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Eng. richard shetto mhs providers capacity development

Machinery Hire Service Providers Capacity Development: A Necessity for better Economic Integration

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Regional workshop to share experiences of sustainable
agricultural mechanization hire service provision
practices in Sub-Saharan African countries.
What opportunities for investments?
Machinery Hire Service Provider’s
Capacity Development: A Necessity for
better economic integration
December 9-12, 2019,
Grand Imperial Hotel, Kampala, Uganda
Eng. Richard Shetto
Mechanization Specialist
Private Sector
2
Contents
1. Introduction
2. Status of Mechanization in Africa
3. Business Models in Tractor Hire Services
4. Machinery Hire Services in Africa
5. Capacity Development and Empowerment
6. Roles of the Public and Private Sector
Introduction
• There are strong correlations between economic growth and
mechanization worldwide.
• Countries that have achieved economic growth have also
advanced to higher levels of mechanization
• Countries that have stagnated economically have also lagged
behind in mechanization
• Farm power with fertilizers, improved seeds, irrigation and
pesticides are interdependent for growth in agricultural
productivity
• Tractors the “unsung hero” significantly transformed
agricultural productivity, contributing immensely to the
economic growth of the United States and Europe
• Tractors also revolutionized agriculture and contributed to
economic growth in Latin America and Asia
Status of Mechanization in Africa
• About 80% of the cultivated
land is done by human muscle
power in Africa, 15% by
draught animals and tractors
5% while in Asia 60% of the
land is tilled by tractors.
• At the time of independence
in the 1960s, Africa was at the
same level or higher in
mechanization with most
Asian countries. 172,000
120,000
126,000
383,000
221,000
6,000,000
1,700,000
1,800,000
AFRICA
ASIA
NEAR EAST
LAC
Number of Tractors 1961-2000
2000 1961
Business Models in Tractor Hire Services
Tractors are owned by
mmedium and large scale
farmers who provide hire
services (70-100%) to other
farmers
Hire Services Business Models
include:
i. Small-Scale Farmers
Tractor Owner Custom
Hiring Services
ii. Medium-Scale Farmers
Tractor Owner Custom
Hiring Services
iii. Specialized or Professional
Enterprises Hiring Services
– Private sector lead
iv. Specialized or Professional
Enterprises Hiring Services
– Government lead
v. Contract Farming
Machinery Operators
vi. Farming Syndicates or
Partnerships
vii. Machinery Dealer-
Contractor Partnerships
viii. Machinery Rings
6
Small Machines Hire Service Model
Powertiller
Puddling with oxen
Rice transplanter
Motorized Reaper
Ad

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Eng. richard shetto mhs providers capacity development

  • 1. Regional workshop to share experiences of sustainable agricultural mechanization hire service provision practices in Sub-Saharan African countries. What opportunities for investments? Machinery Hire Service Provider’s Capacity Development: A Necessity for better economic integration December 9-12, 2019, Grand Imperial Hotel, Kampala, Uganda Eng. Richard Shetto Mechanization Specialist Private Sector
  • 2. 2 Contents 1. Introduction 2. Status of Mechanization in Africa 3. Business Models in Tractor Hire Services 4. Machinery Hire Services in Africa 5. Capacity Development and Empowerment 6. Roles of the Public and Private Sector
  • 3. Introduction • There are strong correlations between economic growth and mechanization worldwide. • Countries that have achieved economic growth have also advanced to higher levels of mechanization • Countries that have stagnated economically have also lagged behind in mechanization • Farm power with fertilizers, improved seeds, irrigation and pesticides are interdependent for growth in agricultural productivity • Tractors the “unsung hero” significantly transformed agricultural productivity, contributing immensely to the economic growth of the United States and Europe • Tractors also revolutionized agriculture and contributed to economic growth in Latin America and Asia
  • 4. Status of Mechanization in Africa • About 80% of the cultivated land is done by human muscle power in Africa, 15% by draught animals and tractors 5% while in Asia 60% of the land is tilled by tractors. • At the time of independence in the 1960s, Africa was at the same level or higher in mechanization with most Asian countries. 172,000 120,000 126,000 383,000 221,000 6,000,000 1,700,000 1,800,000 AFRICA ASIA NEAR EAST LAC Number of Tractors 1961-2000 2000 1961
