Bill & Melinda Gates Foundation

Risk and Transformational Change

June 17, 2014

As a plant pathologist, I have long maintained an interest in the elements of risk and reward in farming. This interest is motivated by decades of professional commitment to understanding plant diseases and how to keep crops healthy.  On a deeply personal note, it is also rooted in the unfortunate fact that most relatives on my mother’s side were farmers who all, eventually, went bankrupt.

This interest in risk was piqued again a few weeks ago when I participated in the East Asian sessions of the World Economic Forum in Manila.   Farmers were, as is too often the case, described as “risk averse”. This view has always struck me as a profound misunderstanding of farm life.

Farming is, perhaps, the most risky of livelihoods. Farmers take enormous risks with every crop they plant and every decision they make--up to and even after harvest. So risk is a part of their daily lives.

 We can talk about a culture of innovation and “celebrating failure” all we want. But the harsh reality is that donors, be they philanthropists or development agencies, want to see impact from their investments.

That said, a farmer, like any rational person, wants to reduce his or her exposure to the downside of risk and enjoy the upside.  However, most farmers face situations where they suffer the downside when things go badly, and someone else enjoys the upside when things go well.

Even a great production year often results in plummeting prices. The farmer experiences little net gain, if any, while the upside is enjoyed by consumers or others actors along the value chain. So, rather than not adopting a technology because it is too risky, farmers may decide not to do so, based on rational considerations that come down to “what’s in it for me?”

Those of us engaged in developing technologies aimed at reducing farmers’ exposure to the downside of risk must also make sure that, in both their design and rollout, these technologies will indeed help farmers benefit from the upside. Otherwise, why in the world should they adopt anything we develop?

For researchers, risk considerations should extend to decisions on which technologies to develop and which leads to follow in creating products. In the for-profit sector, the risk equation is pretty straightforward: you win some, you lose some. But payoffs for winners are so great that they more than make up for losses on failures. If not, then you go out of business.

For nonprofits, including the international agricultural research institutions such as the International Rice Research Institute (IRRI), it is an entirely different kettle of fish. IRRI’s risk equation is similar to those of farmers in developing countries. Some research streams will pay off and others will not. For great innovations that do pay off, the upside usually benefits others.

IRRI attempts to design its work so that poor, smallholder farmers will primarily benefit, but gains also go to agriculture product companies, food processors, consumers, or even the careers of bureaucrats whose funding decisions support the work. The institution that creates the technology gets some reputational benefit and, perhaps, some additional funding for a while because it demonstrates that it is a “good bet”.

Unfortunately, the culture of “what have you done for us lately” prevails in the world of non-profit development institutions and donors. In that environment, an institution that depends on donor support simply cannot suffer significant  failure in its portfolio of programs and activities and expect to survive.

We can talk about a culture of innovation and “celebrating failure” all we want. But the harsh reality is that donors, be they philanthropists or development agencies, want to see impact from their investments. And they want it almost immediately, and often demand virtual guarantees of impact. They are not interested in a trail of failures, and a vanishingly small group will wait patiently for the great breakthrough to emerge from what they see as the wreckage of their investments. Highbrow discussions of the scientific method or lessons learned from well-designed, but “failed”, experiments will not make much difference.

This leads to a situation in which institutions doing research for development will almost exclusively work on projects with a very high probability of “success” in the short-term. It is therefore likely that change derived from this work will be incremental rather than transformational.

Unless we can recouple the upside of risk-taking to farmers and nonprofit research institutions, there is little incentive for the former to adopt and for the latter to reach for transformational innovation.

 
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