Towards a Commercial Model: The Kenya Maize Farmer’s Perspective

Andrea Woolverton, Ph.D. Food and Agriculture Organization of the UN

Regional workshops Towards an Integrated Policy Approach to Smallholder Coordination

Nairobi, Kenya June 6, 2012

Presentation Objectives

• Project Background: Agricultural Transformation and Commercialization

• Discuss our preliminary research findings.

The question of the day: How can these findings be used to create policy options that can be put

into action incorporating linked issues?

“Agricultural Transformation”

Simple, yet so complicated.

The focus has largely been on production

Less on….

PresenterPresentation NotesMany countries have focused on the “productivity” part of the equation...the jury is out regarding these efforts.Fertilizer, seeds (food security + assumes objectives)Short-term vs. long-term perspective

Fluctuations are found in maize availability and price during the year--- a “boom and bust” cycle.

The Project: Smallholders’ Perspective in Smallholder Transition

• Small producers (

Using savings and

loans, I invest in

crop production

because I think the return will

be greater than the cost.

I make planting decisions by estimating expected

returns and costs.

I incorporate effective

production practices into

my crop management.

I manage for the highest

output.

I reduce price-risk

through risk

management strategies

I plan for selling

by separating my food

stocks from selling stocks.

I manage

my harvested

maize quality

according to market

specifications.

I sell to the buyer who

offers the best arrangement

for me.

I capture seasonal

value through storage.

I calculate my

returns at the end of

the season.

A Commercial Farming Model for Tomorrow: The Farmer’s Perspective of Maize as a Business

Producer objective: As an agribusiness, my objective is to maximize my household income relative to my costs.

Source: Woolverton, 2012.

Surrounding agri-industry environment

Accessible price information Enabling, enforceable laws Responsive credit industry

Quality and trading standards Agribusiness service providers Risk management instruments

The cycle continues from season to season.

PresenterPresentation NotesA model of a future commercial maize sector from the producer’s perspective.

Using savings and

loans, I invest in

crop production

because I think the return will

be greater than the cost.

I make planting decisions by estimating expected

returns and costs.

I incorporate effective

production practices into

my crop management.

I manage for the highest

output.

I reduce price-risk

through risk

management strategies

I plan for selling

by separating my food

stocks from selling stocks.

I manage

my harvested

maize quality

according to market

specifications.

I sell to the buyer who

offers the best arrangement

for me.

I capture seasonal

value through storage.

I calculate my

returns at the end of

the season.

A Commercial Farming Model for Tomorrow: The Farmer’s Perspective of Maize as a Business

Producer objective: As an agribusiness, my objective is to maximize my household income relative to my costs.

Source: Woolverton, 2012.

Surrounding agri-industry environment

Accessible price information Enabling, enforceable laws Responsive credit industry

Quality and trading standards Agribusiness service providers Risk management instruments

The cycle continues from season to season.

PresenterPresentation NotesGreen areas have been focused on historically. Other areas (esp. those in the producer’s decision-making process) have been focused on less.

Using savings and

loans, I invest in

crop production

because I think the return will

be greater than the cost.

I make planting decisions by estimating expected

returns and costs.

I incorporate effective

production practices into

my crop management.

I manage for the highest

output.

I reduce price-risk

through risk

management strategies

I plan for selling

by separating my food

stocks from selling stocks.

I manage

my harvested

maize quality

according to market

specifications.

I sell to the buyer who

offers the best arrangement

for me.

I capture seasonal

value through storage.

I calculate my

returns at the end of

the season.

A Commercial Farming Model

Producer objective: As an agribusiness, my objective is to maximize my household income relative to my costs.

Source: Woolverton, 2012.

Surrounding agri-industry environment Accessible price information Enabling, enforceable laws Responsive credit industry

Quality and trading standards Agribusiness service providers Risk management instruments

The cycle continues from season to season.

PresenterPresentation NotesThis research focuses more on the aspects highlighted in red. We can benchmark where smallholder Kenyan maize producers are today in term of commercial decision-making and attitudes.

Maize Producers in Transition Who is the maize farmer? Does producers WANT to stay in agriculture?

Commercialization Benchmarking

• Attitudes and Objectives • Planning: Estimating Costs and Returns • Planning: Selling vs. Keeping • Maize Quality Management • Marketing: Choosing a Buyer • Marketing: Temporal Arbitrage (seasonal) Method: 500 producer survey in Bungoma and Meru (June-August 2011)---

supplemented by producer focus groups

PresenterPresentation Notes2 part project

Sample Bungoma (n=273) Meru (n=227)

Age 46 45

Education 9 years 7 years

Gender 48%F/52%M 38%F/62%M

Married 86% 71%

Land size 3.4 acres (2.2 maize) 2.1 acres (1.8 maize)

Dist to mkt/ext office 7 km mkt/6.5 km ext 20 km mkt/13 km ext

Household members 7.6 members 5.4 members

Diversification 5.5 crops 4 crops

Wealth Index 1.18 0.66

Own cell phone 77 % yes/ 23% no 60% yes/40% no

MARKETING

Maize Harvested 1264 KG (14 bags) 1127 KG (12 bags)

Sales/Purchases Sold 36%/Purchased 11% Sold 51%/Purchased 15%

Avg Prices/KG Sold 28 Ksh/Purchased 46 Ksh Sold 26 Ksh/Purchased 27 Ksh

I t l i t ll ll hi h i

PresenterPresentation NotesNote: Internal consistency----grow more, sell more-----sell more, higher prices

Who is the maize farmer?

