Agriculture inputs value chains


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  • Africa has few navigable waterways, so bulky goods such as fertilizers must be transported long distances overland on poorly maintained road and rail systems. Africa has the world’s fewest kilometers of paved roads per capita. For example, Uganda has 94 kilometers (km) of paved road per one million people and Mozambique, 141 km. In contrast, France has 12,987 km of paved road per million people and the United States has 20,987 km (as of 2006).
  • Fertilizer programs have been recommended for meeting more narrowly defined and specific goals such as soil fertility restoration and natural resource management; but most such programs can be classified as a subset of either welfare or growth goals based on intended outcomes
  • Agriculture inputs value chains

    2. 2. Strategic Area C: Value Chain Development and access to Financial services• A set of Early Actions has been proposed under each strategic area identified by an Expert Reference Group, under the direction of CMA/WCA, to kick-start the implementation of Pillar II in the short, medium and long term. For Area C they could be presented as follows: – Multi stakeholders platforms to remove the regulatory technical and financial constraints to enterprises creation and growth – Platforms to support the integrations of Smallholder farmers into Developing Value Chains – Agribusiness joint ventures and Investment fairs – Fertilizers and Seeds Value Chain development tool6/21/2012
    3. 3. INTRODUCTION• It is a cruel irony that a farmer in Sub-Saharan Africa – where half the population survives, somehow, on less than $1.25 a day – must pay two to four times the average world price for fertilizer.• This is mainly due to geography and poor infrastructure.• Transporting fertilizers from an African seaport to a farm 100 km inland costs more than to ship those same fertilizers from North America to Africa.• Also, the current low demand for fertilizer in Africa reduces potential economies of scale in procurement.• Government policies, including those affecting tariffs and trade, often contribute to high prices. Corruption is another factor• Source: IFDC6/21/2012
    4. 4. FOCUSING ON AGRO INPUT SUPPLIES : FERTILIZERS AND FORMAL SEEDS MARKET.• Within the context of African Green Revolution, emphasis has been put on the non organic fertilizer and High Yields Varieties (HYV) seeds as the main ingredient to significantly and quickly increase production.• Abuja declaration on Fertilizers focused on increasing the use of non organic fertilizers to bring it from its actual level of 8kg per hectare to 50kg by 2015.• Use of inputs (incl. mechanization, water, etc. ) is also considered under pillar III of the CAADP Process• NB: we use fertilizer here for non organic fertilizers and seeds for HYV seeds6/21/2012
    5. 5. Fertilizer supply chains are weak and imports oriented• African farmers apply only five to ten percent of the fertilizer amounts used in other developing regions, such as Asia.• More than 90% of fertilizers are imported. – Some mixing and bagging can be done within Africa when products are imported in bulk – There is a production potential in Africa but capital and lack of critical mass market are among the major breaks for domestic production development.6/21/2012
    7. 7. Three Economic Rationales For Fertilizer Subsidies 1. Efficiency • Fertilizer use by farmers may be sub- optimal because of – Lack of information – Lack of liquidity – Risk aversion • In this case, subsidy could raise fertilizer use to optimal level • If so, value of additional crop production could exceed cost of subsidy6/21/2012
    8. 8. Three Economic Rationales For Fertilizer Subsidies 2. Equity • Farm income is below average, so fertilizer subsidies represent transfer to the poor • To justify, need to show that fertilizer subsidies are better targeted than alternative anti- poverty programs e.g. school feeding, primary health care, & conditional cash transfer • However, value of transfer proportional to amount of fertilizer used, larger farmers benefit more than small farmers • Thus, fertilizer subsidies unlikely to be pro- poor unless targeted or rationed6/21/2012
    9. 9. Three Economic Rationales For Fertilizer Subsidies 3. Externalities • Fertilizer subsidies could be justified if fertilizer use generates benefits to others beside the farmers • Example: fertilizer increases plant growth  reduces soil erosion and run-off  benefits others downstream • But generally fertilizer subsidies have not been justified for externality reasons6/21/2012
    10. 10. Effect Of Fertilizer Subsidy Removal: Africa-wide 16.0 Period of 14.0 most active subsidy (kg of nutrents per hectare of arable land & permanent crops) removal 12.0 10.0 Fertilizer application rate 8.0 Sub-Saharan Africa (old, 49 countries) 6.0 Sub-Saharan Africa (new, 27 countries) 4.0 2.0 0.0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Source: FAO, 2009.6/21/2012