  • 5. Business Models in Tractor Hire Services Tractors are owned by mmedium and large scale farmers who provide hire services (70-100%) to other farmers Hire Services Business Models include: i. Small-Scale Farmers Tractor Owner Custom Hiring Services ii. Medium-Scale Farmers Tractor Owner Custom Hiring Services iii. Specialized or Professional Enterprises Hiring Services – Private sector lead iv. Specialized or Professional Enterprises Hiring Services – Government lead v. Contract Farming Machinery Operators vi. Farming Syndicates or Partnerships vii. Machinery Dealer- Contractor Partnerships viii. Machinery Rings
  • 6. 6 Small Machines Hire Service Model Powertiller Puddling with oxen Rice transplanter Motorized Reaper
  • 7. Machinery Hire Services in Africa • Started with introduction of ox ploughs and tractors in 1930s • More prominent after independence in the 1960s as countries wanted to become food self sufficiency and produce raw material • In Tanzania 1,217 tractors were imported between 1982-1994 to boost the regional and district hire service centres • Most of these hire service schemes were not successful and were abandoned during the Structural Economic Adjustment Programmes in mid 1990s
  • 8. Make and Size of Tractors • Farmers own a wide range of tractor makes or brands being mainly influenced by Government importations • In Tanzania New Holland (24%), Massey Ferguson (15%), Farmtrac (13%), Swaraj (9%), and other in smaller numbers • The size of the tractors varies from 35-90 Hp • In Ghana the majority of tractors imported for agricultural use are in the range of 50–80 Hp 45-60 HP 30% 61-75 HP 56% 76-90 HP 14% Size of Tractors (HP)
  • 9. Agricultural Machinery Supply Chain • The supply of agricultural machinery and spare parts is managed by well-established machinery dealers in major towns. • There are also small traders in some townships who deal in limited consignments of spare parts • Fuel, lubricants and repair services are available in many urban and village centres. • Repair and maintenance services are mainly provided by mechanics in small garages • Most of the mechanics have attained only primary education with no formal training in mechanics • Local manufacturing is limited in SSA varying from country to country • Small manufacturers are prominent in the production of agro processing equipment - maize shelling, hulling and milling; paddy threshing, and hulling; coffee hulling and pulping; cassava grating, chipping and oil expelling machines • Artisans and rural craft workshops fabricate tractor drawn trailers; engine powered maize shellers and other small equipment on demand. • The workshops are poorly equipped mostly rely on scrap metals as raw materials. • Welders/artisans are primary school leavers with no formal training
  • 10. 10 Local Manufacturing Trailer Sunflower oil mill Maize sheller Coffee huller
  • 11. Accessibility of Capital Investment • Loans from commercial banks are very limited with high interest rates from 15-22% annually payable within 3 years. • In Tanzania about 65% of tractors are procured through cash financing from farmers’ own equity; only 8% from commercial banks. • Used machines (2nd hand) still play an important role • About 42% of the sampled tractors were 2nd hand • In Ghana while the government imported 3,000 new tractors; the private sector imported 3,000 used tractors in the past 10 years 0 10 20 30 40 50 60 70 Own Equity Govt Financial Inst Lease for Purchase Commercial Banks Percentage Accessibility of Financing
  • 12. Management of Machinery Hire Services Business • Management of tractors is directly under the control of tractor owners • Operators are hired to manage the tractors on daily basis • Poor management as more than 90% of tractor owners have never attended any training • Proper tractor utilization records are rarely kept - 40% never keep records at all, - 46% keep some scanty data - only 14% keep appropriate data. • Business nor work plans are prepared • Depend on walk in customers no marketing • The majority of tractor owners have attained primary school Technical Skills • The majority of TSPs and Tractor Operators (TOs) have insufficient skills in operation and management of tractors and implements. • They have limited knowledge on proper setting, adjustments and operation of major tractor control systems such as Draft and Position Control System; 3 Point Linkage • Poor adjustments lead to dis- functioning and damage of hydraulic systems; and frequent breakages of lower links, lift links or arms and poor quality of work. • Hydraulic failure accounted for 12% of the most frequent breakdowns ; and lower links accounted for 10% in surveyed tractors • Tractor owners and operators do not read or consult the provided Operators Manuals and safety measures are rarely observed when operating the tractors.
