You can't solve poverty by supplying products not in demand

Social Enterprise

You can't solve poverty by supplying products not in demand

Vegetables at Market <a href="http://www.flickr.com/photos/bioversity/6672475021/sizes/z/in/photostream/">Bioversity International (Flickr)</a>.
Vegetables at Market Bioversity International (Flickr).

Are humanitarian aid groups really demand-driven? Development economist James Riordan, says NGOs, government agencies and consulting firms, overwhelmingly, are not.

Speaking at Mercy Corps' headquarters in Portland, Riordan, the former Latin America director for Chemonics International, used a simple role-play to help illustrate how so many well-meaning charities fall short.

Pretend you’re a potato farmer in the highlands of Peru. You’ve got lots of underutilized land and you’d like to start using more effective agricultural methods to increase your yields. The problem is you don’t have the cash or expertise.

This scenario sounds like a great opportunity for an aid organization to make a strategic, seemingly demand-driven investment. You, as a farmer, are asking for technical assistance; the NGO has expertise in potato farming techniques, like precision fertilizers, and a grant from a government to provide training. Brilliant. After all, it’s easy to imagine how helping your farm turn out more potatoes would not only benefit your small business and therefore your family, but also the local economy as a whole.

But “the fact that a community says ‘they want something’ does not mean it’s 'demand-driven,'” Riordan says. In this case what you, the farmer, want is to grow more potatoes; but so far no one's mentioned any clear buyers.

Using this example: despite the investment, the training and new agriculture techniques, there’s one huge, unanswered question: Are local customers even interested in buying more of your potatoes at the price you can offer?

“The fact that someone is growing potatoes today,” Riordan said, “is not reason to help them grow more potatoes."

Perhaps you, the farmer, would be better served if investors and organizations first helped you identify the local demands. Maybe offering more potatoes would sink the going price by half, causing you to lose money. At the same time, perhaps there's a dearth of onions—a market opportunity if you diversified your crop. Alternatively, maybe there's a buyer in another region who does want the extra potatoes you have to sell. Finding that buyer, developing trust, and setting up systems to store, transport and handle the shipment of potatoes should be the first concern, before any new seeds are put in the ground. The NGO can make better use of its funds and create longer-lasting change by intervening at a different part of the supply chain, say, in finding the buyer or helping to set up the trust and shipping systems.

The lesson here is the difference between supply and demand, and defining where the demand we're talking about is coming from. The farmer? Not necessarily; s/he represents supply. The person buying the farmers' goods is the demand here.

Humanitarian and international development groups do a great job at identifying unique and innovative businesses that, with financial and logistical support, could potentially help address issues of local poverty or hunger.

But, according to Riordan, these organizations typically fail in a crucial way: without clearly identifying demand—the names, emails and phone numbers for actual buyers—these businesses, with the support of humanitarian organizations, are simply at risk of drowning under the cost of producing goods and services that nobody is willing to buy. Humanitarian aid groups and investors, says Riordan, simply need to do a better job identifying, in concrete terms, real local demand.

James T. Riordan visited Mercy Corps's Action Center in Portland for a public lecture on October 19. Read his bio here.

RELATED: Paul Polak: Seeing the poor as customers

RESOURCES:
One buyer at a time, James T. Riordan's article in the Stanford Social Innovation Review

We Do Know How: A Buyer-Led Approach to Creating Jobs for the PoorJames T. Riordan's 2011 book.

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