cari cost benefit anonymised · the cari partner countries are nigeria, burkina faso and ghana in...

Michiel Arnoldus Barry Clausen F e b r u a r y 2 0 1 8 Cost benef i t ana lys i s of CA RI out grower programs in Tanzania , Ghana, Niger ia and Burk ina Faso

M A K I N G S E N S E O F D E V E L O P M E N T T +27(0)72 3607896 | M +27(0)31 7640549 www.timeforsense.com | [email protected] Acacia House, Robyndale Centre, 10 Msenga Road | 3610 Kloof | South Africa

2 C A R I C O S T B E N E F I T A N A L Y S I S O F R I C E O U T - G R O W E R P R O G R A M S M A K I N G S E N S E O F D E V E L O P M E N T

1 Introduction ............................................................................................................................................... 4 1.1 Context: Rice in Africa ....................................................................................................................... 4 1.2 What is CARI ...................................................................................................................................... 4 1.3 The program evaluation through a cost benefit analysis .................................................................. 5 1.4 Challenges and Limitations of this evaluation ................................................................................... 8 1.5 How to interpret the results of this evaluation ................................................................................. 9 1.6 Structure of this report ...................................................................................................................... 9 2 Introduction to CARI extension and out-grower programs ..................................................................... 10 2.1 Programs and implementation partners ......................................................................................... 10 2.2 Country context Ghana.................................................................................................................... 10 2.3 Country context Tanzania ................................................................................................................ 11 2.4 Country context Nigeria .................................................................................................................. 12 2.5 Country context Burkina Faso ......................................................................................................... 12 3 Mill 1. Out-grower Scheme, Ghana ......................................................................................................... 15 3.1 The area ........................................................................................................................................... 15 3.2 Program overview ........................................................................................................................... 15 3.3 The Challenge: missing information & program not operational ................................................... 16 3.4 Farmer Impact ................................................................................................................................. 17 3.5 Impact on the mill ............................................................................................................................ 19 3.6 Conclusions ...................................................................................................................................... 20 4 Mill 2 GH, Ghana ...................................................................................................................................... 21 4.1 The area ........................................................................................................................................... 21 4.2 Program overview ........................................................................................................................... 21 4.3 The challenge for this evaluation: finding out what really happened & finding reliable data ........ 22 4.4 Impact on farmers ........................................................................................................................... 23 4.5 Impact on the mill ............................................................................................................................ 24 4.6 Conclusion ....................................................................................................................................... 24 5 Mill 1 TZ, Town 1, Tanzania ..................................................................................................................... 26 5.1 The Area........................................................................................................................................... 26 5.2 The Mill 1 TZ Out-grower program .................................................................................................. 26 5.3 Impact on farmers ........................................................................................................................... 27 5.4 Conclusion ....................................................................................................................................... 31 6 Mill 2, Tanzania ........................................................................................................................................ 32 6.1 The area ........................................................................................................................................... 32 6.2 The MILL 2 TZ program .................................................................................................................... 32 6.3 Farmer impact ................................................................................................................................. 34 6.4 Impact on the mill ............................................................................................................................ 36 6.5 Conclusion ....................................................................................................................................... 38 7 MILL 1 NG & MILL 1 PARTNER NG, State 1 Nigeria ................................................................................. 39 7.1 The area ........................................................................................................................................... 39 7.2 Mill 1 NG & Mill 1 Partner NG out-grower program ....................................................................... 39 7.3 The challenge of this cost benefit analyses ..................................................................................... 42 7.4 Farmer impact ................................................................................................................................. 42 7.5 Impact on Mill 1 NG and the mill ..................................................................................................... 44 7.6 Conclusion ....................................................................................................................................... 47 8 MILL 2 NG & MILL 2 PARTNER NG, State 2, Nigeria ................................................................................ 48 8.1 The area ........................................................................................................................................... 48 8.2 The program .................................................................................................................................... 48 8.3 The challenge in this cost-benefit analyses ..................................................................................... 53 8.4 Farmer impact ................................................................................................................................. 53 8.5 Impact on the mill ............................................................................................................................ 55


8.6 Conclusion ....................................................................................................................................... 56 9 Mill 1 BF, Burkina Faso ............................................................................................................................ 57 9.1 Area ................................................................................................................................................. 57 9.2 The program .................................................................................................................................... 58 9.3 Farmer impact ................................................................................................................................. 59 9.4 Community A Farmer impact .......................................................................................................... 60 9.5 Community B farmer impact. .......................................................................................................... 61 9.6 Impact on the mill ............................................................................................................................ 62 9.7 Conclusion ....................................................................................................................................... 64 10 MILL 2 BF, Burkina Faso ....................................................................................................................... 66 10.1 Area ................................................................................................................................................. 66 10.2 The program .................................................................................................................................... 66 10.3 Village 2 Farmer impact ................................................................................................................... 67 10.4 Impact for Village 1 farmers ............................................................................................................ 68 10.5 Impact on the mill ............................................................................................................................ 70 10.6 Conclusion ....................................................................................................................................... 71 11 Lessons learned from the various programs ....................................................................................... 72 11.1 A well-managed out-grower program is a good investment for a mill or input supplier ............... 72 11.2 The size of the CARI program needs to be proportionate to the size of the mill ............................ 74 11.3 There are 8 ingredients for a successful rice out-grower program ............................................... 75 11.4 Without credit, GAP is low, but without irrigation there is no credit ............................................. 77 11.5 Rice is probably not the right crop for areas where irrigation is costly or difficult ......................... 78 11.6 Yields of 8 tons per hectare are possible for African small holder farmers .................................... 78 11.7 Mechanisation can work for small holder farmers in Africa ........................................................... 78 11.8 An input supplier or government extension service can be good partner...................................... 78 11.9 Despite competitive pricing, the mills only receive a small part of the production of trained farmers ........................................................................................................................................................ 79 11.10 Optimisation of the program seems possible. ............................................................................ 79 11.11 Rice is a very competitive crop globally, and it needs scale. But getting to scale requires some protection from imports .............................................................................................................................. 80 11.12 A good country program management organisation is essential ............................................... 80 11.13 Gathering and using data for monitoring and evaluation is a challenge .................................... 80 12 Recommendations for CARI 2 .............................................................................................................. 82 12.1 Program choice recommendations ................................................................................................. 82 12.2 Recommended Program activities .................................................................................................. 83 12.3 Monitoring and evaluation .............................................................................................................. 83


1 I n t r o d u c t i o n 1 . 1 C o n t e x t : R i c e i n A f r i c a The agricultural sector in Sub-Saharan Africa has dropped behind other developing regions in the world in terms of productivity and competitiveness. In many instances, poor agricultural practices, climate change, and lack of investment in agriculture by African governments have led to an actual decline in yields. In combination with rapid population growth and urbanization, the amount of food being produced is not keeping pace with the growth in demand. This is called the yield gap. Rice in particular has been identified as an important food security crop. Urbanisation has changed consumer behaviour in favour of quick and easy food choices. Rice is seen as a quicker and easier meal to prepare than traditional staples such as yam, maize, millet and cassava, and is more suitable for preparation by street vendors on whom urbanites often depend for meals-on-the-go. In addition, rice is farmed by many small-scale farmers both for auto-consumption and as a cash crop. Rice is therefore prioritised for development, because it has a direct impact on the food security and livelihoods of rural communities. Many of these farming households survive on less than US$2 per day and are described as vulnerable. Rice is often also seen as a women’s crop because of the high component of labour in its production. Studies have shown that women’s incomes impact more directly on household wellbeing than those of men. While the consumption of rice in Sub-Saharan countries is growing fast, production has not kept up. Most African countries only produce a fraction of what they consume, and imports are increasing faster than local production. The rice imports cost African countries scarce foreign reserves. Most rice imported is high quality rice from Thailand, India and Pakistan which have well-developed rice sectors. This rice if often of much better quality and much cheaper than local rice if it wasn’t for large import duties that some countries impose. African rice producers and processors do not yet have the scale and skills to compete on the lucrative and growing rice market. Rice in Africa also tends to hold a particular social status for consumers and farmers, and thus governments. Because it is seen as modern food, consuming rice often has become a status symbol, particularly for urban middle class. In many countries farmers pride themselves in being a rice farmer, and continue to farm even if it is a loss-making activity. Governments and development practitioners like their countries to become self-sufficient in rice production and promote the idea of import substitution. Being able to produce and eat local rice has become a prestige project in many cases. It is in this context that the CARI program was established to increase rice production through dissemination of improved farming and post-harvest practices and by reinforcing linkages between farmer, processors and markets for African rice. 1 . 2 W h a t i s C A R I “The Competitive African Rice Initiative (CARI) is a program commissioned by the Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung (BMZ) and co-financed by the Bill & Melinda Gates Foundation (BMGF) and the Walmart Foundation. It is implemented by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH in cooperation with Technoserve (Ghana), Kilimo Trust (Tanzania), and John A. Kufuor Foundation (regional policy advice). The CARI partner countries are Nigeria, Burkina Faso and Ghana in West Africa and Tanzania in East Africa. The objective of CARI is to significantly improve the livelihoods of rice farmers in selected countries in the sub-region by increasing the competitiveness of domestic rice supply to meet increasing regional demand. The program started in October 2013 and runs to June 2018.