    11. 11. Effect Of Fertilizer Subsidy Removal: Specific Countries • Nine countries had distinct periods of phasing out subsidies • Compare five-year average before and after subsidy elimination • Result – Fertilizer use declined ~40% in two countries: Nigeria & Ghana – Fertilizer use declined 25-29% in three: Cameroon, Senegal, & Tanzania – Fertilizer use increased 14-500% in Benin, Togo, Mali, & Madagascar • Explanation – Subsidy only one factor in determining price – Price only one factor in determining fertilizer use6/21/2012
    12. 12. Problems of input and service provision to farmers Weak effective (paying) demand• Cash income / cash flow of smallholders too low to pay for inputs• Short-term credit for input not available or perceived as too risky• Farmers know little about potential benefit of services and inputs• No trust in quality of services and inputs on offer Coordination problem in input markets• Small size of fertilizer markets discourages investment• Unpredictable, contradictory political and donor interference in input markets crowding out private offers• Grades and standards are absent or not enforced Public (knowledge) services are not driven by demand• Service provision is not linked to payment for service (service gap)• Public services largely supply-driven Low quality service offers, supply gaps• Undeveloped private services• Lacking offers
    13. 13. The mineral fertilizer value chain Fertilizer marketSpecific Food Agricultural Final Con-Technology Farmers Industry / Retailers product sumersSuppliers Traders markets Retail Import and delivery of fertilizers is a value Input Dealers chain in itself, with farmers being the end market Wholesale The fertilizer market depends on the Wholesalers economics of the agricultural value chains to which farmers (= buyers of fertilizers) belong. Import mixing bagging Importers Manu- Chemical facturing Companies
    14. 14. The Mineral Fertilizer Value Chain: Market Failure Farmers (demand side): Fertilizer Low profitability of fertilizer use due to market unfavourable relation agric./ input prices and lacking complementary inputs Farmers Lack of cash income No access to finance No technical know-how on application No trust in fertilizer products Risk (perception) of agriculture Input dealers (supply side): Retail Low profitability of fertilizer trade due to Input Dealers reduced and dispersed demand, small scale High marketing cost Lack of information - Few traders know the businessWholesale Fraud: Lacking standards & quality control Wholesalers Regulatory Framework Unreliable import policy & licensing Import High cost of doing business mixingbagging Importers Manu- Chemical Chemical Companies:facturing Companies Low profitability of market entry
    15. 15. Challenge: Too little use of mineral fertilizersThe ChallengeMost African farmers use less mineral fertilizer than would be econo-micallyprofitable - and advisable from an agronomic point of view.The Abuja declaration calls for increasing the use of non-organic fertilizer fromcurrently 10 kg/ha (Africa overall) to 50 kg/haUnderlying problemsDemand side: high priced fertilizers, low cash income, financingproblems, complementary inputs missing, lacking know-how, little trustSupply side: no incentive for traders in a small market, high cost ofhandling, storing and marketingMarket chain: Unpredictable, contradictory political and donor interference ininput markets crowding out private offers;Grades and standards are absent or not enforced. The basic issue is coordination failure
    16. 16. Building fertilizer value chains Access to inputs: Fertilizer value chain development• Enhance smallholder purchasing capacity by linking farmers to markets and by organizing collective orders• Fertilizer market regulation (e.g. grades and standards)• Support commercial suppliers of inputs Access to services: Create embedded service arrangement• Integration of services into commercial business linkages• Support service provision by cooperatives Public service delivery: Reform of public service funding• Competitive technology and extension funds• Voucher schemes
    17. 17. Building a fertilizer value chain Buyers Demand side interventionsFarmers Of produce Awareness and information around fertilizers Embed input supply in contract farming Collective purchases by cooperatives Fertilizer Increase profitability of fertilizer use Farmer Coops market Provide targeted subsidies in a voucher scheme Enhance access to agricultural finance Fertilizer market regulationInput Dealers Supply side interventions Licensing of dealers Offer of smaller packages Increase competition Training agro-input dealers Introduce voucher schemeWholesalers Product grades & standards Create professional association Improve infrastructure (storage) Product certification Quality control Importers
