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Tha last mile in modern input distribution evidence from remote areas in amhara


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International Food Policy Research Institute (IFPRI) and Ethiopian Development Research Institute (EDRI) seminar series: October 09, 2012

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Tha last mile in modern input distribution evidence from remote areas in amhara

  1. 1. ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTEThe last mile(s) in modern input distribution: Evidence from remote areas in Amhara Bart Minten, Bethlehem Koro, and David Stifel IFPRI ESSP-II EDRI October 9, 2012 Addis Ababa 1
  2. 2. The last mile(s) in modern input distribution1. Introduction2. Background3. Data4. Modern inputs and perceived constraints5. Transaction costs6. Pricing and profitability7. Adoption8. External validity constraints9. Conclusions 2
  3. 3. 1. Introduction- Agricultural productivity increases and modern input use high on the agenda, especially in Africa; most promising way to increase agricultural production is the more widespread adoption of modern inputs- However, several constraints to adoption in Africa, most importantly related to profitability issues and lack of familiarity of farmers with new technologies- This paper looks at transaction costs and transportation costs as a constraint to adoption (adding to the profitability debate) 3
  4. 4. 2. Background Ethiopia- Rapid growth in agricultural productivity. However, modern input use has contributed little to that growth. As conventional sources of growth are running out (land), increasing use of modern inputs in Ethiopia very important- Ethiopia imported about 500,000 tons for a value of 500 million USD last year; Fertilizer distribution almost exclusively done by cooperatives; share of private sector very limited- Improved seeds low adoption rates; might possibly be addressed through new seed law that is being considered 4
  5. 5. 3. Data• Sample area selected purposefully o Homogeneous region o Except for transport costs• Households’ circumstances differ because of different transport costs...• ...not because of land characteristics, etc.
  6. 6. Transport Costs• Donkey costs (Birr/kg) o Cost of renting donkey o Weight donkey can carry• Economic transport costs o Include the opportunity cost of time
  7. 7. Average Travel Times andTransport Costs to the Market Town Travel Time Transport Cost (hours) (Birr/Quintal)Transport Cost Quintile Least Remote 1.5 18.2 Quintile 2 3.6 40.2 Quintile 3 5.2 52.5 Quintile 4 6.0 60.4 Most Remote 6.5 73.4Total 4.5 48.4
  8. 8. 4. Modern input use and perceived constraints Chemical Improved fertilizer maize seedsDid the household use… 80.2 26.0Major reason for not using modern input I lacked the money at the time of need 39.7 47.6 No need 17.0 0.0 No need because of share cropped out 14.2 5.4 Fertilizers are too expensive 12.8 8.9 I do not have enough land 5.0 2.7 I was unable to find them 5.7 10.4 There is too much hassle 2.1 2.9 I do not know how to apply them 2.1 2.3 Other 1.4 2.7 I dont grow maize 0.0 17.2 Total 100.0 100.09
  9. 9. 4. Modern input use and perceived constraints Chemical Improved fertilizer maize seedsWas farmer able to buy as much moderninputs as desired? 30.7 51.1Reason for not buying enough mod. inputs lacked the money to buy more 86.5 42.5 There is too much hassle 5.4 8.5 Lack of transportation 4.1 0.9 I was unable to find enough 3.9 47.2 The topography of the land problem 0.2 0.0 Others 0.0 0.9 Total 100.0 100.0Farmer is aware of recommended fertilizeron plot 37.1 - 10
  10. 10. 5. Transaction costs (before acquisition) Chemical improved fertilizer seedsNumber of trips made before each transaction…… before the farmer was able to pick up modern input 0 trips 34.6 37.7 1 trip 21.7 23.7 2 trips 22.1 22.8 3 trips 12.6 8.8 > 3 trips 9.0 7.0 Total 100.0 100.0 11
  11. 11. 5. Transaction costs (before acquisition) Chemical improved fertilizer seedsReasons for the unsuccessful trip:Form issues 39.4 46.9 Form did not have signature of an official 8.4 11.2 Not enough people on the form 31.0 35.7Management cooperative 52.4 37.1 Cooperative office not open 15.5 11.2 There was no supply of modern inputs 9.2 10.5 Too long queue 23.7 14.0 Money collector was not there 4.0 1.4 Looking for/met with committee member 4.2 5.6 Other 4.1 10.5 Total 100.0 100.0 12
  12. 12. 5. Transaction costs (acquisition) Unit 2010 Chemical Improved fertilizer seedsAverage time spent on acquisition trip:Travel there hours 3.2 2.3Time at location hours 5.5 5.0Travel back hours 3.6 2.0Was input stored between the time ofacquisition and transport % yes 42.5 8.5 13
  13. 13. 5. Transaction costs after acquisition (for those that received credit) Ch. fertilizerNumber of trips for each transaction…… before the farmer was able to pay (exclude payment trip)0 trips 66.41 trip 18.32 trips 10.23 trips 5.1Reasons for the unsuccessful trip: Form was lost 32.4 Money collector was not there 22.5 Cooperative office was not opened 21.1 Queue too long 18.3 Other 5.6 Total 100.0 14