Who makes these decisions? Female Decision-makers Male Decision-makers

Crop mix for the season 90% self/10% otherwise 90% self/10% otherwise

When to plant and harvest 95% self/5% otherwise 88% self/10% otherwise

When to use fertilizer and qty 80 % self/20% otherwise 92% self/8% otherwise

To sell or store harvest 72 % self/28% otherwise 83% self/17% otherwise

Who to sell to and price 52% self/48% otherwise 80% self/20% otherwise

The farmer is a partnership---communication is key for commercialization.

Part 1: Outlook for Agriculture Bungoma Meru

5 year plan? 88% across sample would like to be more engaged in agriculture.

Crop to provide opportunity for youth?

Hybrid maize (30%), beans, kale, tomatoes

Grant of 50K 82% Agriculture 86% Agriculture

What would you invest in? Rent land for maize (42%), rent land for other crops (14%), Purchase tools (9%), Hire labor (8%), Buy seed/fert (7%), Invest in agriculture training (2%), other (18%)

Aside from agriculture? Business

Objectives and Attitudes

Bungoma (n=273) Meru (n=227)

Mean

Why do you grow maize? Food (90%), Immediately for cash and school fees (10%)

Do you prefer to grow or buy maize for your household consumption?

Yes 96%/ NO 4%

Is the maize available for purchase higher, lower or same quality?

Lower (93%), Same 6%, Higher (1%)

Most small maize farmers do not see maize as an income generator--- the food incentive appears to outweigh the income incentive at this stage.

Objectives and Attitudes

Bungoma (n=273) Meru (n=227)

Mean (Strongly agree/agree)

Farming is a real business.* 97% 95%

I view myself as a commercial maize farmer.*

21% 22%

If I sell all my maize at harvest, there will be enough to purchase later.

17.2% 16.8%

Storing my maize for 2 months after harvest would allow me to sell my maize at a higher price.

91% 95%

The security of working for someone else outweighs running my own business.

3.7% 7%

*The more farmers agree, the more likely they are to have higher wealth and income.

Planning: Costs and Returns/Selling vs. Keeping

• At harvest, I plan for how much to sell and how much to keep to eat: 57% • Of those that are planning,

– 50% “keep some” – 22% “no surplus” – 26% “keep what is left after cash requirements”’ – 2% “keeps per household member”

• Did the amount of food kept for food last from long rains until short rains? – 34% NO/ 66% Yes----(Why not? Consumed more than expected; had to sell for cash)

Bungoma Meru

At planting, I expect to receive a certain price upon selling.

51% Yes/ 49% NO 50 % Yes/50% NO

I check prices in town before selling at farm gate.

91% Yes/9% NO 89% Yes/11% NO

I know the current price in the Chwele/Meru Town market?

34% Yes/66% NO 46% Yes/54% NO

Planning: Costs and Returns/Selling vs. Keeping

• “Maize as a business” (namely: planning) is a new concept – “We don’t think about next season…” – Plant and fertilize what they can afford – Often sell at farm-gate without checking prices – Some trying to plan for family’s maize needs

Maize Quality Management

We asked farmers if they believe maize quality management could impact price received: color, broken kernels, foreign material, moisture.

Most farmers say yes regarding price impact, but managing moisture was the most common activity actually engaged in.

There was a wide range in the ‘acceptable levels”. (40%) Between 10-20%, (22%) 3%, (15%) Don’t know.

PresenterPresentation NotesEarly discussion-full analysis in progress.

Marketing: Buyer Choice

Western Eastern Selling outlet Female Male Female Male Farm gate trader 11.5 9.9 4.3 2.8 Local rural assembler/broker 19.7 19.8 32.6 39.8 Large local trader (lorry) 9.8 6.6 15.2 8.3 Large distant trader (100%) 0.0 2.2 2.2 0.0 NCPB (least % preferred) 0.0 1.1 6.5 0.9 Small (posho) miller 3.3 3.3 0.0 0.9 Nearby town market 9.8 13.2 28.3 33.3 Direct consumer 31.1 24.2 6.5 6.5 School 14.8 18.7 0.0 1.9 Cereal bank 0.0 0.0 4.3 3.7 Large miller

0.0

1.9

Agro dealer 1.1 0.0

Do you sell to the buyer you prefer? Anywhere from 30%-80% are selling to buyers they prefer.

PresenterPresentation NotesThis table describe where farmers are selling. 50-60% of farmers are selling to buyers that they prefer.

Marketing: Buyer Choice

Why do you trust this buyer ?

Price is not the only reason. Accurate measurement and prompt payments are competing issues.

