1. The Financing Challenge – Key Issues Identified Sustainable finance question – How should funds flow? Who should pay? Who can pay? Why invest in this activity? How to ensure control of spending? How to measure impact of spending and performance of activities? 2. Conceptual Framework – The Economic Nature of Extension Services Value Perspective, Rates of Return Willingness to Pay, Ability to Pay 3. Best Fit Approaches

1. Modernizing Extension and Advisory Services
Sustainable Financing of Extension Services
Dr. Paul E. McNamara
Associate Professor, Department of Agricultural
& Consumer Economics, University of Illinois at
Urbana-Champaign; Project Director,
Modernizing Extension and Advisory Services
Project (MEAS); and, Extension Specialist,
University of Illinois Extension.
MEAS Spring Institute,
Montevideo, Uruguay
September 30, 2014

2. Sustainable Finance -- Quotes
• “The quality of spending to
agriculture is more important than
the overall level of spending.” Akroyd
and Smith, 2007, “Review of Public
Spending to Agriculture,” p. 20

3. Sustainable Finance -- Motivation
• Extension represents a very substantial
investment in agriculture in many
countries.
• 100,000 extension agents in India
(Eicher 2007)
• 15,000 public sector extension
agents in Vietnam
• Some countries have committed to
more agriculture spending
• For extension to yield benefits it must
be financed in ways that promote
efficiency and impact

4. Outline
• The Financing Challenge
• Conceptual Framework
• Best Fit Approaches
• Examples
• Conclusions

5. The Financing Challenge –
Key Issues Identified
• Sustainable finance question –
– How should funds flow?
– Who should pay?
– Who can pay?
– Why invest in this activity?
– How to ensure control of spending?
– How to measure impact of spending and
performance of activities?

6. The Financing Challenge –
Key Issues Identified
1. Low level of support for agriculture in
government budgets
Source: Akroyd and Smith, 2007

7. The Financing Challenge –
Key Issues Identified
2. Projectization of finance for extension
– Sometimes →no extension program, a series
of projects
– MOA becomes about being involved in a
project
– Without projects to fund transport, training,
etc. little happens

8. The Financing Challenge –
Key Issues Identified
3. Recurrent cost problem in extension
– Budgeting for staff but not for transport,
programming materials, inservice training,
coordination, M&E
– Longstanding issue in development finance
• Budget vulnerability of transport and programming
funds versus staff salary funds

9. The Financing Challenge –
Key Issues Identified
4. Politicization of finance in extension
services
– Political favors within the extension
bureaucracy
– Corruption – “…unique fiduciary risk”
– Civil service rules and procedures

10. The Financing Challenge –
Key Issues Identified
5. Broken link between budgeting and
performance
– Often farmers and farmer groups have very
little input into extension programming
– Often hires and placements are made
centrally or by District level leaders
– Farmers report not seeing an extension agent
after the project has ended
– Little transparency on flow of funds
– Lack of link discourages active field staff

11. Conceptual Framework –
The Economic Nature of Extension Services
• Different types of extension services display different economic
characteristics
– Pure information is a public good
• However, the act and process of teaching/extension is not a
public good
• Extension services as toll goods
– Farm specific information – soils, drainage advice
– Farmer group specific work
• Wide variety of extension services
– A continuum from broadcasting information and messages to
highly interactive, personalized, services delivered by a trusted
intermediary
• Extension services necessarily involve face-to-face or personal
communication with farmers, a high degree of discretion
– Challenges for ensuring performance and quality (Pritchett and
Woolcock, 2004)

12. Conceptual Framework –
Value Perspective, Rates of Return
• Social investors (donors, governments) need to know
what sort of benefits relative to costs extension programs
could generate
• Birkhauser, Evenson, & Feder report a range of rates of
return, most between 13% to 80%
• Alston et al. estimate a median rate of return on
extension of 62.9%
– Focus: staple crops extension
• Econometric questions remain: causality,
counterfactuals, selection, omitted variables, etc.
• Need impact studies and research
– With stronger econometric and experimental designs
– On broader set of extension practices: NRM, Facilitation
extension, targeting strategies, ICT approaches, etc.

13. Conceptual Framework –
Willingness to Pay, Ability to Pay
• What would farmers be willing to pay for extension and
advisory services if they are not provided for free?
• Holloway and Ehui find that 65 of 168 farm households
studied would be willing to pay a fee equal to the cost
– A significant fraction would not be wtp the cost
• Keynan, Olin and Dinar studied farmer payments of
bonuses designed to increase quality and
responsiveness of extension
– All the 17 farmer groups paid the bonuses and
continued with the program the following year
• Access of poorer farmers to extension, coupons,
subsidies

14. Delivery
Organization
Source of Financing
Public Sector Private Sector Private Sector
Farmers Companies NGOs FBOs
Public Sector Public sector
extension
FFS provided
by public
sector
Private
companies
contract PS
NGOs
contract PS
FBOs
contract PS
Private Sector:
Companies
Contracting Fee For
Service
Input linked
ext.,
outgrowers
NGOs hire
Private
FBOs
contract
Private
Private Sector:
Individual Providers
Contracts,
coupons
FFS, Private
Service
Providers
NGO hires
agents
Third Sector:
NGOs
Govt contracts Farmers pay
fees
NGO hires
agents, free
Third Sector:
Farmer-Based
Organizations
Public support,
subsidies for
extension
FBO hires
agents, FFS
NGO pays
agents
employed
by FBO
Agents
hired by
FBO
providing
service to
members
A multitude of alternatives
(modified from Birner and Anderson, 2007 and others)

15. Best Fit Approaches
• Public sector financed and delivered
– Important approach
• Decentralized -- funds going to local level
• Can introduce co-pays/user fees, bonuses, coupons,
prizes to strengthen farmer voice in programming
• Explore performance reporting, e-tracking, i-M&E
– Map & Track extension workers and their field activities
• Need to examine performance-contracting
approaches to decentralization
– Recent work on public health and primary care
relevant to ag extension

16. Best Fit Approaches
• Public sector financed and contractor delivered
• Common in projects
• Role for INGOs, local NGOs, private sector
contractors, independent extension agents
• Performance contracting
• Coupons
• Need to ensure access for poor farmers and
targeting
• Public sector needs capacity building to contract and
to serve coordinating role

17. Best Fit Approaches
• User-financed and private provider delivered
• Underway in East and Southern Africa
• Private farm advisor model
• Need to examine targeting and access for poor
farmers
• Can be combined with coupons
• Registration/certification role for national association
or public sector

18. Best Fit Approaches
• Marketing margins financed and private provider
delivered
• Common in export crops and outgrower schemes
• Often combined with inputs and financing
• Usually not offering advice on other crops and
livestock – very focused
• Impact on farm productivity and incomes needs
careful study
• Targeting and poverty impact?
• Importance of competitive policy and infrastructure
so farmers receive benefits

19. Conclusions
• A broad understanding of finance raises a number of
important considerations and connections
– How we finance extension shapes the programs and
outputs we receive
– Finance connects to management (control, reporting,
budgeting) and to advocacy and resource mobilization
• Is extension a good investment in your country or
your extension system?
• How can the finance perspective be used to sharpen
system performance and mobilize needed
resources?