On the second day of the HHL conference, the chairman and chief executive of the Humanitarian Logistics Association, George Fenton organized and moderated a session on market systems market analysis and the importance of local markets.

 

The session began with a presentation by Steve Vosti who is a professor at the Department of Agriculture and Resource Economics at UC Davis. His presentation focused on the Economics of Food Markets. Mr. Vosti discussed 3 main stages of food supply chain development, their impact on price fluctuations, and their broader implications for the market system dynamics. First of these stages is the traditional, localized chain with predominantly home production, which now makes up only 5-10% share of the food economy in lower-income countries. Second, relatively more important, is the transitional chain which features primarily SME and wet markets. This chain is comparatively longer and makes up more than 50% of food economy in Africa and South Asia. Finally, the most developed of the three is the modern chain which features more capital-intensity and international linkages. Based on the evidence presented by Mr. Vosti, prices of foods with traditional and transitional food chains are strongly affected by market shocks, as illustrated by the 100% increase in the prices of locally produced black beans in Cap-Haïtien since the onset of the Covid-19 pandemic. In contrast, Cap-Haïtien saw the price of rice – a commodity which has modern supply chain and relies heavily on imports – largely unaffected by the pandemic. 

 

Finally, Mr. Vosti’s presented his view that government intervention should only be considered in a limited number of cases, including: 1) when asymmetric information is involved, for example when information about product quality is available only to the seller, not the buyer; and 2) when we are considering public goods, which are generally susceptible to free-riding and underinvestment. This last point also resonated with the second speaker Ms. Claire Travers, from Field Ready. Ms. Travers stressed that sometimes it is better to stay out of the way and let the markets recover by themselves. As an example of humanitarian aid ‘gone wrong’, she mentioned how the local soap-making businesses in some parts of the Pacific have been destroyed because humanitarian agencies provided large quantities of free soap for most households, consequently crowding out local suppliers.

 

The microphone was then passed over to Mr. Abdoulaye Hamidou, from Cash Learning Partnership. Mr. Hamidou supported the opinion that in-kind transfers can have negative impact on local markets but, at the same time, emphasized that markets in some parts of Central and Western Africa are vastly unprepared to deal with the Covid-19 crisis and might be unable to meet the demand of basic goods without external help. He suggested that humanitarian organizations should help build the necessary market infrastructure, rather than provide in-kind transfers to local households.

 

Closely related to the importance of understanding market infrastructure and dangers of asymmetric information, Helene Julliard, a co-director of Key Aid Consulting, shared her expertise in market-based programming. Ms. Julliard discussed the problems associated with asymmetric information in localized market chains, such as in the markets for pharmaceutical drugs in developing countries. In these so-called ‘markets for lemons’, the product quality is not readily observable and so suppliers have strong incentives to deliver fake products, particularly when there is a spike in demand. For example, floods in Eastern Africa are associated with increased risk of getting infected with malaria and a spike in demand for anti-malarial medication. Yet the floods can also be associated with the collapse of health services and insufficient legislative controls to ensure that anti-malarial drugs the market meet the necessary standards. According to Ms. Julliard, temporary emergency response at the household level should include cash transfer provision which would boost household capacity to purchase health products during a humanitarian emergency and this should be complemented with social marketing and behavior change campaigns which would enforce household’s willingness to pay for good-quality medicines. And at the government level, sufficient attention should be paid to enforce setting up the regulatory frameworks.

 

Then, Alexandre Gaschoud from the International Committee of the Red Cross took over the zoom stage. He discussed how the ICRC uses market system analysis and market-based interventions to provide more targeted interventions and market chain reconstruction after humanitarian crises. For example, the Lebanese Red Cross discovered that the explosion in Beirut destroyed many power units, consequently limiting the energy access by essential services, such as health care. To overcome this crisis, ICRC implemented a market-based intervention whereby they set up solar power production units in closely proximity to hospitals. This not only provided the necessary power to the hospital but also reduced dependence on fuel and employed local displaced people who were paid for building the solar power production units. 

Finally, Mr. Fenton concluded the panel with a question related to Mr. Martinez keynote speech: given the importance of performing various cost-effectiveness analyses and assessing large datasets before going forth with any humanitarian interventions, how can we make sure that we can be better prepared to intervene or not intervene from a market-intervention point of view? And how can we ensure that the disruptions associated with provided humanitarian aid are minimized?