged from informal micro-businesses of fewer than nine people, to large formal businesses employing over 99 members of staff, in diverse sectors such as textile and garment production, food processing, metalwork, and construction.
The survey findings
The survey yielded a number of interesting findings on the nature, impact, and sources of innovation in Ghana. For example, it confirmed that innovation is definitely happening, and that it’s helping both formal and informal sector firms to survive and grow. It also revealed that much of this innovation, particularly in the informal sector, is happening ‘under the radar’. That is, it typically involves the adaptation of existing technologies, rather than development or adoption of brand-new or ‘new-to-firm’ technological innovations.
Gender plays a part in innovation too, with the researchers finding that firms led by women are less likely to introduce technological innovations, but are more active in adopting non-technological innovations such as new marketing techniques.
The survey results also uncovered a number of obstacles to innovation, and technological innovation in particular, including: difficulty accessing credit; under-skilled employees; perceived economic risks of innovation; inconsistent innovation policy; and low levels of collaboration with universities and research institutions, despite their important role as gatekeepers and producers of innovation knowledge and technology.
New innovation policy strategies
Armed with these insights, the team developed a range of possible policy strategies that could be used to encourage and facilitate innovation in Ghana, and in other LICs facing similar constraints.
These strategies included:
• Finance schemes enabling more firms to gain access to credit for innovation
• Offering firms compensation to offset the risks of innovating in volatile markets
• Boosting technological capacity by raising awareness of, and facilitating access to, existing government training schemes
• Fostering collaboration between firms and universities and other research institutions
THE PROJECT'S IMPACT
The research findings and proposed solutions have contributed to a number of changes, both in Ghana and further afield.
As the first comprehensive study on innovation in low-income countries, the project filled a significant gap in existing knowledge about the issue, leading to a better understanding of innovation among policymakers at both the national and international level.
This enhanced understanding in turn resulted in new action to boost innovation.
In Ghana, presentation of the research findings to the Minister of Environment, Science, Technology and Innovation (MESTI) and the Ministry of Trade and Industry, inspired the government to introduce a major new programme to strengthen university-industry collaboration for increased, and better, innovation. The project team is also now developing a project with the Ghanaian government to carry out an even larger innovation survey involving over 2,500 firms in the formal and informal sector.
In addition, the project team’s close collaboration with the Ghanaian Science and Technology Policy Research Institute (STEPRI) helped boost STEPRI’s profile among Ghanaian policymakers. As a result, STEPRI now leads the university-industry programme, and will also lead the new, larger innovation survey planned.
The project has also strengthened networks and communities of practice around innovation in low-income countries. The initial planning for the project involved think tanks and universities from Kenya, Ethiopia, and South Africa. Now that the project is complete, the research survey is being used to conduct similar innovation research in Tanzania and Uganda, with new funding support from the European Commission and World Intellectual Property Organisation.
At the global level, the research findings featured in preparatory documents for the 2030 Sustainable Development Agenda, which in turn contributed to the development of a new Sustainable Development Goal – SDG9 – which aims to promote sustainable industrialization and foster innovation.
For more on the survey findings, research methods used, and policy recommendations, read the full DILIC Survey report. Or, view our Research in Context for a shorter analysis by project lead Xiaolan Fu and DEGRP’s innovation theme lead, Dirk Willem te Velde.
This impact case study looks at what has been achieved by a DEGRP agriculture project that undertook an analysis of agricultural investment decisions in Uganda.
The project team’s work, led by Arjan Verschoor from the University of East Anglia, has had a significant impact on agriculture in Uganda, including changes to the country’s national agricultural policy.
The research challenge
Low agricultural productivity is a common problem across Africa, contributing to food insecurity and rural poverty. There are many obstacles to increasing productivity, among them lack of access to agricultural technologies, lack of knowledge of the latest growing techniques, and land ownership issues.
But even when farmers do have access to products and services that could enhance their harvests, such as fertiliser, quality seeds, or irrigation technology, they are often reluctant to invest in them. And with good reason: investment is risky, typically requiring a large cash outlay with no guarantee that bad weather, disease, or other kinds of damage won’t affect crops.
Encouraging farmers to invest in new technologies while protecting them from risk is therefore a key challenge for policymakers.
The DEGRP research
DEGRP-funded researchers sought to address this challenge by exploring how farmers perceive risk, and how these perceptions influence their investment choices. Their rationale was that a better understanding of farmers’ risk-aversion would give insights into how productivity-enhancing products and technologies could be adapted to make them less risky, and therefore more attractive to farmers.
Focusing on two districts in eastern Uganda that frequently experience harvest failure, the project team worked closely with 1,803 farmers in 100 villages, using economic experiments, interviews and surveys to investigate the drivers of risk-aversion.
Their research revealed a number of factors affecting farmers’ decisions to take risks, including: previous experience of risk-taking; expectations around risk-taking within their communities; and concerns over how the risk will be spread across their social networks – e.g. friends, family or neighbours – in the event of a failed investment.
From their findings, the research team generated a series of policy recommendations to adapt existing investment opportunities in line with farmers’ complicated relationships with risk. Their proposed solutions included:
- Better insurance offers
Traditional crop insurance is rarely available to smallholders, but weather-index insurance is a viable alternative and could be promoted more by agricultural policymakers. Insurance would also be more attractive to smallholders if ‘bundled’ together with credit and agricultural inputs into a convenient package. Offering insurance to groups of smallholders may also increase its attractiveness, since group members can share the remaining uninsured risks.
- Community warehouse receipt systems
These allow farmers to leave their produce in a warehouse, borrow up to 80% of its value and sell it when prices rise, rather than having to sell immediately because they need the cash, even if the price they get for it is low. These warehouse receipt systems already operate in Uganda, but are not accessible to smallholders; a community level system offers a good alternative and allows farmers to manage their own risk.
- Selling fertiliser in smaller packs
Inorganic fertiliser can greatly increase productivity, but few smallholders in Uganda use it. It is typically sold in 50 kg bags, but research indicates that buying smaller bags makes the investment less risky. Thus, selling fertiliser in smaller packages would increase the likelihood that farmers will buy and use it.
The project's impact
The research findings and policy recommendations resulted in a number of positive changes at different stages of the project.
The research team shared and consulted on their findings with a wide range of local and national stakeholders – including policymakers and business representatives – at various points during the research process. By shedding light on how smallholder farmers approach risk, these stakeholder consultations helped to shift perceptions of the conditions needed to encourage farmers to invest in certain agricultural products and technologies.
With this shift in perceptions underway, the research team then partnered with Ugandan NGO AT Uganda to lobby for changes to Uganda’s agriculture policy. As a result, promotion of weather index insurance now features as one of five core activities in the Uganda Climate Smart Agriculture Plan. Uganda’s new Agriculture Sector Development Plan now promotes this type of insurance as well, both in its own right and as a complement to warehouse receipts systems.
The research has had a wider impact, too. It helped to build the capacity of Ugandan researchers involved in the project by giving them the opportunity to use new research techniques. In fact, at the end of the project, the lead Ugandan researcher set up a new research institute - the Field Lab Research Services Institute - dedicated to providing research conducted with these techniques.
The project also fostered collaboration between different organisations and groups involved in boosting agricultural productivity. The researchers’ efforts to continually engage stakeholders throughout the research process led to an alliance of insurance companies, micro-finance organisations, farmer organisations and agricultural service providers who have agreed to collaborate to improve insurance products.