The target group consists of 150,000 small-scale rice farmers with an average daily income of less than US$2. The project involves four intervention fields: • Introducing and disseminating techniques to enhance productivity and sustainability of rice cultivation and improve the quality of yields, • Optimizing backward and forward linkages in the rice Value Chain (VC), • Improving access to finance for farmers and other stake holders in the rice VC, • Contributing to the formulation and implementation of national policies and fostering regional cooperation between the partner countries. A key implementation instrument for activities (1) to (3) is a Matching Fund (MF) to which public and private sector partners can apply for grants by submitting project proposals. Funds are allocated based on a set of eligibility criteria. The amount of the grant can reach 40% to 50% of the total value of the project, depending if the grantee is a private or a public organization.”(Kundermann, B and Bertelmann, F (2016)). The CARI team, consisting of the GIZ and implementation partners in each country, works with a lead partner being either a private company (e.g. a mill or input supplier) or public agency or NGO. The lead partner assigns a project manager who oversees extension officers employed by the lead partner, government extension officers, farmer organisations, and in some cases, input suppliers and financial institutions. The consortium forms a vehicle for disseminating good agricultural practices (GAP), post-harvest handling (PHH), Farmer Business School (FBS) training, etc. to a target group of rice farmers who supply the mill with paddy for processing. In addition, each project reinforces linkages between the various stakeholders. The objectives are: • To increase farmers’ access to improved techniques, inputs and finance, so that they are able increase the quantity and quality of paddy sold to the mill, enhancing revenues for both parties • Assist farmers to access fertilisers and agro-chemicals through developing linkages with input suppliers (on pre-financed basis) • To create a stable supply chain that meets banks criteria for provision of finance to farmer groups and millers • Foster loyalty of supply between the farmers and the mill • Organise and support the rice value chain in the target area • Demonstrate to government the viability of providing extension and support to agricultural value chains In Nigeria and Burkina Faso, the CARI program is implemented by GIZ itself. In Tanzania and Ghana, the implementation partners Kilimo Trust and TechnoServe respectively implement the program. They are supported by a GIZ staff to link CARI to other GIZ programmes and the GIZ country office. 1 . 3 T h e p r o g r a m e v a l u a t i o n t h r o u g h a c o s t b e n e f i t a n a l y s i s O b j e c t i v e s o f t h e e v a l u a t i o n a n d c o s t b e n e f i t a n a l y s e s The first phase of the CARI project is in the process of completion, and a second phase is being designed. In order to justify a second phase CARI wants to assess if the project has a positive impact on farmers but also the partners, which in most cases are rice mills. In addition, they want to understand what works well in the CARI programs, and what can be improved and how. This input is crucial for the design of CARI phase 2. The key challenge is that both out-grower programs and extension services are widely regarded as indispensable tools for agricultural development, poverty reduction, food security, sector development,


improved land use and job creation. However, quantifying these benefits is both difficult and expensive, particularly in the context of remote and under developed rural value chains. However, if CARI partners are willing to pay for a continuation of the program from their own pocket, this would be a strong indication that the program is working. In order to assess whether this is likely, Sense has been asked to perform a cost benefit analysis of the out-grower program for two selected partners in 3 CARI countries. In conclusion, the objectives of the evaluation via a cost benefit analyses were: • To determine the financial benefit of the CARI program for the program partners, in most cases the rice mill, and thus the likelihood they will continue the out-grower programs once CARI has ended and the mill and partners bear 100% of costs • To determine the financial benefit for farmers in the out-grower program, and thus the likelihood they are continuing farming along the new methods after training • To determine what worked, what didn’t and in each case the reasons why • To collate learnings to inform the design of a potential CARI phase 2 The partners selected for the cost benefit analysis were: 2 rice mills in Ghana; 2 rice mills in Tanzania; 2 mills in Nigeria, and 2 mills in Burkina Faso. W h a t i s a c o s t b e n e f i t a n a l y s i s a n d h o w w a s i t d o n e ? A cost benefit analysis compares the financial benefit of an activity with the cost of this activity, in order to determine if benefits outweigh costs, and the investment thus makes financial sense. In this case, we want to determine the profit that the rice miller makes off the additional rice produced from the additional paddy supplied to mill under the CARI program, is higher than the cost of the CARI out-grower program. The assumption here is that the mill will only continue the out-grower program if the benefits are higher than the cost. In addition to the quantity of paddy, the improved quality of paddy as a result of CARI also needs to be taken into consideration. Better quality paddy normally leads to a higher percentage of whole grain rice and less broken rice. This is because whole grain rice is sold at a considerably higher price and it increases profit. However, in the case of Mill 1 NG in Nigeria the cost benefit is different because the primary partner is a private input dealer. Hence, we need to identify if the profit from increased sales of agricultural inputs outweigh the cost of the program. For the purposes of the cost benefit analysis, the CARI Program is treated not as a fixed cost in the year of expenditure, but as an investment that is depreciated over a 5-year period. This is because farmers who are trained remain trained and are expected to continue farming rice and supplying paddy to the mill for many years to come. Hence, the impact is not limited to the year of training. It is a long-term investment aimed at structurally increasing the supply to the mill. Of course, there is a certain leakage because some trained farmers may end up supplying other mills or stop rice farming all together. On the other hand, the full impact of training on the remaining farmers is likely to compensate for this, as successful farmers tend to increase their area farmed, and surrounding farmers copy their practices. On the benefit side we have used the increase of the quantity of paddy as well as the quality improvements from before the project and after the project. This is on the conservative side, because in most cases this reflects only 2 to 3 seasons. The full impact of training on farmers’ productivity and also the area farmed


will take more time to show. Though changing agricultural practices can have a direct impact, it will take time to optimise new techniques. However, we have not only analysed impact on the mill, but also on the individual farmer. Our logic is that if an out-grower program and a new way of farming only benefits the mill, the mill may be inclined to continue the program, but many farmers will stop rice farming because it is not lucrative enough. They will switch to other crops or stop farming altogether, thereby reducing the impact of training. Or they may revert back to old farming practises. In order to calculate the impact, we have compared the cost and revenues of farming using the typical techniques and input levels before CARI with the costs and revenues of farming after CARI. Finally, for the cost benefit analyses we have used the same paddy purchase price and rice sales price before and after CARI in order to avoid impact of large price changes. Because of factors such as drought, exchange rate fluctuations, import duties and changes in the international market price for rice, prices can fluctuate a lot between years. The impact on profitability can be very high, making, for example, a year with less paddy more profitable for a mill. However, CARI doesn’t have an influence on these factors, and thus a change of revenues as a result of price changes should not be attributed to the CARI program. The only exception is when farmers or mills receive a better price for their rice because of higher quality. In these cases, only the price premium on top of the base price is taken into account. T h e d i f f e r e n t p h a s e s o f t h e a n a l y s i s To achieve the project objectives, an action plan was formulated with the following 4 activities: A. Analysis of existing reports and documentation to understand the projects and their context to be analysed B. Field work: interviews with representatives of each link in the value chain (farmers, mills, input dealers, banks, extension officers, local government etc.) to collect financial data as well as qualitative information about their experiences, agronomic, economic and social reality. C. Business modelling in a specially developed Excel model (the business Sense analyser) to determine the financial impact of CARI on the farmers, rice mills and other actors, and to test and compare various scenarios; e.g. with and without side selling to determine the impact of side selling. D. Compile a detailed report of the findings for each partner and a general synthesis of themes, trends and differences between models with recommendations and conclusions for use by the CARI team with respect to a prospective phase 2 of the CARI project. F i e l d r e s e a r c h Based on the analysis of existing reports, questionnaires were developed for each type of respondent (millers, farmers, extension officers etc.). This ensured that all the right questions were asked to provide the data required to do a thorough business model analysis. Field research and interviews are then used to gain an accurate and detailed impression of the reality on ground. This includes visiting farms, mills, farmer organisations and local district councils to see first-hand what is being done, what equipment is being used etc. and to verify the reported information from stakeholders. Interviews were conducted with as many stakeholders as possible including a representative sample of farmers. The consultant used a combination of technical knowledge, experience with rice farming and milling and intuitive observation to ascertain the validity of claims reported. For example, a miller may report that they are achieving 90% first grade rice, while an inspection of a sample of their rice can quickly confirm whether this is accurate, pessimistic or over optimistic. The reported data can then be adjusted accordingly. B u s i n e s s M o d e l A n a l y s i s Sense has developed an Excel modelling tool for the analysis of a business’ financial data in various scenarios. In this case, data from before the CARI program is compared with the situation at the end of the


CARI program to present a direct financial comparison between the two scenarios. The Business Model Analyser generates a full set of financial reports including Cash Flow, Gross Margin Analysis and Profit & Loss for the compared scenarios. In this case, the outputs are used to determine the cost benefit of the CARI program for the miller and the farmers. These outputs can also be used to present a case for access to finance in clear financial terms that banks and financial institutions understand. Most importantly here, the business analysis gives a financial value to what is working and what is not. We then have the opportunity to test various hypothetical scenarios, such as, would the business be more profitable at a higher sales price or what volumes are required to break even. In this cost benefit analysis, we determine the value of the benefit for each partner compared to the cost of the CARI program. 1 . 4 C h a l l e n g e s a n d L i m i t a t i o n s o f t h i s e v a l u a t i o n This evaluation is based on a sample of CARI out grower projects, selected by GIZ. We have looked at 6 projects, but in total there are 28 projects within CARI. Though we feel confident that the insights from this analysis are relevant for most cases, it is possible that there are other projects within CARI with different models and implementation strategies that could also provide important insights. It is also possible that some of the out-grower models we deem to be unsuccessful are successful elsewhere because of a different local context, or because of better operational execution, or vice versa. Another limitation of our study is that it can be difficult to distinguish between idea, execution and context. In other words, is an out-grower model not working because the idea or concept is flawed, or because it was executed poorly? Or was everything done right, but the local conditions (e.g. cheap imports, draught) made success impossible? Though we have tried to distinguish this as well as possible, it is often difficult to separate them entirely. The reliability of data provides a further challenge. Before going into the field, we received a lot of data from the CARI monitoring and evaluation unit. However, as the M&E unit themselves admit there is clearly a problem with some of this data; in some instances they look ‘too good to be true’, while in other cases they are incomplete or difficult to interpret. In several cases the interviews in the field also casted doubt over the data, because the results were different from the data. In many cases, the data obtained in the field and from monitoring forms also ‘doesn’t add up’, and it is difficult to pinpoint exactly where the problem is. For example, in many cases if we multiply the number of farmers with the area they farm and the yields, we get to a far larger amount of paddy than what has been received by the mill. But when we talk to farmers to find out if there is a lot of side selling, very few admit they sell to different mills. In these cases, it is difficult for us to determine if the number of farmers is reported accurately, if it’s the area and the yield, or if farmers do not want to admit to side selling. Related to this issue is the fact that we have spent limited amount of time in the field to gather data; 2 days on average per mill. Though this is sufficient to gather a good understanding of the workings of each out-grower scheme, it is too short to ensure that the sample of farmers, farmer organisations and extension workers interviewed is completely representative of the out-grower program. In an ideal world, we would choose our own sample based on a random selection of farmers from each important area. But because the available time was limited and the areas large, samples were mostly from one or two areas relatively close to the mill. In many cases the various production areas are 3 hours apart. In addition, we had to rely on staff of the local CARI implementation partners to organise meetings for us. Because these partners have an interest in appearing to be successful, there is always the danger of a biased respondent group: the partners selecting the best possible farmers, or farmers from an area that is performing better, or farmer organisations that function well, and their star extension workers.