  14. 14. 5. Transaction costs and late access to modern inputs Unit TotalPercentage of plots that the households are late inplanting due to delays in acquiring fertilizer % 20Were there any days in the 2010 season when anadult household member could not work on thefarm because of searching modern input % 44Lost day in search of modern inputs number 3.6 15
  15. 15. 6. Pricing and profitability• To get at implicit prices of modern inputs, value all the transaction and transportation costs• Value the opportunity costs of time as well• Transaction costs increase implicit fertilizer prices by 20% for those farmers living close• Fertilizer price increases by 100% for the most remote households 16
  16. 16. Implicit and cash prices of chemical fertilizer 16 14 Birr/kg 12 10 8 0 20 40 60 80 Distance from market (Birr/kg) Purchase price Implicit price 17
  17. 17. Implicit and cash prices of improved maize seeds 35 30 Birr/kg 25 20 15 0 20 40 60 80 Distance from market (Birr/kg) Purchase price Implicit price 18
  18. 18. Pricing modern inputs- How important are these implicit costs?- Costs about 160 USD/ton to bring chemical fertilizer from Djibouti to rural areas in Ethiopia- Transaction and transportation for the most remote areas are thus 3 times as important as bringing products from international markets to rural areas- Profitability of modern input use affected by these transaction costs 19
  19. 19. Profitability of fertilizer use- Profitability of fertilizer use explained by two factors: 1/ the technical response of output to fertilizer use; 2/the relationship between output prices and fertilizer prices.- The value cost ratio (VCR) often used to evaluate profitability of fertilizer use. It is defined as: VCR = (O/N)/(Pn/Po) = (O*Po)/(N*Pn) where O are the units of outputs produced from one unit of nutrient, Pn is the price of fertilizer, and Po is the price of output. 20
  20. 20. Ratio of output versus input prices. (Po/Pi) 0 20 40 60 80 Distance from market (Birr/kg) teff maize sorghum millet 21
  21. 21. Value-Cost Ratios (VCR) 2.5 (implicit and cash prices 2VCR 1.5 1 0 20 40 60 80 Distance from market (Birr/kg) teff (implicit) millet (implicit) maize (implicit) sorghum (implicit) teff millet sorghum maize 22
  22. 22. 7. Adoption of modern inputs- Two ways of looking at modern input adoption- Non-parametric graphs, simple graphs of adoption as function of remoteness- Regression analysis (including distance as well as plot and household characteristics); Use double- hurdle models:a. first hurdle: regression of different factors (including remoteness) on access of modern inputs (yes/no);b. second hurdle: regression of different factors (including remoteness) on quantity used of inputs 23
  23. 23. Adoption of chemical fertilizer (kg/ha) 150 100kg/ha 50 0 0 20 40 60 80 Distance from market (Birr/kg) urea DAP chemical fertilizer 24
  24. 24. Adoption of improved maize seeds (kg/ha) 15 10 5 0 0 20 40 60 80 Distance from market (Birr/kg) 25
  25. 25. 7. Adoption of modern inputsResults double hurdle model:- Use the unconditional Average Partial Effect (APE) to analyzed impact of explanatory variables- APE of log(distance) on chemical fertilizer use is evaluated at -44 and is highly significant, i.e. a doubling of the distance to the cooperative office and market (or about 20 kms) reduces the fertilizer use by 44 kg per ha (ceteris paribus).- A doubling of the distance reduces the improved maize seed use by 6 kg per hectare. 26
  26. 26. 8. External validity constraints- To what extent are the findings from this remote area (and exceptional kebele) in Amhara valid temporarily (over time) and spatially (for Ethiopia as a whole)?- Same questions asked for the year 2011: similar results- AGP data (20% of farmers complain of lack of fertilizer supply; 12% of late supply of fertilizer);- VCR at distribution center similar to other estimates (Spielman; Asrat et al.; Tefera et al.)- Distances of farmers to modern input distribution centers being calculated 27
  27. 27. 9. ConclusionsOur study highlights constraints with respect to twovariables for adoption of modern inputs:- Transaction and transportation costs limit the profitability of modern input use- Profitability a major important determinant in adoption (indicating that farmers respond to profitability concerns) (important as credit access or procastination clearly not only factors) 28
  28. 28. 9. ConclusionsPolicy implications to improve modern input adoption:1. Rationing of improved seed in these markets; better supply chains required2. Further management capacity building for cooperatives required3. De-licensing as to allow for a more competitive environment in the last mile4. Further improved transportation infrastructure needed (importance of feeder roads)5. Recent policy to move away from credit provision for modern input acquisition; implications adoption 29