Improving small farm access to modern inputs and financial services

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Improving small farm access to modern inputs and financial services

  1. 1. Improving small farm access to modern inputs and financial services Vineet Raswant IFAD 24 th January 2011
  2. 2. <ul><li>Improving small farm access to modern inputs and financial services </li></ul><ul><li>Supply-side approach!… results disappointing </li></ul><ul><li>Or should it be Different: </li></ul><ul><li>Facilitating demand for inputs? </li></ul><ul><li>Why a need for paradigm shift? </li></ul><ul><li>Reason for poor performances </li></ul><ul><li>Attitudinal, motivational, financial </li></ul><ul><li>Not easy to change ....need to think differently </li></ul>
  3. 3. Facilitating demand for inputs Price Seeds Fertilizers Techn. Transfer Rural Finance Enabling Environ. Labour Technology Development Environm. Sustainab. (soils) Small Farmers
  4. 4. Price: Facilitating demand for inputs
  5. 5. Facilitating demand for inputs - Price <ul><li>Farm-gate prices with private sector as chain drivers </li></ul>Price transmission along the coffee chain in Uganda (USD/kg)
  6. 6. Facilitating demand for inputs - Price <ul><li>Food security concerns also do not favour small farmers </li></ul><ul><li>Summary: one way or another, small farmers do not benefit . </li></ul><ul><li>Why would they invest on the farm, given other risks? </li></ul><ul><li>Price and on-farm profitability essential. </li></ul><ul><li>Profitability by intensifying agriculture will have limited impact </li></ul><ul><li>- farming risks are high. </li></ul><ul><li>- and incentive for investment low. </li></ul><ul><li>Price is the driving force for creating demand for inputs </li></ul>
  7. 7. Facilitating demand for inputs - Seeds <ul><li>Fundamental to increase production. </li></ul><ul><li>Historic failure in providing </li></ul><ul><li>-quality seeds </li></ul><ul><li>-adequate quantities </li></ul><ul><li>-right time. </li></ul><ul><li>Private seed companies have not been involved </li></ul><ul><li>-research under development programs </li></ul><ul><li>-seed, multiplication and distribution. </li></ul><ul><li>Should they be engaged more? </li></ul>
  8. 8. Facilitating demand for inputs - Fertilizers <ul><li>Subsidies not reached the poor </li></ul><ul><li>Time to reverse the approach ? </li></ul><ul><li>Paying higher farm-gate price: advantages </li></ul><ul><li>Reduce poverty </li></ul><ul><li>Stimulate rural growth </li></ul><ul><li>Increase rural employment </li></ul><ul><li>Encourage input companies to stimulate demand for their products </li></ul><ul><li>Provide tax breaks for purchasing from rural areas </li></ul>
  9. 9. Facilitating demand for inputs - Fertilizers <ul><li>Prices of fertilizers linked to energy prices </li></ul><ul><li>Challenge: ensuring on-farm profitability </li></ul><ul><li>Focus should shift to lowering costs: </li></ul><ul><li>-improving chain efficiency </li></ul><ul><li>-creation of farmers organization, bulk purchasing </li></ul><ul><li>-measures to reduce energy costs </li></ul>
  10. 10. Facilitating demand for inputs - Technology transfer <ul><li>Historically, most interventions have been supply-side based. </li></ul><ul><li>Other options are being tried: </li></ul><ul><li>-privatization of extension </li></ul><ul><li>-agents as brokers </li></ul><ul><li>-but FFAM experience indicates poor small farmers cannot pay </li></ul><ul><li>Other options </li></ul><ul><li>Tech transfer through telephone </li></ul><ul><li>Embedded services </li></ul><ul><li>Extension by input companies </li></ul><ul><li>- Improve farm profitability create demand for services </li></ul>
  11. 11. Facilitating demand for inputs - Rural Finance <ul><li>Rural finance is not in harmony with other inputs: </li></ul><ul><li>-seeds are subsidized </li></ul><ul><li>-extension is subsidized </li></ul><ul><li>-fertilizers are subsidized </li></ul><ul><li>But the means to pay for them is not . </li></ul><ul><li>- Basis: preservation of capital is important rather than means to end </li></ul><ul><li>Financial instruments (savings, insurance, credit at high interest rates) </li></ul><ul><li>Policy based on: </li></ul><ul><li>- not distorting financial markets; </li></ul><ul><li>- Interest rates: agriculture must be competitive with other sectors. </li></ul><ul><li>Do these premises reflect reality? </li></ul>
  12. 12. Facilitating demand for inputs – rural finance Major issues: None are conducive to rural growth. Savings; Insurance but to cover only loans High interest rates Financial crisis For the rich For development To benefit the poor Interest rate Low, not even positive and real High, opp. cost of capital Guarantees Liberally provided Partial Capilatlization Liberally provided No provision Availability of capital As appropriate Lines of credit, revolving funds discouraged
  13. 13. Facilitating demand for inputs – rural finance <ul><li>Delivery system: inefficient </li></ul><ul><li>Leaves IFAD at O.75% and retails at 30% </li></ul><ul><li>There is a dilemma </li></ul><ul><li>-agriculture is not viable at these rates, </li></ul><ul><li>-institutions delivering small loans in rural areas are not viable at low interest rates . </li></ul><ul><li>Yet the focus on MFIs, not CBs </li></ul><ul><li>Lower cost of delivery: VB credit schemes. </li></ul><ul><li>Provide guarantees to CBs </li></ul>
  14. 14. Facilitating demand for inputs - Enabling Environment <ul><li>Governments need to review the role: shift from SP to enablers </li></ul><ul><li>As enablers: focus on creating demand for inputs. </li></ul><ul><li>Foremost: </li></ul><ul><li>-Remove input subsidies, and pay full price to producers </li></ul><ul><li>-Subsidize poor consumers instead. </li></ul><ul><li>Encourage private input companies to create own demand by: </li></ul><ul><li>Buying from smallholders in two way trade </li></ul><ul><li>Provide tax incentives for purchasing from smallholders </li></ul><ul><li>Support lower cost approaches for credit or subsidize it </li></ul><ul><li>Develop low cost approaches to tech transfer (tel, embedded services through VCs) </li></ul><ul><li>Encourage private sector participation in research </li></ul><ul><li>Develop infrastructure </li></ul><ul><li>With respect to focus should shift to cus should shift from Enabling environments has to do with facilitation and policy making but not necessarily involvement in implementation . </li></ul><ul><li>Governments need to make this transition. </li></ul>
  15. 15. Thanks for your attention!

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