To deal with the issues of respondent bias we have done a lot of triangulation between responses from the various respondents as well as the CARI data from the monitoring unit. In case of large discrepancies, we have looked for explanations to understand the underlying issue. In addition, we have assessed whether respondents were briefed beforehand. Finally, the evaluation of the programs in Ghana proved to be challenging because one program was not operational and the ownership of the mill had changed. Most information disappeared with the old management. Under the new management the mill has not yet milled a season. Meanwhile, we have serious doubts of the reliability of the data and how the budget was spent for the second mill. In both cases, the implementing organisation TechnoServe had very little reliable data or information. 1 . 5 H o w t o i n t e r p r e t t h e r e s u l t s o f t h i s e v a l u a t i o n The biggest value of this evaluation, in our opinion, is that it gives insights as to which types of out-grower programs within CARI work better than others, why this is the case and what this means for the design of CARI 2. Despite the challenges with the data, we feel comfortable that we have gathered a good understanding of the 6 programs analysed, and have gained valuable insights into what the critical success factors, or key ingredients, are for a good out-grower program in the rice sector in Africa. Within the analyses of the individual cases, there is a certain margin of error that needs to be kept in mind. In many cases the data we used are ‘gut feel averages’ from the information we obtained from various sources. For example, CARI M&E data may suggest a yield of 3.2t/ha, while extension workers talk about 3.4 but the average from the farmers we interview is 3.9. In this case we may have chosen 3.4t/ha because we felt the farmers interviewed were mostly lead farmers and from an area with the most fertile soils and best access to water. It is well possible that in such a case a detailed analysis based on a representative sample of all rice growers in all areas would come to anywhere between 3t/ha or 4t/ha yield. However, we would be reasonably certain it is not 2t/ha or 5t/ha. We would like to argue though, that it’s not the exact number that is important but the global picture, and what this means for designing new out-grower programs. In this particular example, it is not that relevant whether it is 3.2 or 3.8 t/ha, but that yields are definitely up from 2t/ha, but still very far off the 8t/ha that other farmers manage in irrigated areas. The most relevant information however would be why it increased but is still very far from the maximum potential, and what this means for designing future programs. 1 . 6 S t r u c t u r e o f t h i s r e p o r t This report has 2 parts: the evaluations of the 6 out grower programs, and the discussion of the results and what this means for the future. Part 1 (the evaluations of the programs) starts with a short overview of the country context and the programs. This is followed by six chapters in which each project is discussed in detail. Part 2 contains Chapter 9 that compares the results of the programs, and discusses the lessons learned. The final chapter provides recommendations for the next phase of the CARI program.

10 C A R I C O S T B E N E F I T A N A L Y S I S O F R I C E O U T - G R O W E R P R O G R A M S 2 I n t r o d u c t i o n t o C A R I e x t e n s i o n a n d o u t -g r o w e r p r o g r a m s 2 . 1 P r o g r a m s a n d i m p l e m e n t a t i o n p a r t n e r s The CARI program started in October 2013 when implementation structures were created in each of the project countries. In 2014 and 2015 calls were made for proposals from various potential partners. Due diligences were carried out and partners were supported to improve their proposals. In total 28 projects were contracted to receive the CARI matching fund and were trained in various aspects of the implementation including stakeholder management, record keeping and reporting. Out of these 28, 8 are in Tanzania, 4 in Ghana, 12 in Nigeria and 4 in Burkina Faso. The contract for each partner contains an agreed number of farmers targeted for training in GAP, FBS, paddy supply to the mill, etc. In addition, a detailed schedule for the disbursement of funds, interim goals and reporting was set up to allow on-going monitoring of the project’s progress. This cost benefit analysis was conducted at the time of the conclusion of the contracts, although some partners have been awarded an extension to allow them to reach their targets. The scale of production, rice growing environment and degree of sophistication of the value chains varies greatly, and consequently so does the constitution, structure and complexity of each out-grower program. In each of the countries seen in this study, the Nigerian programs were the most developed followed by Tanzania. Burkina and Ghana still face structural barriers to the competitiveness of the rice sector. The programs in the various countries are not all implemented by GIZ. In Ghana, Techno Serve was responsible for the implementation of the program with the partners until December 2017, while Kilimo Trust performs this role in Tanzania. 2 . 2 C o u n t r y c o n t e x t G h a n a The socio-economic environment in Ghana presents formidable challenges for development of the rice sector. Ghana still imports 60% of rice consumed, and consumers generally prefer imported rice because of better quality and flavour. The rice value chain in Ghana lacks structure and organization. Farmers mostly sell paddy to traders and most rice is milled for a fee by small village millers with old inefficient mills and sold locally. The result is low quality rice that is difficult to sell to urban consumers. Traders are very powerful players in the Ghanaian rice industry, paying cash and even pre-financing farmers. This is a significant barrier to creation of linkages between farmers and mills. Commercial mills compete for paddy, and despite sourcing over large areas they struggle to aggregate sufficient paddy to run efficiently and get the scale to compete with imported rice on price and quality. Agro-ecologic conditions for rice production vary greatly in Ghana. In the region, where one of the evaluated out-grower programs is located, excellent conditions exist for lowland rain fed rice production. Rice is the main cash crop in the area and can be seen growing on any patch of open land in villages and towns.


In the Central Region where the other out-grower program was located, high rainfall would suggest that rice should do well. However, this is primarily a cocoa production area, where densely forested hills and marshland make clearing land for the establishment of rice paddies expensive. With the cocoa industry in decline, partially due to market forces and partially due to climate change, farmers are looking for alternative or supplementary crops to farm. Both programs visited in Ghana were plagued by unaccounted for funds, poor record keeping and inconsistent or missing data. As the implementation partner is supposed to have supported the lead partner in record keeping and reporting, these issues should have been noted and dealt with early on in the program. It appears that in both programs the lead partners were dispensed funds and left to proceed as they saw fit. An extraneous variable that must certainly have skewed the results reported in terms of uptake of GAPs and the use of inputs is that the 2017 season has seen the introduction of a government subsidy of 50% on NKP and urea fertiliser. This may alone explain the increased uptake of fertiliser use and a large part of yield increase. The Ghana programs have no large-scale input credit component, and it is not likely that small-scale farmers would have been able to finance the same amount of inputs without the subsidy. Farmers in both regions emphasized that their primary need is for irrigation infrastructure to mitigate risks of irregular rainfall and provide water for a dry season crop. While this would certainly be possible in proximity to large perennial rivers, it is doubtful whether investments in boreholes or mechanised irrigation infrastructure could economically provide sufficient water for rice farming. An in-depth study will need to be made into the economics of water management in such areas, taking into account the investments required, economic benefits and competition for water from other sectors, including domestic, urban and industrial demands. 2 . 3 C o u n t r y c o n t e x t T a n z a n i a The Tanzanian government has identified rice as an important food security crop. The Tanzanian rice industry enjoys protection from a 75% duty on imported rice and receives varying levels of support from the Tanzanian government in terms of the National Rice Development Strategy (NRDS) and the establishment of irrigation schemes, donation of mechanization equipment and district Farmer Association warehouses for the aggregation of paddy. Consequently, Tanzania is now rice self-sufficient and in the process of becoming a net exporter. Nevertheless, mills still tend to be relatively small, with the Chinese mini-rice mill still dominating processing. Though the government does invest in irrigation schemes, access to water is far less than in for example Nigeria. The two out-grower programs we visited, located in Town 1 and Town 2 regions, were doing supplementary irrigation from seasonal rivers, and could only produce one crop per year. The difference is that the program in the Town 1 region was more susceptible to drought than the Town 2 project. The Town 2 region receives a lot more government attention and support; partly because it is the traditional breadbasket, but it is also likely that rice farming in this region is seen as having a lower risk and higher potential than in Region. For the Tanzanian government to focus its efforts and resources on low risk/high potential production areas makes sense and this may be a strategy worth adopting in the selection of partners for a CARI phase 2. The disadvantage of having only one production season in Tanzania is that it halves the annual income for farmers from 1ha of land and it makes it more difficult for mills to become profitable, because they are


depending on one harvest and either cannot operate for large parts of the year, or they need to invest in building up large stocks that can last a full year. The mills in Tanzania are therefore more involved in diversification into other crops. Kilimo Trust (KT) seems to be a relatively strong implementation agent. In both programs evaluated in Tanzania, a strong personal relationship exists between Kilimo Trust and all of the consortium partners. KT consultants are familiar with the businesses of all partners and are on hand to assist where needed. This is reflected in the smooth running and problem solving capacity of both Tanzanian consortia studied. 2 . 4 C o u n t r y c o n t e x t N i g e r i a In the Nigerian rice sector professional large-scale mills with more than 4t/hour seem to be the norm. Nigeria produces most of the rice consumed, with IRRI in 2016 estimating that out of 5 million tons of rice consumed 2.7 million tons was produced in Nigeria. Rice production has increased dramatically over the past decade, partly due to government policies to ban imports completely or tax them heavily, and stimulate local production and milling. An example was the system whereby millers would receive import quotas at reduced import duties based on the amount of paddy milled. Import bans and duties, however, change frequently, and it is difficult to find out what the actual rules are at any given time, even for CARI and Kufuor Foundation staff. According to ITC Trademap, imports reduced from 2.7 million tons in 2012 to 92,000 tons in 2016. However, part of the drop in imports is most likely due to increased smuggling and imports via Benin, which saw its imports increase from 561,000 tons to 1.5 million tons over the same period. From previous research in Benin we know that over 60% of Benin imports are re-exported formally and informally to Nigeria. These numbers suggest a strong decrease in imports, consistent with the growth witnessed in domestic rice production. There are 3 things that make Nigeria different from many other African countries: 1. The enormous size of the market, with 140 million consumers: This makes it both easier to reach the scale of a professional mill that can compete with Thailand and India on milling efficiency, but also impossible to operate small mini-rice mills, seen elsewhere in Africa. 2. Access to water, with many more streams, lakes and shallow ground water, is better compared to many other areas. Because rice is a thirsty crop, access to water is crucial. A result of the high access to water most farmers have supplementary irrigation and can farm 2 crops per year. 3. Consumer preference for parboiled rice instead of fragrant white rice such as Basmati from India or Jasmin from Thailand. In Nigeria, mills mostly produce parboiled rice at industrial scale. Parboiled rice when milled has a higher yield of whole grains. In addition, there is much lower demand for fragrant white rice in which Thailand and India have a competitive advantage. Traditional varieties in West Africa as well as many improved varieties are not fragrant, and therefore not accepted by urban consumers in other African countries. In Nigeria, however this is different. The mills evaluated were in two parts of the Country, where agro-ecologic conditions were quite similar: Large areas of low lying flat land with shallow ground water tables (2-3 meters below the surface) and various lakes, dams and rivers. Flooding in the rainy season was more of an issue in most cases than lack of water, particularly in one of the areas. 2 . 5 C o u n t r y c o n t e x t B u r k i n a F a s o Burkina Faso currently produces 40% of its domestic rice requirements. As in many African countries, rice consumption is growing disproportionately to population growth, largely due to urbanisation and changing consumer behaviour towards the convenience and perceived status of rice as a staple. For this reason, the