    18. 18. How to build & strengthen a fertilizer VCCooperation for regular commercial fertilizer supplyOfftakers / buyers • Embed input supply in contract farming • Prefinance productionFarmer co-operatives • Contracting with buyers and suppliersFertilizer dealers • Make appropriate offer of fertilizer supply (packaging and pricing) • Guarantee regular supplyGovernment • Provide research support, technical solutionsFertilizer VC platform • Identify opportunities for regular fertilizer sale • Coordinate stakeholdersDevelopment partners • Support individual stakeholders in their tasks • Facilitate collaboration
    19. 19. AU/NEPAD Africa Fertilizer Summit In Abuja: Declaration On Fertilizers For A African Green Revolution• At regional level: – Harmonisation of legislation and trade policies – Regional fertilizers procurement • Regional warehouses – Promotion of transitioning to local blending and produciton and intra-regional trade • Based on local phosphate and oil /gas• At country level – Formal regulatory framework • Removal of price controls, importer license requirements, restricted list of products allowed • Taxes reduction (import taxes and VAT) – Fertilizer inspections for quality control at the point of sale – Capacity building for private sector and farmer associations – Farmer access to quality seeds, CPPs, irrigation facilities, extension services, and market information systems6/21/2012
    20. 20. Set Political Priorities And Objectives Per Target Groups What is your principal policy goal?Welfare goals include objectives such as poverty reduction andimproved food security for those living below the poverty line;success in meeting these goals is usually measured in terms ofdecreases in the incidence of poverty or food insecurity.Economic growth goals aim to increase aggregate crop yields andfarm incomes; success in meeting these goals is usually measured interms of growth in agricultural value added per unit of land or peragricultural worker.6/21/2012
    21. 21. Input Vouchers: Malawi• Many government, NGO, and donor interventions in input supply are guided by the need to help resource-poor farmers who suffer from transitory or chronic food insecurity.• The twin objectives of poverty alleviation and market development can be achieved if the support programs are implemented by transferring the purchasing power to the needy farmers6/21/2012
    22. 22. • Input vouchers permit voucher holders to purchase specific quantities and types of farm inputs from qualified distributors who have agreed to accept vouchers as payment.• The distributors in turn redeem the vouchers for cash payment from the program organizers
    23. 23. Input Vouchers: Used To Promote Fertilizer Use?Use of vouchers as part of a – Vouchers can be used to"demand-pull" strategy to target specific groups ofpromote increased fertilizer use farmershas several potential • producers of certain crops,advantages: • producers located in specific regions • or production environments, • or producers who fall into a particular social stratum or income class. – IFDC program in Malawi used input vouchers as payment for work by poor farmers on rural road projects. 6/21/2012
    24. 24. – Vouchers can build additional demand for fertilizer and thus accelerate fertilizer market development if the targeted farmers are not already using fertilizer.– Voucher programs can be designed to run for a number of years, during which time fertilizer subsidies are gradually removed so that farmers and distributors can make the transition to an economically sustainable cash market.
    25. 25. Input Vouchers: Used To Promote Fertilizer Use?Use of voucher programs •Voucher programs can be costly to design andhas some potentialdisadvantages as well: – implement, particularly if subsidies are involved that entail special measures to control corruption and rent seeking. • Voucher programs can fail to achieve their objectives if convertible vouchers are purchased by intermediaries and a secondary market emerges for their resale and 6/21/2012 use
    26. 26. Impact CNFA:• Impact,: – Value chain level • 4,300 Agro dealers in Kenya, Tanzania, Mali and Malawi engaged in facilitating access to inputs and technologies; • 1.8 million farmers accessing inputs; • 84 Agribusiness companies in Input Supply chains engaged; – Documented Impact at Farmer Level • 86% of Farmers in Malawi used Hybrid Maize seed in 2007/08 compared to 20% in 2003/04; • 92% of farmers in targeted areas used fertilizer at a higher rate of 76% compared to non-targeted areas in western Kenya; • Mean productivity in western Kenya targeted areas increased by 115% between 2004 and 2007.6/21/2012
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