SUPPORTING INPUT VALUE CHAIN DEVELOPMENT BY

MULTI-STAKEHOLDER ENGAGEMENT

ABRAHAM SARFOCONFERENCE OF MINISTERS OF AGRICULTURE OF WEST

AND CENTRAL AFRICACAADP PILLAR II LEAD INSTITUTION

CMA/AOC - Conférence des Ministres de l'Agriculture de l'Afrique de l'Ouest et du CentreLead institution for CAADP-Pilar IITel: (221) 33 869 11 90www.cmaoc.org

STRATEGIC AREA C: VALUE CHAIN DEVELOPMENT AND FINANCIAL SERVICES

04/10/2023

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

tool

04/10/2023

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: IFDC

04/10/2023

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 seeds

04/10/2023

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.

04/10/2023

POLITICAL, ECONOMICS AND SUSTAINABILITY

THE ISSUE OF FERTILIZER SUBSIDIES

04/10/2023

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 subsidy

04/10/2023

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 rationed

04/10/2023

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 reasons

04/10/2023

Effect Of Fertilizer Subsidy Removal: Africa-wide

Source: FAO, 2009.

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

Sub-Saharan Africa (old, 49 countries)

Sub-Saharan Africa (new, 27 countries)

Ferti

lizer

app

licati

on r

ate

(kg

of n

utre

nts

per

hect

are

of a

rabl

e la

nd &

per

man

ent

crop

s)Period of most active subsidy removal

04/10/2023

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 use

Weak effective (paying) demand

Coordination problem in input markets

• 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

• 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

Low quality service offers, supply gaps • Undeveloped private services• Lacking offers

Problems of input and service provision to farmers

Public (knowledge) services are not driven by demand • Service provision is not linked to payment for service (service gap)• Public services largely supply-driven

Farmers RetailersFoodIndustry /Traders

Final Con-sumers

Agricultural productmarkets

The mineral fertilizer value chain

Importers

Wholesalers

Import mixing

bagging

Wholesale

RetailInput Dealers

Chemical Companies

Manu-facturing

SpecificTechnologySuppliers

Fertilizermarket

Import and delivery of fertilizers is a value chain in itself, with farmers being the end market

The fertilizer market depends on the economics of the agricultural value chains to which farmers (= buyers of fertilizers) belong.

The Mineral Fertilizer Value Chain: Market Failure

Importers

Wholesalers

Import mixing

bagging

Wholesale

RetailInput Dealers

Chemical Companies

Manu-facturing

Farmers (demand side):Low profitability of fertilizer use due tounfavourable relation agric./ input prices and lacking complementary inputsLack of cash incomeNo access to financeNo technical know-how on applicationNo trust in fertilizer products Risk (perception) of agriculture

Input dealers (supply side):Low profitability of fertilizer trade due toreduced and dispersed demand, small scaleHigh marketing costLack of information - Few traders know the businessFraud: Lacking standards & quality control

Regulatory FrameworkUnreliable import policy & licensingHigh cost of doing business

Chemical Companies:Low profitability of market entry

Farmers

Fertilizermarket

Challenge: Too little use of mineral fertilizers

The ChallengeMost African farmers use less mineral fertilizer than would be econo-mically profitable - and advisable from an agronomic point of view.The Abuja declaration calls for increasing the use of non-organic fertilizer from currently 10 kg/ha (Africa overall) to 50 kg/ha

Underlying problemsDemand side: high priced fertilizers, low cash income, financing problems, complementary inputs missing, lacking know-how, little trustSupply side: no incentive for traders in a small market, high cost of handling, storing and marketingMarket chain: Unpredictable, contradictory political and donor interference in input markets crowding out private offers;Grades and standards are absent or not enforced.

The basic issue is coordination failure

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

Public service delivery: Reform of public service funding• Competitive technology and extension funds• Voucher schemes

Access to services: Create embedded service arrangement • Integration of services into commercial business linkages• Support service provision by cooperatives

Building fertilizer value chains

Building a fertilizer value chain

Demand side interventions

Awareness and information around fertilizersEmbed input supply in contract farming Collective purchases by cooperativesIncrease profitability of fertilizer useProvide targeted subsidies in a voucher schemeEnhance access to agricultural finance

Supply side interventions

Offer of smaller packagesTraining agro-input dealersCreate professional association Improve infrastructure (storage)

Farmers

Importers

Wholesalers

Input Dealers

Fertilizer market regulation

Licensing of dealersIncrease competition Introduce voucher schemeProduct grades & standardsProduct certificationQuality control

BuyersOf produce

FarmerCoops

Fertilizermarket

How to build & strengthen a fertilizer VC

Cooperation for regular commercial fertilizer supply

• Provide research support, technical solutionsGovernment

Farmer co-operatives

Fertilizer dealers

Development partners

• Contracting with buyers and suppliers

• Make appropriate offer of fertilizer supply (packaging and pricing)

• Guarantee regular supply

• Support individual stakeholders in their tasks• Facilitate collaboration

• Identify opportunities for regular fertilizer sale• Coordinate stakeholders

Fertilizer VC platform

Offtakers / buyers • Embed input supply in contract farming • Prefinance production

04/10/2023

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 systems

04/10/2023

Set Political Priorities And Objectives Per Target Groups

What is your principal policy goal?

Welfare goals include objectives such as poverty reduction and improved food security for those living below the poverty line; success in meeting these goals is usually measured in terms of decreases in the incidence of poverty or food insecurity.

Economic growth goals aim to increase aggregate crop yields and farm incomes; success in meeting these goals is usually measured in terms of growth in agricultural value added per unit of land or per agricultural worker.

04/10/2023

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 farmers

• 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

04/10/2023

Input Vouchers: Used To Promote Fertilizer Use?

– Vouchers can be used to target specific groups of farmers

• producers of certain crops,• 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.

Use of vouchers as part of a "demand-pull" strategy to promote increased fertilizer use has several potential advantages:

– 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.

04/10/2023

Input Vouchers: Used To Promote Fertilizer Use?

– Use of voucher programs has some potential disadvantages as well:

•Voucher programs can be costly to design and 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 use

04/10/2023

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.

04/10/2023

04/10/2023

04/10/2023