government of Burkina Faso has prioritised the rice sector for development, setting the ambitious goal of quadrupling rice production by 2018, according to A Rice Powered Green Revolution for Burkina Faso (AGRA 2015). In relation to rice and other food security cereals, Burkina Faso has well established monitoring and regulatory systems in place. The government sets a farm gate base price for paddy as well as a retail base price, which is slightly lower than the average retail price of imported rice. The monitoring and assurance of rice and cereals security is largely the responsibility of the Société Nationale de Gestion du Stock de Sécurité́ Alimentaire (SONAGESS). SONAGESS purchases stocks of rice from local processors at a premium and stores them for the lean season, when they are sold at subsidized prices through government outlets in towns and cities across the country. Other initiatives to drive rice production include the mass production of improved seed varieties. Neema Agricole Du Faso (NAFASO), works with a network of seed rice farmers to meet the demand for certified seed of high yielding varieties, such as TS2 and Orylux, which are promoted through the CARI program. These varieties are also better aligned to consumer preferences. Harmonization of the varieties farmed has allowed for substantial improvements in the quality of local rice processing. Furthermore, programs such as CARI and AGRA have trained farmers in Good Agricultural Practices (GAP), which have seen estimated average rice yields rise from 3 to 5.3 tons per hectare since 2014-2017. CARI (2018). Despite these positive developments in the Burkinabe rice sector, three factors continue to hamper progress towards rice self-sufficiency in Burkina Faso: 1. Increasingly erratic weather, including droughts and floods, have led to “famine years” roughly every second year. This makes irrigation essential, and 60% of Burkinabe rice is produced under irrigation. 2. Market forces in the ECOWAS/WAEMU free trade zone mean that rice and other cereals are traded out of the production areas to meet demand elsewhere, exacerbating food shortages during famine years (FEW Net, 2017). 3. The lack of specialized financial services for the agricultural sector hampers the up scaling and professionalization of the rice sector and processing in particular. In contrast to the large trading companies that control imported rice, domestic rice in Burkina Faso is produced, processed and traded by large numbers of small-scale actors. There are only small-scale millers with basic equipment who are only able to absorb small quantities. They also compete for paddy with cross border traders from neighbouring countries like Mali and Ghana. What makes Burkina Faso quite particular is the importance of the parboiling cottage industry. About 52% of rice is purchased, parboiled and traded by individual women at home or in a small cooperative. They either use their own basic mill, or go to rice mills for white rice where they pay a service fee per kg milled. There are no large or even medium-scale rice mills that produce parboiled rice in a professional manner. Like many other African countries, local rice mills struggle to compete with imported rice in terms of quality and quantity (USAID Famine Early Warning Network, FEW Net (2017). The percentage of broken rice is so high, that in order to sell the broken they are mixed together with the first-grade product. Hence all the rice produced at the mill is sold as second grade. Though the imported rice is sold at pretty much the same price as local rice with often the same percentage of broken (25%), the imported rice is actually a 3rd grade product of the mill in Thailand or India. These mills have first grade product where they can make their real margin.


The key challenge for the mills in Burkina Faso is their small scale, which makes it difficult to cover the fixed cost of operation and the cost of a large out-grower program. The out-grower programs seem very large in relation to the turnover of the mill. They only mill 8-12 hours per day for 3 months of the year. The Nigerian mills can mill the same quantity in a week. Yet the scale of their out-grower programs is comparable. A challenge in evaluating farmer impact is the quality of the CARI yield surveys. The yield surveys in Burkina Faso were conducted in 2016 and in 2017. However, the 2017 survey does not contain decent samples for 2 villages visited. Yield survey data from one of the villages was for wet season only, while significant difference exist between wet and dry season yields. In addition, both yield surveys seems to contain serious errors. On several occasions yields seem far lower or higher than is likely under the circumstances. Therefor we were forced to use yield estimates from farmers themselves, which are never as reliable and exact as estimates based on properly taken crop-cuts.


3 M i l l 1 . O u t - g r o w e r S c he m e , G h a n a 3 . 1 T h e a r e a Mill 1 GH is located in the Volta Region, which is a well-established and highly suitable area for growing rice. The topography is characterized by densely forested mountainous terrain that acts as a catchment for lowland marshes, which are well suited for rice cultivation in the wet season. Rice is the main cash crop in this area and is grown on almost every available piece of land. Many farmers migrate to this area from other areas during the wet season and rent plots of land on block farms to grow rice. As rice is a well-established crop in the area and farmers had received various trainings in the past from TechnoServe, Ghana Advance and others, the standard of rice farming before the CARI project was already relatively high. Due to the mountainous terrain, the various lakes and poor roads, the region is virtually cut off from the South. This has protected the Mill 1 GH from competition for paddy from large rice millers in the South, including WIENCO, and new commercial millers from China and Brazil. 3 . 2 P r o g r a m o v e r v i e w The main CARI contract partner is the Mill 1 GH, which is the only mill in the area, and was responsible for the program. The main activity of this out-grower program was training. There was no credit, input supply or mechanization component. Trainings were carried out by 6 government extension agents who receive only a base salary from the government. It is the additional cost such as transport, accommodation and food related to field visits that is paid by Mill 1 GH. The extension workers had been trained by TechnoServe Ghana, the implementing agent of CARI in Ghana. To date 3,000 farmers are believed to have been trained in GAP (Good Agricultural Practises), PHH (Post Harvest Handling) and FBS (Farmer Business School), though the FBS is a local version developed by TechnoServe. However, it is unclear how much of the training has been done by the 6 extension workers, and how much by the 90 lead farmers. Compared to for example Nigeria, 6 extension workers on 3,000 farmers seems to be a very low ratio, and would make it impossible to actually visit all farms and give personalized advice. Based on the interviews we got the impression that the extension workers mostly focused on 90 lead farmers, who were then responsible for training other farmers. The program managed the contract of 67 Farmer Based Organisations (FBOs) in some areas of South and East to supply paddy to the mill. However, the exact role of the FBOs remains unclear. They did not seem to play a role in selecting members for training, providing inputs, mechanization or other services. It is even unclear to what extent they played a role in aggregating paddy, because there is no standardized system of FBOs aggregating paddy in warehouses or collection points for pick-up by the mill. Most farmers appear to deliver their own paddy to the factory. Figure 2 provides an overview of the out-grower program, as well as the impact on farmers and the mill.


Figure 1: Schematic of the Mill 1 GH out-grower program 3 . 3 T h e C h a l l e n g e : m i s s i n g i n f o r m a t i o n & p r o g r a m n o t o p e r a t i o n a l Unfortunately, this out-grower program has been dogged by poor record keeping, unaccounted for funds and management changes. Reliable information of what really happened is difficult to come by. The old management of the mill has disappeared completely, and the new owners do not have detailed knowledge of what has happened in the past. TechnoServe Ghana, the CARI implementation partner in Ghana, were not able to provide much useful information. The lack of data makes it difficult to conduct a complete cost-benefit analyses. The out-grower program did not appear to be operational at the time of the visit. The mill was under reconstruction for the second time in 2 years and was not operational. The new owners replaced the old mill equipment with a new mill capacity of 50 tons per day. It was doubtful whether the mill would be operational by the start of the 2017 wet season. However, not only did the mill not operate, we also believe there was little going on in the field in the form of training. The TechnoServe staff and the management of the mill did not seem to have a very close relationship. In addition, there was a lot of mistrust from the management of the mill towards TechnoServe. This also suggests that there was little implemented at the moment. The new management does not have an idea of the cost structure of the old mill. In order to project the earnings of the mill before the start of the CARI program we were forced to use the cost structure and efficiency of the new mill with the processing volumes of the old mill (before CARI). This volume (6,000 tons per annum) was obtained through the M&E forms and information from long-term staff at the mill. For the projected earnings of the mill after CARI there is no data, because the mill has not been operation for 2 years. MILL 1 GH


Another challenge in doing the cost benefit analyses, is what budget to choose for the program. The total budget for the out-grower program was US$ 491,649. With 3,000 farmers in the program, this comes to more than $163 per farmer. However, we find it difficult to imagine how all of this budget is needed for a program that consists, in essence, of only 6 government extension workers who even get their basic salary paid by government, and a series of demo plots. As a result we have not calculated the impact on the mill from the program. 3 . 4 F a r m e r I m p a c t The CARI yield survey shows an improvement of yields from 2tons/Ha to 4.7 tons/Ha. The average change for a small sample of 10 farmers, was lower: from 3.2 tons to 4.2 tons per hectare. However, because the CARI Yield survey data is based on actual crop cuttings and a much larger sample we chose to use that data. The yield of 4.2 to 4.7 seems to correspond well with information from other stakeholders and farming practices observed in the area. Though the yields have more than doubled judging from CARI yield survey they are still low for an area that seems is highly suitable for rice, with a strong rice growing culture, we would have expected to see yields of between six and eight tons per hectare using the CARI GAP. There is probably a combination of factors at play, which we will discuss in this section. In addition, the government recently introduced a 50% subsidy on urea and NPK fertilizer. This has led to an increase in fertilizer usage, which may be responsible for part of the yield increase. This would mean that part of the increase is not as a result of CARI. The average area per farmer interviewed was 1.62ha and the area per farmer has not increased through the CARI program. The area from the CARI surveys was much smaller, 0.67Ha, but also did not seem to increase. This seems odd, because in most areas where rice farming has become more profitable, the area of rice farmed increases, even when land is scarce. In those cases they often rent additional land. However, it was noted that many rice farmers in the area live elsewhere but rent land in the valley. Perhaps there is a shortage of land, and all land available is already used or rented out to keen rice farmers. Figure 2: Rice farmers close to Mill 1 GH show good GAP uptake, but with disappointing yield improvements. Table 1 provides an overview of the estimated financial impact of the CARI program on farmers, based on CARI data. We can see that where rice farming before was loss making, it is now profitable. Though it may seem unlikely farmers would produce rice at a loss, in reality they often don’t realise they are making a loss, and they don’t calculate all of their production cost such as family labour or manure from animals.


However, because of the small plot size, total earnings remain very small. As such rice farming in the area seems far from an interesting career perspective for young farmers. Q u a l i t y o f t r a i n i n g The impact of training may be limited because of the low number of trainers and consequently the reliance on lead farmers. It seems that the 6 extension officers mostly trained lead farmers, who in turn trained farmers. With over 500 farmers to one extension officer, it becomes impossible to give individual advice to farmers and visit their farms. Another issue is that there also doesn’t seem to be a clear selection strategy for farmers, for example via the FBOs. This may lower the quality of the farmer coming into the program. Finally, the training material used in the FBS is different from the standard GIZ material. L a c k o f a c c e s s t o f i n a n c e While farmers understand the benefits of GAP, they do not have the finance to implement many of them. The profit made per season is insufficient for farmers to keep back enough working capital for the next year’s crop inputs. The profit per season for CARI farmers is only US$325 while the total variable cost (input cost) required per season is US$554. Farmers desperately need access to finance if they are to use the right inputs and mechanization. P o o r l a n d p r e p a r a t i o n Many of the farms seen in the Mill 1 GH region had had land levelled, drains and ridges built by an NGO in the early 2,000’s. Unfortunately, this was done badly. The topsoil was stripped from much of the paddy field to build the ridges. Field levelling was poor leaving certain parts of the field on dry mounds while others remain submerged in water. This undoubtedly has a negative effect on yields. L i m i t e d a c c e s s t o m e c h a n i s a t i o n Some farmers reported hiring a power tiller service provider to prepare a seed bed for planting. This machine basically turns the top layer of soil, killing weeds and preparing a bed for planting. However, proper land preparation should incorporate three separate operations: • Ploughing to turn the soil and break up hard pans • Disking or tilling to create an even friable seedbed • Planning or levelling to ensure that the surface is free of mounds and troughs.

