African Agribusiness Forum  Ensuring Raw Material Supplies   Case Study: Nigerian Rice
Discussion PointsSector Economics and Farmer IncentivesMARKETS MethodologyTraditional Vs. Commercial Market ChannelsCASE S...
Building a Competitive Cassava Value Chain  Processing: Consistency of High Volume Supply is Critical  Processors in gener...
NigeriaAverage of Other ECOWAS
MARKETS
ProcessorInputs                             Finance                              Farming   Government                     ...
Building a Competitive Rice Industry  Processing: Optimizing Sales Channels and Processing Type The competitiveness of ric...
Market Map: Paddy Distribution  Understanding the incentives for farmers to sell into different channels is critical to dr...
Understanding the Domestic Consumer Market for Rice  End Consumer Preferences Snapshot of current pricing for Rice in Nige...
Building a Competitive Rice Industry  Production: Cost to Produce Paddy                                                   ...
Building a Competitive Rice Industry  Helping Farmers Make Sound Economic Decisions Very few farmers currently have a clea...
Case Study: Rice Processing in Benue Farmer Cooperatives First Bank of Nigeria Nigerian Agricultural Insurance Corporation...
Case Study: Rice Processing in Benue   “Mama’s Pride”competes on both price   and quality with    imported rice
Nigeria                             Benue MARKETSAverage of Other ECOWAS
For More InformationInformation Resources on Outgrowers Schemes      www.fao.org/ag/ags/contract-farming              www....
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Agri09 day iii - session iv - timothy prewitt - usaid

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Agri09 day iii - session iv - timothy prewitt - usaid