Western Eastern Reason for trusting the outlet Female Male Male Female Can negotiate prices 13.7 8.9 5.6 6.1 Measures my maize accurately 16.2 21.1 19.9 19.0 Offers me a good market price 16.2 24.0 24.8 24.0 I can contact this buyer after harvest 9.1 7.7 8.7 10.3 Pays me promptly 26.9 20.7 29.2 29.3 Does not disappear with money 10.2 6.5 6.8 6.1 Buy in large quantities 2.0 5.3 2.5 3.4 Knows him personally 2.0 1.2 1.9 1.5 Picks at the farm gate 3.6 3.7 0.6 0.4 Offers me credit 0.0 0.8

Marketing: Seasonal Arbitrage

• Storage Options – 76% store at home

• Why? 30% Not enough maize for storage requirements

24% Lack of information about storage

18% Fear of theft

10% No facility

10% Fees are too expensive

3% Too far away

Marketing: Seasonal Arbitrage Constraints

Percents within Length of storage (months) Factor preventing longer storage 1 2 3 4 5 6 7 8 9 10 My storage is susceptible to pest infestation 14.3 8.6 12.4 18.4 31.6 45.8 25 50 0 0 My storage is susceptible to theft 0.0 0.0 0.0 2.6 0.0 0.0 0 0 0 0 My storage is susceptible to mould or aflatoxin 3.6 0.0 11.4 5.3 5.3 4.2 0 0 0 0 I have to pay school fees 17.9 19.0 11.4 15.8 15.8 20.8 0 25 100 50 I have to pay immediate cash needs 53.6 43.1 44.8 42.1 36.8 29.2 25 25 0 50 Did not harvest enough to store 10.7 22.4 14.3 10.5 10.5 0.0 25 0 0 0 Consumed all stored maize 0.0 6.9 5.7 5.3 0.0 0.0 25 0 0 0

Majority believe storing for 3-4 months post-harvest would bring better price, yet we find that few are doing able to do this.

PresenterPresentation NotesImmediate cash needs (school fees, medical, foods such as meat, fish and butter) push farmers into the market when prices are low. Changing the timing of school fees could be a relatively low-cost policy option to allow small farmers the opportunity to take advantage of season arbitrage opportunities.

Challenges to commercialization: Farmers Perceived Constraints (vs. ?)

Western Eastern Access to Fertilizer/chemical inputs

1.36 1.18

Access to high quality seeds 1.63 1.31

Access to credit for agricultural inputs

2.07 2.07

Access to credit for school fees 2.15 2.09

Access to land for agricultural production

2.15 1.94

Access to water/irrigation 2.18 1.41

Access to transportation 2.21 1.75

Ability to store maize 2.21 2.09

Access to hired labor 2.24 2.16

Access to production training 2.31 2.33

Access to family labor 2.49 2.38

Access to marketing training 2.49 2.47

Access to child care 2.57 2.63

Scale: 1=Serious Challenge…..3=Not a challenge; Note: 50% had never heard of AFC

Breaking the poverty cycle…

Historically, farmers have not transitioned alone in any part of the

world.

Policy recommendations for…

an Enabling Market Environment Extension

Inputs Training

are not new and they remain critical to build a strong private maize sector, including smallholders. Yet, they are

often general and difficult to implement. In the next few days, how can you design

recommendations that can be implemented?

Which area is the most important focus right now?

Thank you. Feel free to contact at

andrea.woolverton@fao.org

��Towards a Commercial Model: The Kenya Maize Farmer’s Perspective�����Andrea Woolverton, Ph.D.�Food and Agriculture Organization of the UN����Regional workshops Towards an Integrated Policy Approach to Smallholder Coordination�Nairobi, Kenya�June 6, 2012�Presentation ObjectivesSlide Number 3The focus has largely been on productionFluctuations are found in maize availability and price during the year--- a “boom and bust” cycle.The Project: Smallholders’ Perspective in Smallholder TransitionA Commercial Farming Model for Tomorrow: �The Farmer’s Perspective of Maize as a BusinessA Commercial Farming Model for Tomorrow: �The Farmer’s Perspective of Maize as a BusinessA Commercial Farming ModelMaize Producers in TransitionSlide Number 11Slide Number 12SampleWho is the maize farmer?Part 1: Outlook for AgricultureObjectives and AttitudesObjectives and AttitudesPlanning: Costs and Returns/Selling vs. KeepingPlanning: Costs and Returns/Selling vs. KeepingMaize Quality ManagementMarketing: Buyer ChoiceMarketing: Buyer ChoiceMarketing: Seasonal ArbitrageMarketing: Seasonal Arbitrage ConstraintsChallenges to commercialization:�Farmers Perceived Constraints (vs. ?)Breaking the poverty cycle…�� Historically, farmers have not transitioned alone in any part of the world.�Policy recommendations for…�an Enabling Market Environment�Extension�Inputs�Training�are not new and they remain critical to build a strong private maize sector, including smallholders. Yet, they are often general and difficult to implement.�In the next few days, how can you design recommendations that can be implemented?��Which area is the most important focus right now?��Thank you.�Feel free to contact at andrea.woolverton@fao.org��