Table 1 Increase in yields and net profit of Mill 1 GH farmers


Other farmers continue to do land preparation by hand, using their own labour, free family labour or hired labour. L a c k o f p e r s o n a l i s e d f e r t i l i s e r a d v i c e It is essential to make fertilizer recommendations based on yearly soil samples, or if this is too costly and impractical, the RiceAdvice app developed by AfricaRice can be used to give more qualified recommendations. In the Mill 1 GH region there has been no soil testing or AfricaRice usage. Fertiliser application seems to be based on the opinion of the farmer or very general advice. Without soil testing or rice advice there is no chance that the fertilizer used is optimal. An old rule of thumbs says that half the nutrients are wasted while the other are not enough. Rice production requires high amounts of Nitrogen (N), Phosphorus (P) and Potassium (K) as well as various micronutrients. While the Urea and NPK used in the area may indeed supply enough nitrogen, the amount of Phosphates (P) and Potassium (K) in these fertilisers is relatively small. These nutrients then become the limiting factor. For example: If there is enough nitrogen applied to grow eight tons of rice per hectare, but only enough P and K to grow four tons, you will only produce four tons. Therefore, half of the nitrogen fertilizer is wasted, either polluting waterways or building up as Nitric Acid in the soil, reducing the plants ability to uptake essential micronutrients like Calcium, Magnesium and Zinc. The Rice Advice app is currently being tested in Ghana and should be available for use soon. However, it will need to be calibrated for each specific area and each soil type within the area. Hence, introduction will take a while. Furthermore, it needs to be used by extension workers, but there are not enough extension workers in the program to give advice to individual farmers. 3 . 5 I m p a c t o n t h e m i l l As mentioned, the impact on the mill is difficult to estimate because of the lack of data. We are not sure whether the project budget represents the actual cost of the activities within this program. We do not have an idea of the cost structure of the mill before CARI, nor do we have data from after CARI, because the mill has not been operational for the last 2 years. What we can estimate, however, is the amount of additional paddy the mill would need to receive in order to earn back the cost of the out-grower program as it was budgeted. According to our calculations an out-grower program that costs US$491,649 would be beneficial to the mill if it resulted in an additional supply of 1,800 tons of paddy per year over a 5-year period. At an average production of 6.8 tons of paddy per farmer (1.62 ha X 4.2 t/ha) the mill needs to recruit an additional 265 farmers that supply over the next 5 years to make it work. However, if we assume these farmers only sell 50% of the paddy to the mill because of home consumption and side-selling, the mill will need 530 farmers extra to supply 50% of their crop to earn back the cost of the program. Alternatively, if 2,316 farmers, who supplied the 6,000 tons of paddy before the CARI program, increase their yield sustainably by 0.78 t/ha from 3.2 to 4t/ha, the cost of the program is also earned back. We assume in this calculation that the 6,000 tons the mill processed before CARI was coming from 2,316 farmers who farmed 1.62ha each with a yield of 3.2t/ha, of which they sold half to the mill. When they reach 4t/ha, their production will have increased by 3,600 tons, of which they will sell 1,800 to the mill. Given the fact that we have seen an increase in yields of 1t/ha, we believe that despite the bad execution of the program, it would have still been worthwhile for the mill. Of course we don’t know if this yield increase has materialized over all 3,000 farmers trained, but this is also not necessary given the fact we only need about 2,000 farmers to realise this increase even at 50% side selling.


A major risk, however, in this business case is the poor relationship between the mill and the farmers. The main reason why many of them end up selling to the Mill 1 GH mill is that the mill pays cash on delivery, and there are few other buyers. If the roads to the south are upgraded, or a second mill is installed in the area, side selling will become a huge problem for the mill. This would seriously reduce the benefits of the out-grower program in its current form. The main issue is that, while the mill contracts farmers, this is done via the FBOs, but these FBOs do not seem to play an active role in supplying the paddy. The mill does not provide any form of credit, nor transport to collect paddy. Farmers simply take their own paddy to the mill and receive cash, like any other farmer not in the program would do. In addition, there is little communication between the farmers, the mill, the FBOs and the CARI program. As a result, many farmers do not realize the mill is partly responsible for the training. Many have received training in the past from other organisations, so they see it as another project that provides training for free. As a result, they did not feel compelled to supply the mill in return for training. 3 . 6 C o n c l u s i o n s The impact of the program on farmers seems to have been limited, for 2 main reasons. Firstly, the out, grower program was limited to training only. As would be discussed further in this document, our analysis suggests that the uptake of GAP without access to finance is very limited. Farmers only implement those practices that do not cost money. Secondly, the program seems to have been executed poorly and has also stopped. Because of the lack of information, and the mill and out-grower program not being operational, we cannot evaluate the full impact on the mill. However, our analyses shows that the modest yield increases at farmer level would more than likely be sufficient to generate the 1,800 tons of additional paddy needed to earn back the investment cost, provided this additional supply continues for 5 years. However, the main challenge, going forward, is thus that in its current form, the out-grower program does little to guarantee that Mill 1 GH will receive the benefit of investments in farmer training and increased yields, or that the mill will continue to receive the additional paddy. In order to make an out-grower program a better investment for the mill, we propose an increase in the number of trainers, stronger selection criteria for participating farmers, introduction of input credits and a more visible relationship between farmers and the mill. Despite the challenges the new management of the mill is interested in developing a more complete out-grower program. The marketing manager of Mill 1 GH, has visited Thailand to see how a well-developed out-grower program functions and he understands the importance of fostering a strong relationship with farmers. The mill could also easily develop an access to finance mechanism for qualifying farmers in the out-grower program.


4 M i l l 2 G H , G h a n a 4 . 1 T h e a r e a The Central Region, where Mill 2 GH is located, is also characterized by mountains covered in dense rainforest, but the valleys here are still largely forested, or wetlands with dense vegetation. This is primarily a cocoa growing area, with most farmers owning small cocoa plantations that generate between US$100 and US$300 per year, depending on the scale of their orchards. In addition to cocoa, most farmers grow various food crops such as maize, cassava, ochre and peppers for home consumption and sale on the local market on small plots in the valley. Rice is a relatively new crop in this area, and is often planted in open spaces in wetlands. Proper rice farming will require large investments in land clearing, drainage and levelling. It will lead to the destruction of wetlands and rainforest. Furthermore, the removal of forests and wetlands has been linked to the reduction of groundwater and the disappearance of springs and perennial streams on which rice farming depends. 4 . 2 P r o g r a m o v e r v i e w The lead project applicant is the Mill 2 GH. The mill is actually a small all-in-one machine that dehusks the paddy and removes the bran in one step. The quality of the rice as well as the yield, in terms of percentage of whole grain white rice per kg of paddy, is therefore low compared to professional mills. Figure 5 provides a schematic overview of the program and the impact on the mill and farmers. In the region, where Mill 2 GH is located, Mill 2 GH has implemented a very intensive out-grower program, effectively introducing rice as a new cash crop for local cocoa farmers. Mill 2 GH provides everything to the farmers including: • Land, which was cleared and levelled by the program • Mechanization services for land preparation, harvesting, threshing and winnowing, for which the program has bought a tractor and machinery • Inputs, including seed, fertiliser and chemicals Figure 3: Schematic of the Mill 2 GH out-grower program Mill 2 GH


In effect, the farmers only provide the labour and are paid the value of paddy once costs have been deducted. The 30 farmers who are part of this program each have received 0.2ha plots on 8ha of land adjacent to the mill. Not all of the land is used yet. Figure 4: Mill 2 GH out-grower program on 8ha of land, owned by the mill, in this predominantly cocoa growing region Mill 2 GH calls the 30 plots of 0.2ha that are in the same location, demo-plots, in order to justify the high spend on these plots. There were 2 extension officers for the training of these 30 farmers. Because there are only 30 farmers, there are no lead farmers. The 30 contracted farmers use the Jasmin 85 and AGRA varieties, and they follow the standard CARI recommendations of fertilizer and pesticides, as well as GAP. The likelihood that they will supply their paddy to Mill 2 GH is assured by the fact that the mill harvests, winnows and threshes on their behalf. 4 . 3 T h e c h a l l e n g e f o r t h i s e v a l u a t i o n : f i n d i n g o u t w h a t r e a l l y h a p p e n e d & f i n d i n g r e l i a b l e d a t a Mill 2 GH claims to have trained 750 farmers from other districts in GAP, PHH and FBS, provided them with improved seed and some crop protection products and contracted them to supply paddy to the mill. However, during the evaluation visit we did not see any convincing evidence that suggest 750 farmers were indeed trained. We were not able to interview any other farmers outside of the main scheme, and we did not see any signed contracts that suggested 750 farmers received training. There are supposed to be other demo plots in addition to the plots that make up the main scheme, but they could not show those plots. There were allegedly 6 extension workers, but the government had supposedly re-deployed 4 of them to another project, so they could not be interviewed. Finally, we did not see an increase in paddy supplied to the mill that suggests that 750 additional farmers are trained and now supplying to the mill, or have increased yields. Even if side selling was a massive issue, we would have seen at least some increase. If these farmers had improved their yield from 2.5t/ha to the 4 to 4.5t/ha measured in the various yield surveys and samples, we would have seen an increase in paddy of at least 1,125 tons, assuming a farm size of 1ha. However, there was no real increase in paddy supplied.