  • 13. Harvesting and Agro-processing • About 90% of the crop in SSA is harvested manually harvested and only 10% by combine harvesters. • Harvesting by reapers and threshing with motorized threshers is minimal being • Many combine harvester operators lack formal training • Routine maintenance is commonly undertaken but not preventive maintenance • Lack of skilful trained operators lead to poorly adjusted machines, reduce the efficiency of work and lead to increased grain losses when harvesting. • Value addition of agricultural crops is still low in SSA with the exception of grain milling which is wide spread to the village level. • Hammer mills, one stage paddy dehullers and screw oil press mills with capacity ranging from 1-3 tons/day are dominant. • Small and medium scale agro- processors account for more than 85% of the milled flour and 70% of the oil processing business in Tanzania • Under-capacity utilization (<30%) is common in the agro-processing industry mainly because of inadequate supply of grain and oil seeds from farmers. • Main challenges include mixed varieties of grain and oil seeds; contamination with impurities, chaff and sand, sometimes up to 10%; high energy costs; lack of capital for investment; poorly trained operators and mechanics.
  • 15. Profitability of Machinery Hire Services Tractors • The average operating tractor cost per hour is USD 13/acre) varying from USD 9-25/acre). • Fixed costs account for 27% of the tractor costs and variable costs account for 73%. • Fuel accounted for 54% of the cost; Repair & Maintenance accounted for 21%; labour accounted for 17% and lubricants accounted for 8% • Gross Margins show small profits only ranging between Tshs 250,000 to 4,000,000 Combine Harvesters • The average operating combine harvester cost per hour is USD 47/acre) varying from USD 22-55/acre). • Fixed costs account for 35% and variable costs 65%. • Repair and maintenance accounted for 43% of the variable costs, fuel accounted for 38% and labour accounted for 19% of the variable costs. • Gross margins show profits ranging from Tshs 2.4 to 26.7 million
  • 16. Capacity Development and Empowerment Why Capacity Building? • Technological development is continuing at an ever-increasing pace, especially in new areas such as information and communication technology and biotechnology. • These developments are exciting, but demand increased engineering capacity. • Land degradation is accelerated by the extensive tractorization and the effects of climate change are threatening food security • Farmers are unaware of innovative new smart climate technologies such as CA. • Agricultural machines and agro processing plants are capital intensive hence extra care is needed in operation and management to prolong the life span Why Capacity Building? • The majority of machinery and plant owners and the operators who manage the equipment have limited knowledge and technical know how • Therefore skilful and knowledgeable operators should be employed to operate and manage agricultural machinery. • The machinery owners as managers require analytical skills to understand the business in all its perspective in order to make it profitable • Hence the need for compressive training at all levels of the value chain
  • 17. Training in What and for Whom • Machinery and plant owners to be trained in technical, business ; entrepreneurship financial management • Selection of appropriate machines • An entrepreneur the manager/owner should always seeks new opportunities, while looking for improved, more efficient and profitable ways of managing the current business. • Location specific hands on tailor made short training programmes should be prepared and conducted to tractor operators to include operation, routine and preventive maintenance, proper setting, adjustments and operation of major tractor control systems such as Draft and Position Control System; • Agro processors owners and operators to be trained on: operation, maintenance, main adjustments, Hygiene and food safety, Good Manufacture Practices • Maintenance mechanics or technician to be trained on technical aspects covering the main components and systems, their functions and operation; adjustments; operation, maintenance and management • Special structured short courses to train small scale industries and artisans on fabrication and manufacturing techniques; material sourcing and pricing products and quality • Training, Research and Extension institutions: curriculum revision, client oriented research, cross border collaboration networking and partnerships and new innovative technology transfer • Training of GAP and Climate smart agriculture technologies across the value chain including policy makers
  • 18. Needs for Operator Training