  1. 1. African Agribusiness Forum Ensuring Raw Material Supplies Case Study: Nigerian Rice
  2. 2. Discussion PointsSector Economics and Farmer IncentivesMARKETS MethodologyTraditional Vs. Commercial Market ChannelsCASE STUDY: Rice Processing in Benue StateInformation Resources
  3. 3. Building a Competitive Cassava Value Chain Processing: Consistency of High Volume Supply is Critical Processors in general are carrying very high fixed costs. Volume is critical as the more product that is produced, the less those fixed costs impact the final unit price. Relationship Between Mill Gate Price Point and Volume 1.300 Commercial processors of 1.200 Cassava need consistent To Meet Bank and Investor Obligations volumes to be profitable. Tons of Cassava Required Per Month 1.100 Generating Profits 1.000 Losses incurred due to At 6,500 Naira / limited supply must be 900 Ton, This recovered when cassava is processor would available. 800 need almost 900 Tons / month to break even Supply variability limits 700 Operating at a Loss commercial buyers ability to 600 pay higher prices 500 0 2.000 4.000 6.000 8.000 10.000 Price of Cassava at the Mill GateNOTE: This data represents a hypothetical cassava processing company (CassProCo). The factory has a value of 750MM Naira, of which 150MM is bank financed at 16% interest over a 7 year term. The remaining 600MM is from investors who expect a 5% annual return. The assets of the factory are depreciating over a 10 year period. The plant carries 875K Naira / month in fixed labor costs and 139K Naira / month in fixed energy costs. The plant operates in 8 hour shifts and can process 30 Tons of Cassava per shift. The plant only operates when it has the required volume of cassava to run for a full shift. The plant can operate up to 2 shifts per day, 20 days per month. Variable costs per shift to process the cassava are 36K Naira per shift for manual labor, fuel, and specialized inputs. The finished output of the plant is 20% of cassava input (by weight) and sells for 110K Naira / MT. This model assumes complete market uptake of finished product at all volumes produced.SOURCE: Processor interviews; MARKETS Cassava Production ModelUSAID Nigeria – MARKETS – Investment Opportunities – 11-May-09 -3 -
  4. 4. NigeriaAverage of Other ECOWAS
  5. 5. MARKETS
  6. 6. ProcessorInputs Finance Farming Government techniques
  7. 7. Building a Competitive Rice Industry Processing: Optimizing Sales Channels and Processing Type The competitiveness of rice depends on tying quality of paddy to quality of processing. Farmers must have incentives to sell high quality paddy to the commercial market, and paddy volumes must be sufficient to allow commercial processors to avoid low quality paddy. High Effective Branding and Lost Customer Experience Domestic • Consistency Opportunity • Taste Commercial • Fluffing N 2000-3000 / 25Kg N 4500-7700 / 25Kg • Stickiness• Improved varieties Quality• Uniformity of Paddy• Unbroken• Filled Traditional Wasted Effort Quality N 2000 - 4000 / 25Kg N 2,000 / 25Kg Low Cottage Commercial Quality of Processing • Clean • Unbroken • Destoned • Good ColorSource: MARKETS analysis; processor interviewsUSAID Nigeria – MARKETS – Investment Opportunities – 11-May-09 -7 -
  8. 8. Market Map: Paddy Distribution Understanding the incentives for farmers to sell into different channels is critical to driving more paddy into commercial processing Cottage Miller Local Paddy Market Tier I Tier II Paddy Tier III Regional Domestic Rice Farm Gate Local Paddy Production Paddy Market Market Buyers Market Local Buyer Agent Commercial Mills Brown rice Imported RiceNote: Arrow thicknesses generally reflect the scale of different distribution channels. Farm Gate buyers are optional – farmers may choose to sell directly in local paddy market. Local buyer agents operate within both local and regional paddy markets.Source: MARKETS research; industry interviews
  9. 9. Understanding the Domestic Consumer Market for Rice End Consumer Preferences Snapshot of current pricing for Rice in Nigeria Domestic Rice Market Product / Price Spectrum Benchmark Upper N 8,000 / How do customer Imported Rice Limit Price bag (25Kg) preferences and biases Domestic Import N 7,700 / bag impact the price and Commercial Rice Quality N 7,500 / bag volume of “import Product quality” domestic N ?????/ bag Sub-optimal commercial rice? Processing or Inputs N ?????/ bag The apparent lack of N 3,000/ bag standardized grading Domestic systems and accurate Traditionally pricing data Processed Rice contributes to an Subsistence inefficient market N 2,000 / bag Pricing Source: MARKETS trip reports, Processor intervewsUSAID Nigeria – MARKETS – Investment Opportunities – 13-APR-09 -9 -
  10. 10. Building a Competitive Rice Industry Production: Cost to Produce Paddy Rice Production Costs / Ha 180.000 Bagging and Bag 153,012 Stock Harvest / Thresh 135.000 113,762 Fertilizer / Herbicide 90,462 Transplant 90.000 Bird Scaring Land Prep 45.000 Inputs (Seeds and Glyphosate) 0 Landlease Transplant Broadcast Subsistance Average Yield Per Hectare 5.0 4.5 2.0 Production Cost / Ton 30,602 25,280 45,231 60,000 Paddy Sales Price (N/MT) 58,500 (to mill) 58,500 (to mill) (3000N / 50Kg to market) Farmer Income / Hectare 292,500 263,250 120,000 Farmer Profit / Hectare 139,489 149,489 29,539Note: Subsistence assumes no application of fertilizer, herbicide, or pesticide, and use of saved seeds. Profit / hectare includes labor costs, the majority of which should accrue to the famer.Source: MARKETS Production Cost Model; industry interviewsUSAID Nigeria – MARKETS – Investment Opportunities – 11-May-09 - 10 -
  11. 11. Building a Competitive Rice Industry Helping Farmers Make Sound Economic Decisions Very few farmers currently have a clear choice to sell direct to mills versus to traditional markets. However, understanding why farmers choose one channel over another is key to promoting rapid adoption of direct to mill sales • The price paid per ton appears very similar (when comparing fairly high grade traditional rice and improved rice). • Other factors have been cited in interviews and secondary research for why farmers may prefer traditional sales channels – Unbanked rural farmers view paddy as a monetary equivalent – Pricing volatility over the year promotes multiple small sales when cash is required while holding out for premium pricing that tends to occur just before planting of the next harvest begins – Immediate payment / cash for paddy is valued in a low trust environment – Possibility for advanced credit from rural market buyers in advance of the harvest • Impediments to farmers ability to sell direct to commercial mills – Lack of access to capital to finance improved seeds and input costs – Lack of proximity to commercial buyer While direct price premiums will likely be most effective in migrating farmers to direct commercial sales, replicating the benefits of these other factors can also influence the farmers decision in favor of commercial salesUSAID Nigeria – MARKETS – Investment Opportunities – 11-May-09 - 11 -
  12. 12. Case Study: Rice Processing in Benue Farmer Cooperatives First Bank of Nigeria Nigerian Agricultural Insurance Corporation ADP / Benue State Government Olam Nigeria Limited
  13. 13. Case Study: Rice Processing in Benue “Mama’s Pride”competes on both price and quality with imported rice
  14. 14. Nigeria Benue MARKETSAverage of Other ECOWAS
  15. 15. For More InformationInformation Resources on Outgrowers Schemes www.fao.org/ag/ags/contract-farming www.ruralfinance.org USAID’s AMAP Value Chain Wiki

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