We therefore assume that within this project only 30 farmers have been trained and supported, and that the CARI budget was used for land preparation, training, inputs for these farmers. However, we have chosen to evaluate the program on two hypothesis, namely that only 30 farmers were trained, and that 780 farmers were trained. The impact on the 30 farmers within the intensive scheme was assessed based on interviews with 10 farmers. 4 . 4 I m p a c t o n f a r m e r s The impact on the group of 30 farmers is very high. On average, they managed to increase their income by 100%, because instead of only being cocoa farmers; they are now also becoming rice farmers. For some younger farmers the increase in revenue was 200%, because younger farmers tend to have small cocoa plantations, and higher rice yields because they are better adopters of GAP. Yield increase was 4t/ha, because these are all new rice farmers. The yields of 4t/ha are low given the fact that they are farming on new land with ample inputs and mechanization services, but high for first time farmers. Had experienced farmers been chosen, yields would have been much higher. Under these circumstances farmers should achieve between 6 and 8t/ha. However, because the farmer group is so small, the investment per farmer is very high. The project received US$74,000, which should be 40% of the budget, which means we would have to assume the total budget was US$185,000. It seems this was mostly spent on the 30 demo plots for training and mechanisation etc. The investment comes to US$6,166 per farmer or US$1.16 per kg of additional paddy over a five year period. If 750 additional farmers have been trained, the money spent per farmer comes down to US$246, which is still twice as much as what is observed in other programs. We do not know what the impact of the program on the other 750 supposedly trained farmers was. However, given the fact that there has not been an increase in the amount of paddy processed in the mill, the effect seems low. We take note of the fact that a CARI yield survey selected farmers from this list of 750 contracted farmers, but that does not mean they necessarily received training. Table 2 provides an overview of the impact on the demo plot farmer who is also a cocoa farmer, using the yields from the sample of 10 demo plot farmers interviewed, as well as the impact on rice farming only, using the yield survey data. The reasons for the low impact on production seem to be the following: • Low amount of farmers trained. Even if 750 farmers were trained, this is a much lower number than in other programs • The farm size of the farms is very low (0.2Ha) • There were no lead farmers trained Table 2: Cost benefit of the Mill 2 GH out-grower program for farmers and the mill for demo plot farmers (on top) using Sense data, and for the farmers taking part in the yield survey


• There were probably no demonstration plots and extension workers outside the main Community B of 30 farmers • The farmers on which most budget was spent were not experienced rice farmers • No soil analysis was done, nor was the RiceAdvice app used to generate a specific fertilizer recommendation for the area • The cost of land clearing in the area is very high 4 . 5 I m p a c t o n t h e m i l l The operational impact on the mill of the intensive program is limited, because the benefits in terms of increase in paddy supply is negligible at 32 tons per year. The financial impact is negative: the mills net profit actually drops from US$ 119,331 to US$ 79,713 for a period of 5 years during which the cost of the program is depreciated. The out-grower program in its current form is therefore unsustainable. It makes no sense to invest this much money in so few farmers that farm so little land. Having said this, the program is likely to continue, because all investments in mechanization equipment, training, land clearing etc. have been done already. But chances that this program will be expanded further are slim to none. The table 3 underneath contains the impact on the mill. Table 3: Impact on Mill 4 . 6 C o n c l u s i o n The Mill 2 GH out-grower program is unsustainable. It has only shown a high impact on very few farmers (30) at a high cost per farmer, without having significant impact on the mill. Even if 750 additional farmers were trained, this has had no impact on the amount of paddy procured by the mill, and the program would still be unsustainable. A key issue seems to be the mismatch between the indicators laid out in the CARI contract and the model implemented by Mill 2 GH, especially with respect to the number of farmers trained and inducted into the out-grower program, as well as how funds were used. The number of farmers trained is simply way too small for the budget, with little to no result. The implementation of the program was also weak, while oversight from TechnoServe Ghana seemed to be lacking. We advise that the CARI PMU contracts an independent local consultant who speaks the local language to phone a random sample of the 750 farmers outside of region that are supposed to have been trained in order to verify that they have received training and are contracted to Mill 2 GH as claimed.


Finally, with the simple all-in-one rice mill it will be impossible to be competitive in the long run, because of the low efficiency and poor quality. The mill will need to upgrade to a mini-rice mill system used in the Tanzanian programs.


5 M i l l 1 T Z , R e g i o n , T a n z a n i a 5 . 1 T h e A r e a MILL 1 TZ is located on the outskirts of the Tanzanian capital of in the dry central interior of the country. MILL 1 TZ runs an out-grower program in west of that area called Town 1. This area is semi-arid, receiving between 500 and 700mm of rainfall annually. Rice is farmed on alluvial flood plains, which are fed by non-perennial rivers that bring rich silt deposits from the north of Tanzania. Farmers believe that these deposits are enough to achieve good yields without additional chemical fertilisers. However, no analyses of the soils in the area nor of the composition of the alluvial deposits has been done that confirms this assumption. In our opinion, it is highly unlikely that the alluvial deposits contain enough nitrogen, potassium and phosphates for rice yield of 6-8t/ha. It is particularly unlikely that they contain any phosphates, because phosphates in high concentrations are only available in a few places on earth. The average yield based on interviews with a sample of 10 farmers of 4.6t/ha seem to confirm this. The yield survey reported 5t/ha for irrigated farmers in 2016. Town 1 farmers farm rice on plots in irrigated schemes that use a series of ridges and channels to distribute floodwater from the rivers across the irrigated perimeter. Each plot has a standard size of half a hectare, and some farmers farm multiple plots. It is reported that at this time paddies are submerged in up to 500mm of water. Rice can certainly be grown in average and good years, but rice farming in Town 1 District is highly dependent on rainfall in the north of the country that feeds this seasonal river and is thus vulnerable to drought. In the 2016-17 season, most rice farmers experienced partial or total crop failures as a result of widespread drought. The yield survey showed an average yield as low as 1.7t/ha. Rice can only be farmed during the wet season (1 crop cycle per year). 5 . 2 T h e M i l l 1 T Z O u t - g r o w e r p r o g r a m The main contract partner for the program is the MILL 1 TZ. MILL 1 TZ runs a very simple out-grower program, which is focused entirely on GAP, PHH and FBS training to farmers. The mill contracts FBO’s, who are set-up in specific irrigated perimeters. Members of these FBO’s then have the opportunity to be trained. The program has only 4 extension agents, who have trained 158 lead farmers. Extension workers and lead farmers have together trained 4,565 farmers in GAP, PHH and FBS. 8 Farmers Associations or FBO’s have been contracted to supply paddy to the mill. The mill offers farmers a guaranteed market for paddy at a guaranteed minimum price, which often exceeds the open market price. No input credits, access to finance or mechanization support is supplied through the program. Figure 8 provides an overview of the program and the main results. Figure 5: The alluvial sediment on which Town 1 farmers rely for fertilizer


Figure 6: Schematic of the out-grower program with huge increase in revenues for MILL 1 TZ The mill has had a longstanding relationship with the Town 1 farmers. However, before the CARI program the mill used to source not only from Town 1 farmers around its location but also from other rice growing areas, Including Town 2 via traders. Though prices were lower to traders, the quality of the paddy was also much lower. Since the CARI project, most paddy now comes from the farmers in with this region. MILL 1 TZ has replaced their old mill of 18 tons per day capacity with 2 new mills of 50 tons per day. The mills are so called mini-rice mills that perform de-husking and whitening (removal of the bran) within one machine, but in separate steps. The quality of rice and processing efficiency (in terms of the percentage of whole white rice from 1kg of paddy) is lower than in professional mills, but higher than for the simple village mills used, for example, by Mill 2 GH in Ghana. The main challenge in the area for any out-grower program is side selling. MILL 1 TZ receives only 30-40% of paddy from contracted FBO’s, largely due to cash flow driven side selling. Farmer’s in desperate need of cash pre-sell most of their crops to traders at only a third of the price that MILL 1 TZ pays. This works out to an interest rate of 400% per annum. Part of the reason this interest rate is so high, is that traders run a large risk of not obtaining the crop. However, even at a default rate of 50% the cost of this credit is exorbitant. MILL 1 TZ has in the past offered credit to farmers, but lost vast sums of money due to high default rates. What may have happened is that farmers pre-sold most of their expected crop to traders, and when yields were lower due to drought there was nothing left for the mill. 5 . 3 I m p a c t o n f a r m e r s The impact of the program on farmers has been substantial. Prior to the CARI program, rice farming was actually not profitable if one took into account the real cost of production, as we have done in our calculations. The only reason that farmers were earning money was because they were using family labour for most of the work, recycled seed, and bartering for inputs such as rice straw for manure to keep cost low. However, this model cannot be expanded because the amount of ‘free’ family labour is limited. Rice farming is now profitable as a result of the increased yields. MILL 1 TZ


CARI yield surveys shows an increase from 2t/ha to 5t/ha in 2016, but crop failure in 2017 with the average yield of 1.7t/ha. The average field size is 0.8Ha, which indicates most farmers only farm one 0.5ha block, and a few farmers own more. Table 4 provides an overview of the financials before and after CARI. These numbers are based on 2/3 of the crop being sold to traders at US$13 per bag of 85kg, and 1/3 to MILL 1 TZ US$40 per bag. Table 4: Impact on MILL 1 TZ farmers According to the farmer interviews conducted, the average yield per Ha has increased from 2.15t/ha to 4.65t/ha. The profitability per Ha has increased from US$103 to US$456. The farmers in that particular area have responded to the increased profitability by expanding the area farmed from 1.2ha to 3.1ha. As a result, total earnings for these farmers would have increased from US$124 to US$1,413. This group is clearly not representative for the larger group in terms of farm size, but this example does show the impact of farm size on farmer earnings. Table 5 Impact on a small sample of larger MILL 1 TZ farmers Though there is a large financial impact on the farmer due to the large increase in yields, the impact on farmers could have been much higher. It appears to be limited by 2 factors: • Side selling of most of the crop to traders at ridiculously low prices • Sub-optimal yields of 5t/ha, largely due to limited adoption of GAP. The sample of farmers interviewed in Town 2 who implemented the full range of GAP get 7t/ha. • The area remains very vulnerable to drought. Our tables are based on the 2016 year, but farmers in 2017 would have made a loss due to crop failure F i n a n c i a l i m p a c t o f s i d e s e l l i n g Table 6 below shows the effect to the larger farmers from our sample of a hypothetical case where farmers would be able to obtain a working capital loan of $1,266 at 19% per annum for 6 months that would cover production costs for the season. If this resulted in farmers selling all their paddy to MILL 1 TZ at the post season price, the profit per farmer would increase from US$1,413 to US$3,949. This includes the interest cost of the loan.