  • 19. Machinery Hire Service as a Business Enterprise • A machinery hire service is a business that utilizes machinery to provide services for crop production, harvesting, post-harvest operations, processing, transportation and marketing. • As a business enterprise it should make money by selling services at a profit while protecting the natural environment • Managing a hire service business means looking after a hire service from a business perspective. • It is a process of ensuring that activities and tasks are completed effectively and efficiently. This means doing right things (effectiveness) and doing things right (efficiency). • Good relations with customers Selection of Machinery • The selection of machinery is affected by the power requirement, size, machine performance; market potential, support services, purchase price, running costs and cash availability or cash flow and other financial considerations. • First conduct a simple market survey to find out who are the current and potential customers are, how many there are and what is the volume of work. • Determine at what cost your enterprise is able to provide the services based on the calculated annual machinery costs • Finally conduct a financial including a loan analysis where loans are applicable
  • 20. Financial Empowerment • Facilitation in investment from the financial sector through loans, credits, subsidies and other instruments is needed throughout the entire value chain. • Governments are advised to create a supportive environment, facilitating viable and sustainable businesses that can offer affordable mechanization inputs and services across the agrifood value chains • Financial institutions should be able to commercially lend to the farmers and the farmers be able to borrow and pay back • Tailored and sustainable subsidies should be considered especially where they can catalyze the initial procurement of mechanization • In many countries where mechanization has occurred, financial support has been provided to farmers through credit or direct grants to procure machinery and equipment from public institutions e.g. India, China, Bangladesh, Pakistan, Brazil, Thailandi, Malaysia, Vietnam Public Private Partnerships enhance capacity of private sector • Research institutions and Universities partnering with private sector • International Research Centres such as CGIAR, IRRI, CIMMYT involving farmers and manufacturers • UN International Organizations such as UNIDO collaborating with manufacturers to establish operator training centres in Liberia, Zambia, Ethiopia and Morocco and FAO-implemented CA Scaling-up Project (CASU) in Zambia • NGOs e.g. Kilimo Trust partnering with millers and cooperative societies in consortium approach through matching grants; ACTN & CFU in networking and promoting CA • Private companies supporting farmer initiatives e.g. Hello tractors I and PIA in Nigeria and Kenya; MYAgro in Mali and Senegal ; NWK in Zambia and others • Government/private sector e.g. Nigeria where agricultural equipment hiring enterprises (AEHEs) have been established
  • 21. Success story on PPP – Transformation of the Value Chain: A case of a processor – RGL in TZ 16 December 2019 21©Kilimo Trust 2016 – 3 yrs working with KT Achievements 2014 2019 Farmers 500 7,217 Storage Capacity (MT) 5,000 15,000 Aggregation centres 10 60 Processing Capacity (MT/day) 150 220 Vol. of paddy aggregated (MT) 17,000 26,000 Growth in regional markets (MT) 1,000 6,000 • Mainly toll miller • No relationship with SHFs • Limited access to finance 1995 2014 – started working with KT 2016 From To
  • 22. Transformation New Kakinga Mills from 10 tons/day to 120 tons/day maize milling plant in Kakinga Uganda
  • 23. Financial Empowering Mechanization Platforms • Provide forum for actors to share experiences and information and play a lobbying and advocacy role to the government for issues like training, credits, taxes, levies, subsidies etc. • CFU is spear heading the establishment of tractor tillage service cooperative societies, one has already been registered WAWAZAKI CO- OPERATIVE SOCIETY LTD The Role of the Government • Creating an enabling policy and regulatory environment • Strengthening farmers’ capacities to make informed decisions by generating and disseminating knowledge and information • Establishing procedures for delivery of training and capacity building • Consumer protection through quality control of equipment and support service provision • Safeguarding environmental concerns through sustainable land management • Training of Trainers and extension • Kick-starting mechanization-related enterprise development and farmer empowerment though PPPs • Supporting the development and dissemination of appropriate mechanization technologies through PPPs Training Approach and Who to Train • The training to be conducted by competent facilitators conversant with mechanization and business management. • The training should be participatory giving more time to the hire service providers to contribute and share their views • Group discussions should be encouraged in smaller groups to enable them to analyze the topics. • Practical sessions should be emphasized and the hire service providers should be trained in the field with their physical participation in operation and adjustment of different machines and implements. • A visit to a nearby farm or workshop to learn more on operation, repair and maintenance of the equipment together with business management will be an added advantage to the trainees. • Adult learning principles to be adopted so as to create the correct learning atmosphere.
  • 24. Greetings from an Entrepreneur in Ntara, Uganda