WASHINGTON, D.C. — It is becoming increasingly apparent that there needs to be a fundamental shift in the way in which international development programs are implemented to help people overcome poverty. This fundamental shift comes in the shape of a “demand-driven approach,” also known as the buyer-led approach, that will allow poor communities to reclaim control over their resources and transform their roles as active participants in the global market.
Small producers, such as local farmers, should be seen as clients rather than beneficiaries. Thus, they would carry out productive activities (development projects) and partner up with larger firms. The small-scale producers would produce goods according to a demand that has already been established, rather than producing goods on a large-scale to a market that does not exist. (Which is the traditional market model that currently dominates the global market).
A successful example of the demand-driven approach is the Rural Competitiveness Activity (RCA) project in Bolivia, funded by USAID and implemented by Chemonics.
The demand-driven project allowed the RCA project to facilitate contacts with domestic and foreign buyers of more than 25 different products, and helped rural families respond to an already established market demand by organizing themselves to become credible suppliers.
Producer groups developed business plans that received project support, graduating in a single year to double family incomes and continue to grow thereafter.
However, the approach required the re-engineering of virtually every aspect of how projects are implemented traditionally, focusing not on project success, but instead on the success of business-client relations.
This may be the only development project in history to show that a large number of families lifted themselves out of poverty as a direct result of the buyer-led approach, which in the future should become the norm, rather than just a stated focus of a few international development initiatives.
James T. Riordan, director for Latin America and the Caribbean at Chemonics International Inc., argues that international development remains “supply-push”–not demand-driven. Instead of identifying demand first and then figuring out how to produce the goods accordingly, international development organizations typically build their supply first and then try to increase demand for their products. This traditional model is outdated, inefficient and more often than not, unsuccessful.
International development projects work best when they respond to demands from known buyers. Issues with the buyers must be addressed first before going to the next step, with the suppliers. This will only work after we know that there is a buyer for the supply in question. Further, we need market chains to be included to act as the mediator between the buyers and suppliers.
Another successful example of this is the Poverty Reduction and Alleviation’s (PRA) support of the Shipibo-Conibo ceramic production. Shipibo-Conibo Indians were incredibly talented in creating beautiful ceramics. American Trading, an export company based in Lima, Peru decided to take a new approach. They were confident that they could develop a reliable supply of ceramics, so they contacted Pier 1 Imports to see if there was any demand for them. After American Trading badgered the retailer for some time, Pier 1 ordered 25,000 pieces in 2001.
Shipibo-Conibo Indians were unable to produce so many high-quality pieces on schedule using their traditional practices, so American Trading sought help from USAID’s PRA project in Peru. PRA agreed, and subsequently helped pay for a skilled technician who trained the local artisans. Finally, American Trading filled the order for 25,000 pieces of pottery in 2002.
This venture was successful because there was already a demand set in place and there was incentive to succeed, due to the potential profits to be gained.
A key element in cultivating and maintaining strong relations between the producers and the buyers is building trust. Economic transactions are often more difficult to carry out without trust, particularly when it concerns large buyers and small sellers (i.e. between processing factories and isolated farm communities) as they hold deep prejudices against one another.
As the example of PRA demonstrates, building trust is the most important and far-reaching contribution for local farming communities and large firms to be successful in their economic relationship. Local farming communities will enjoy the fruits of the labor while large firms will build more credibility and influence in local markets. The relationship will prove to be a refreshing break from traditional models; the large firms will work with local communities, proving that a mutually beneficial relationship is possible.
The demand-driven approach provides poor communities with direct funding for development, with the communities then having the autonomy to decide how to spend the money. The community is involved in all the steps of the development process, which could have massive implications for farmers and communities in developing countries living in poverty. This new approach has the potential to alleviate poverty, while being a realistic and sustainable solution.