L i m i t e d a d o p t i o n o f G A P d u e t o l a c k o f c r e d i t a n d w a t e r i n s e c u r i t y Farmers do not have the money to invest in any GAP. In addition, they are also reluctant to do so because of the risk of flooding and drought. This risk also makes them ‘unbankable’, MFIs and banks are reluctant to give loans to rice farmers without proper irrigation. Examples include: • Limited uptake of mechanization: mechanization services can be hired through the Town 1 District Council, but are used only for rudimentary land preparation and for transport of paddy from the field to the main road. All other activities that functions are carried out by manual labour, which may often be unpaid family labour. This however does not give the same quality and thus yields. • Farmers do not use the SARO 5 variety but recycled local variety. They claim the market prefers the local variety and gives a price premium, but from experience we know these are excuses farmers use when they are too proud to say they cannot afford the seed, or do not want to spend money on it. SARO 5 is higher yielding and more drought resistant, which should compensate for a lower price if there was a price premium. But there is no price premium because MILL 1 TZ pays the best price in the market and they prefer SARO 5, because their clients prefer it. In addition, most rice is sold to traders at a third of the market price, so there is really no price premium. • Farmers do not use chemical fertilizer, despite the fact that the alluvial deposits they rely on are unlikely to have all the nutrients needed for maximum yield. Interestingly farmers have replaced seed broadcasting with transplanting in rows as per CARI GAP practices. In Nigeria, which has seen the best uptake of GAP, this has been the most difficult activity to promote because of the high labour cost associated with nurseries and transplanting in rows. In Tanzania, it is seen as cost saving because it requires less seed than broadcasting (16kg as opposed to 30kg per ha), and family labour is used. However, this method may work for farmers on 0.5ha plots. In the case of larger farmers labour will have to be hired, which pushes up the cost.

Table 6: Farmer with a working capital loan Mill 1 TZ with 66% preselling Mill 1 TZ farmers with credit & 100% sold to Mill 1 TZ.


I m p a c t o n t h e m i l l Figure 7: The impact for MILL 1 TZ mill has been huge, both in terms of paddy supplied and quality The impact on the mill has been high. The amount of paddy processed has more than doubled from 5,000 tons to 11,232. Table 7 shows the cost benefit for MILL 1 TZ. In addition, the milling efficiency has improved massively from 65% of white rice (including broken) to 75% white rice. The improvements are due to an improvement in paddy quality and milling equipment. Most paddy now come from local farmers, and less from traders who tend to supply poor quality paddy. The increased quantity and earnings has allowed them to expand the mill. MILL 1 TZ have replaced their old mill of 18 tons per day capacity with 2 new mini rice mills of 50 tons per day. MILL 1 TZ’s revenue has soared from US$2,764,750 before CARI to US$7,189,035 for 2017. Net profit has also increased from 14% to 18%. The net profit increase is US$888,471. The high financial impact is due to both the massive quality improvement, increase in volume and a modest training cost per farmer, particularly when compared to Ghana. Impact on volume however, could be much higher if side-selling to traders could be reduced. However, an area for improvement for the mill is marketing. We feel that the mill is starting to get to a point where the market is the limiting factor for growth. Currently, MILL 1 TZ owns 5 stores in this area through which it sells its rice. Despite significant quality improvements achieved through the CARI Program, MILL 1 TZ still sells 60% of its rice as third grade, maintaining that the local market is price sensitive and therefore prefers third grade rice. However, it does not make economic sense to sell first grade rice at third grade prices. As production volume and quality increases MILL 1 TZ will need to find new markets willing to pay for first grade rice. This will require development of a marketing department with qualified professionals. In the long run a rice mill cannot be competitive when it sells first and second grade product as third grade. In addition, in the long run the mill will have to switch to a professional rice mill that delivers a lower rate of broken rice in order to remain competitive. Table 7: Cost Benefit for MILL 1 TZ mill


5 . 4 C o n c l u s i o n The impact of the MILL 1 TZ program on some farmers and the mill has been high. Volume and quality of paddy has improved, which, combined with the relatively low cost per farmer, means that the program is sustainable. The project is likely to continue in its current form, even without CARI support. However, the impact could have been much higher if farmers had access to credit to implement good farmer practises, particularly proper land preparation, certified Saro 5 seed and fertiliser. Yields of 7 to 8 t/ha should be possible in years where there is enough water. Obviously, soil sampling would be needed to develop a proper fertiliser recommendation for these very specific conditions. The challenge, however, is that input credits without drought risk mitigation is too risky for the mill and banks, particularly given the already high rate of side selling. If the yields are lower than expected, there is no paddy left to sell to the mill and repay the input credit. Another issue is the side selling as a result of the need for cash. If farmers can receive credit that covers not only inputs but also labour cost and a small living allowance, the amount of paddy delivered to MILL 1 TZ could triple. The financial impact on the farmer would be enormous. But for this to work, a strong framework that punishes loan defaults is necessary. We agree with the owner of the mill, that the underlying problem for Town 1 farmers is water insecurity. Until this is solved, farmers will suffer frequent crop failures and it is difficult to provide credit. His final words on the subject were: “If donors want to have an impact, they must forget about training farmers and promoting input use and mechanisation until the provision of water security for farmers, which is the root problem, has been solved.” In Town 1, this may actually present an impossible challenge, as rivers are ephemeral and at increasing risk from climate change. Some irrigation schemes in the area are also at risk of losing their alluvial flooding to new dams, which are being planned to supply domestic water and hydroelectric power to the ‘new’ administrational capital at Region. Having said this, it should be possible for a micro-finance organization to offer credit at a better rate than the 400% offered by traders. Finally, for the mill to absorb the additional volume, they would have to review their marketing strategy.


6 M i l l 2 , T a n z a ni a 6 . 1 T h e a r e a Mill 2 TZ is in Town 2 region close to the border with Zambia and Malawi. Town 2 region has an average annual rainfall of 1,200 to 1,800mm and has rich volcanic soils. It is the main production area for maize, rice, beans, potatoes, soya and wheat in Tanzania. In addition, the high altitude of approximately 1,700m allows for the production of high value export crops including Arabica coffee, tea, tobacco and pyrethrum. This region is a hub for agricultural input dealers. The level of development and professionalism of the agricultural sector is very advanced by African standards. The area also receives a lot of attention and development support from the government. Farmer organisations in the area tend to be well developed, and farmers are generally wealthier than in this region. The need to pre-sell paddy to traders is much lower, and even those without credit tend to buy inputs for rice farming. Most farms in these area are part of an irrigation scheme, with the exception of a few, which rely entirely on rain fed production Side selling in the areas seems to be low, partly because farmers farm their own local variety rice for home consumption, they can afford to wait till harvest time with the sale of the paddy, and because the sale via the farmer organisations is well organised. 6 . 2 T h e M I L L 2 T Z p r o g r a m MILL 2 TZ heads up a well-evolved and sophisticated out-grower program. The farmers receive the full range of support including training, input access, mechanization and access to finance. What makes the model strong is the cooperation between all the partners: • The mill, together with CARI, organise finance and farmer training • 140 lead farmers and 20 extension officers provide training to farmers in GAP, PHH and FBS, using 20 demo plots for demonstration purposes • An international fertilizer company, has formulated specific fertilizer blends for rice in the area. • A company is involved to supply agro chemicals • A seed company is responsible for seed supply • Bank provides input finance to farmers, but pays the input suppliers directly • The 30 Farmers’ Associations (FAs) are contracted to the mill at the start of the season and aggregate paddy, and select farmers for training and credit. They also interact with the bank and input dealers for the distribution of inputs to farmers • MILL 2 TZ, purchases all the paddy. MILL 2 TZ matches the prevailing market price but also offers a guaranteed minimum price for paddy • The government provides agricultural research, and finances mechanisation and irrigation schemes The scheme is functioning well, growing fast and has plans to diversify to include other crops such as white sorghum, beans and maize. Figure 8 provides an overview of the scheme.


Figure 8: Schematic of the Mill 2 TZ out-grower program T h e B a n k A crucial component of the MILL 2 TZ out grower program is the credit provided by the bank. This credit does not only cover inputs, but also labour cost and mechanization services. The base price of MILL 2 TZ is used by the bank to calculate the maximum amount of credit. The interest rate is 19% per annum. Farmers have accounts with the bank into which cash loans for labour, mechanisation and living costs are paid. Inputs are paid directly to the input dealers who deliver the products to the FAs where they are collected by farmers. When paddy is sold, MILL 2 TZ pays into the FBO bank account and the FA authorizes the bank to deduct part or all of outstanding loans from the payment form MILL 2 TZ. The criteria used by the bank to determine eligibility for finance are: • Access to irrigation • Membership of a contracted FA and therefore a guaranteed market (MILL 2 TZ) • Successful completion of the FBS, PHH and GAP training • Good credit record Unfortunately, only about 20% of farmers have obtained finance due to a combination of factors: • There are a limited number of irrigated plots available. Presently about 50% of farmers have access to irrigation • The amount of finance available to each FA is limited • Many farmers have poor credit records

BANK Mill 2 TZ


Nevertheless, not all farmers in the area need credit to finance inputs and labour. A large group of farmers who had credits before and had a good harvest have now managed to save enough money from previous harvest to finance their own inputs. Other farmers obtain money through other farming activities or employment. T h e F a r m e r s ’ A s s o c i a t i o n s ( F A s ) FAs administer infrastructure including irrigation schemes, mechanization support and paddy warehouses which were originally installed and financed by the Tanzanian government. These assets were handed over by government for the farmers associations to manage and develop. FAs typically have a committee responsible for each portfolio: • A warehouse committee administers paddy stored in the warehouse • A mechanization committee sees to the maintenance and hiring out of machinery to farmers • An infrastructure committee is responsible for the maintenance and scheduling of irrigation infrastructure • A finance committee and a credit committee administer payments and loans to farmers FAs are also responsible for negotiations and contracts with MILL 2 TZ and the bank on farmers’ behalf and the administration of payments and loans to farmers. The FA members vote on a target price at which to sell their paddy and a deadline date at which they will sell, regardless of whether the target price has been achieved. But, if this price is not reached by a set date, the FA is obliged to sell at the market price (or base price) on that date. Farmers’ Associations are funded in four ways: 1. Farmers pay a US$11.25/ha irrigation fee for the right to access water from the irrigation scheme. US$2,227 per FA of this is paid to the Water Basin Authority and the rest is used to maintain and extend roads and irrigation infrastructure. 2. Some farmers, but not all, are members of the FA, paying an annual membership fee of US$ 2.20. This gives them the right to vote on paddy supply contracts and other negotiations and to hold office in the various FA committees. But, most importantly farmers need to be members of a Mill 2 TZ FA in order to access finance. 3. FAs take a levy of US$1 per bag of paddy 4. Mechanisation services are hired out to farmers at a fee per ha. I n p u t d e a l e r s The second, third and fourth partners in the Mill 2 TZ out growers program are input supply companies: • Company 1 supplies specially formulated fertilizers to farmers • Company 2 supply crop protection products • Company 3 produces and supplies certified SARO 5 seed to farmers With the exception of Company 3, all of the partners reported excellent results from participation in the scheme. Unfortunately for Company 3, they were late in producing seed for the 2016/17 season. By the time their seed was available to farmers, most farmers had bought seed from the government research institute outside the region. 6 . 3 F a r m e r i m p a c t Farmer impact is highly dependent on whether farmers have irrigation, the area that farmers are in, whether they have access to credit or other funds to purchase inputs, mechanization services and payment for labour. For example, the farmers who do not have irrigation, are therefore not eligible for credit.


