The challenge with procuring a high volume of low-value goods is keeping the transaction costs down while still delivering the value-for-money trifecta: low cost, at the required quality, and on time. Alibaba, Amazon, eBay and many other online platforms do this for sellers by setting up a “honey pot” market place that attracts buyers and then largely automates the rest of the procurement, delivery and feedback processes. An e-marketplace can help make the agricultural sector more efficient in Pakistan.
Sindh is the first province in the history of Pakistan to implement agriculture policy under the World Bank-financed Sindh Agricultural Growth Project. The Department of Agriculture has also set up a market place (through a framework agreement) for farm equipment that includes items from harvesters and tractor trolleys to tarpaulin sheets and plastic baskets where orders are now largely automated. The process ensures timely delivery of the agricultural implements throughout the Sindh province which are provided to the farmers resulting in their economic growth and awareness of the modern agricultural machinery.
Agriculture is a vital sector in the economy of Pakistan with 21% contribution to the GDP of the country with an annual growth of 2.7%. Agriculture provides 44% of total labor force and 62% of the rural population of the country depends on agriculture. Sindh is the second largest agricultural province and the contribution of agriculture is 24% in total economy of the province and 28% of the total population are farmers.
“The Framework Agreement has given us the privilege to buy equipment throughout the year at the same rate. Now the grower has the option to buy the desired equipment when we have money.” – Mr. Nadeem Shah, Member Onion Focal Group
Initially a traditional tendering approach had been used (international competitive bidding) to procure the approximately $8 million worth of farm equipment each year. Under this approach, orders from farmers are required to be submitted 4 to 6 months prior to the delivery of items. The farmers, who were required to pay 30% to 50% of the cost themselves are saving 50 to 70 percent of the total cost and were reluctant to pay their share months in advance for equipment they weren’t sure they would need until the season was underway. As a result, there were significant delays at contract signing and, once contracts were in place, a cumbersome ordering process caused further problems.
The new framework agreement approach was incorporated into the project and implemented in 2017. It uses technology to drive down the transaction costs and automate the rest of the procurement process. Now, the time for submission and holding of farmers order for their share of the payment has been reduced from 4-6 months to 15-30 days.
With the new market place, farmers use an Interactive Voice Response (IVR) system from their cellphones to place an order, track it through to final delivery, and provide feedback. As soon as a farmer has his or her 30% or 50% share available to pay for goods, he or she can submit an order verbally through the IVR system. The order is transcribed into the Department of Agriculture system and placed with the suppliers participating in the new market, and a tracking code is sent to the farmer by SMS. When the ordered items arrive, the status is updated in the system and an SMS is sent to the farmer for pickup. Once the farmer collects the item, another SMS is sent requesting feedback from the farmer on the supplied items. Sound familiar?
The next phase of this contracting approach will be to record the transactions on blockchain to further streamline the procurement process. Using blockchain the purchaser’s ability to pay and the suppliers ability to supply are verified, and the subsequent transaction details are stored on an encrypted digital ledger. This is expected to be implemented in 2018.
The procurement approach used in Sindh Agricultural Growth Project, along with the IVR system, is now being adopted in other World Bank projects in the Pakistan portfolio. The use of IVR and blockchain along with a framework agreement for a market place is another move toward automating the procurement process for low-value goods and has clearly delivered on the value-for-money trifecta.