According to CARI statistics, 34% of land in the area of contracted farmers is not irrigated, and have substantially lower yields. Farmers in some areas appear to be much more professional and knowledgeable than farmers in certain areas and have higher yields. A sample of 10 farmers from 2 different areas who were interviewed showed the impact if farmers implement most of the GAP practices. They reported yield improvements from 2t/ha before CARI to 7t/ha. They also reported an average increase in paddy area from 0.67ha to 2ha per farmer. This is an increase in paddy production of 944%. Within this sample some farmers claimed yields of 9t/ha. All of these farmers had access to irrigation and funds for inputs and labour. All farmers used herbicides, the recommended fertilizer dosage and power tillers for land preparation. Table 8 shows the impact on their earnings. Table 8: Cost benefit for farmers of the Mill 2 TZ out-grower program This sample is however not representative for all of the 6,000 contracted farmers, because the increased supply to the mill was only 52% and not 944%. Yield surveys show a yield of 5t/ha for irrigated farmers in 2016, and 3t/ha for rain fed farmers. In the dryer 2017 year yields were lower, with 4t/ha for irrigated farmers and 3.5t/ha for rain fed farmers. This seems very weird, because one would not suspect rain fed yields to go up and irrigated yields to go down in such a year. In addition with 66% of the land being irrigated, it is impossible for the average of 2 is 3.6t/ha. Nevertheless, we have calculated the financial impact on a farmer who is irrigated and has this average yield of 3.6t/ha, with a land area of 0.67 ha. Table 9 provides an overview. The difficulty with this calculation is however that we don’t know the exact cost of the average farmer, because we don’t know what the average farmer invests in inputs, land preparation etc. We only have data for the farmers who implemented the full range of GAP. In order to get a better idea of the cause of the difference between the yields from the yield survey and that of the sample group, we looked at the uptake of various GAP, as recorded by CARI. Table 9: Farmer impact using average yield in 2017


Table 11: Farmers’ uptake of input use and mechanisation Looking at the data we get the impression that only about 60% of contracted farmers are actually farming with some inputs and thus implementing some GAPs, because fertilizer uptake is about 60%. Uptake of mechanization services is about 50% (tractor and power tiller combined). Seed usage was 41%, but this is most likely underestimated because the seed supplier Company 3 was late with their supply and many farmers bought seed through the government program. Finally, we get the impression only about 20% of farmers are implementing the full range of GAP, because insecticide uptake is only 18% and herbicide 7%. This number coincides with the 20% of farmers that has supposedly access to finance. From all this data, we get the impression that a minority of the farmers, probably between 5% and 10%, has managed to implement the full range of GAP and have seen a massive jump in productivity from 2 to 7t/ha. These are farmers with irrigation and access to finance. Because there is such a high variation in the implementation of various GAPs it is very difficult to calculate the average farm impact with the average yield. 6 . 4 I m p a c t o n t h e m i l l In 2017, MILL 2 TZ will mill approximately 26,000 tons of purchased paddy, which is a 9,000 ton increase over the 17,000 tons milled before CARI. Almost 18,000 tons of this paddy is supplied from CARI farmers, No of farmers % of farmers Irrigated 3,407 66% Rain fed 1,794 34% 5,201 100% No. of farmers %of contracted Contracted 6,357 Used Urea 3,953 62% Used NPK 3,720 59% Used Seed 2,630 41% Used Insecticides 1,176 18% Used Herbicides 402 7% Used Tractor services 900 14% Used Power tiller 2,300 36% Used Combine harvester 2,316 36% Table 10: Breakdown of farmers in irrigated or rain fed fields


and 8,000 tons from other farmers. MILL 2 TZ wants to include all of these farmers into the out-grower program, because they see 3 potential advantages: • Improved paddy quality • More secure supply • Uniform supply of SARO 5 variety, which is important for accessing export markets such as Kenya, which will not accept rice of mixed varieties. We get the impression that side-selling in the area is low. The main reason is that the mill offers a market related price with a guaranteed minimum price, so there is little incentive to go elsewhere. However, in other out-grower schemes we have seen this is not enough. We also get the impression that farmers in Town 2 are wealthier than farmers in Town 1, and therefor are not forced to pre-sell their harvest to traders in return for cash. In addition, where farmers in other areas tend to hold back part of the harvest for home consumption, Mill 2 TZ Farmers tend to farm a separate patch with the local varieties they prefer for home consumption. Finally, the FAs play a large role in the aggregation and storage and marketing of paddy. MILL 2 TZ has three mills on the premises. Two mills with a capacity of 50 tons each per day (4 tons per hour for about 12 hours per day) are used to process purchased paddy, while a third smaller mill of 18 tons per day is used to mill paddy for traders as a paid-for service. The mill is of the mini-rice mill type, which is an intermediary technology that is not the most efficient in processing. The mill has reported an increase in the quality of paddy supplied by CARI trained farmers. The conversion rate of paddy into white rice is 65%, of which 90% is whole grain white rice, 6% broken rice and 4% is fine. The rice is graded, re-blended and packed in various pack sizes according to the market demand. The mill claims that because the market for rice in Tanzania is price sensitive, the mill sells only 17 % as first grade, while the rest is sold as second grade by mixing the broken and fine grains back in. In 2018, MILL 2 TZ intends to begin export of rice to Uganda, the DRC and Kenya. To access these export markets, particularly Kenya, MILL 2 TZ will be under pressure to increase the percentage packed as first grade rice. As a result of the CARI program, the revenue increased from US$8,905,718 to US$13,610,506, with a net profit increase for the mill of almost US$400,000 per year. This means that the cost of the CARI program (US$605,000) are recovered in less than 2 years. Table 12 provides an overview. Table 12: Cost benefit of the CARI program for MILL 2 TZ is high


The high yield increases of a small group of farmers that have implemented most GAP practices shows the potential of the program. If all of the approximately 4,000 farmers with access to irrigation can be upgraded to 7t/ha, the potential supply for the mill is 28,000 tons from the existing CARI group alone. 6 . 5 C o n c l u s i o n The MILL 2 TZ out-grower program is a very complete program that has delivered good results for farmers and the mill. It is therefore likely to continue, even without CARI financial support. Amongst the success factors are: • Good climatic conditions for rice growing (high rainfall combined with irrigation for most farmers) • Ample government support including heavy import duties on rice • A reasonably well operated and efficient mill • High involvement of input suppliers • Well-organised and active Farmer Associations, which offer mechanization services and play an active role in inputs distribution, access to credit and the aggregation, storage and sale of paddy. These FAs seem to have a sustainable funding model • Good management of the program by the mill and the CARI implementation partner • Availability of credit from bank and relatively wealthy farmers that can afford some inputs • Low occurrence of side selling The high yield (7t/ha) of the approximately 10% of CARI farmers that implement the full range of GAP shows the high potential of the scheme. But with an average yield of at least 5t/ha for irrigated farmers and 3t/ha for non-irrigated farmers, most farmers probably have seen a decent impact. The biggest limiting factors for farmers are the shortage of irrigation and lack of access to credit, because these 2 determine the uptake of GAP. About 34% of land is not irrigated and thus excluded from access to credit. Poor credit rating is a large disqualifier for farmers on the remaining 66% of land. This means that for a private company like MILL 2 TZ who wants to get maximum impact out of the out-grower program, they may decide to only contract farmers in irrigation schemes with good credit ratings. Though this case gives good insights into what drives farmer yield improvements that are valuable for future programs, a more detailed evaluation of this program may be considered. The goal would be to get a better understanding of the impact on yield of various groups, for example those with and without credit, with and without irrigation.


7 M I L L 1 N G & M I L L 1 P A R T N E R N G , S t a t e 1 N i g e r i a 7 . 1 T h e a r e a State 1 state is one of the prime rice growing regions in Nigeria. It has several large, flat and wide low-lying valley floors with shallow groundwater and perennial streams and lakes. It has a long-standing rice farming tradition, and is known amongst rice millers for its high-quality rice. In addition to the rice mills in the area, many mills in other areas come to State 1 to source paddy. Farmers traditionally farmed between 0.4 and 1ha of rice, entirely by hand in a traditional manner. However, most CARI farmers have now taken up irrigation, using simple tube-wells of a debt of 2-4 meters and portable petrol pumps. As a result of the introduction of irrigation using ground water, dry-season farming has gained increased popularity. Many skilled farmers claim to have higher yields in the dry season because they have more control over water and there is more sun. Input usage is very common, though too low for those without training and access to finance. Certified seed is still new but rapidly winning in popularity for CARI farmers. Like elsewhere in Africa, land holdings are small, but youth is migrating to the cities. As a result, labour is becoming more scarce and expensive. Uptake of mechanisation has therefore been high, and farmers who want to expand can easily rent land. The MILL 1 NG out-grower program is operational in 6 districts in State 1 state 7 . 2 M i l l 1 N G & M i l l 1 P a r t n e r N G o u t - g r o w e r p r o g r a m The primary implementation partner is Mill 1 NG, which is a producer of certified seed and paddy trading company. Mill 1 NG traditionally supplies certified seed to rice farmers. They have a sister company that supplies fertiliser and agro chemicals. They claim to work with 15,000 paddy farmers and 15,000 seed farmers. They also have a sister company that provides mechanisation services to rice farmers. Mill 1 NG has its own extension agents that train farmers and lead farmers. The company also provides the inputs, and requests credit (via farmer organisations) on behalf of the farmers. Though Mill 1 Partner NG rice mill has own trucks and warehouses, most CARI farmers transport their paddy to Mill 1 Partner NG. In addition to paddy supplied to Mill 1 Partner NG, Mill 1 NG also purchases paddy from other farmers for sale to traders and various mills. MILL 1 NG receives a modest fee of 3 Naira (about 0.8 Euro cent) per kg of paddy supplied from Mill 1 Partner NG. The secondary partner of the out-grower program is Mill 1 Partner NG, a rice mill. This is a modern mill with a capacity of 6tons/hour that produces only parboiled rice. It has an industrial parboiling system for automatic parboiling, and a high-quality Buhler processing line for the milling of the parboiled rice. Mill 1 Partner NG buys all rice from CARI farmers at the prevailing market price, provided they meet the quality criteria. Most credit from CARI farmers comes from the government operated Anchor Borrower Scheme, and is disbursed via a Bank. However, in State 1 state, funds are often disbursed late and in those occasions Mill 1 NG has provided bridge funding that is borrowed from agricultural banks. In addition, the Anchor Borrower Scheme only funds 1ha of rice per farmer. Those that want to do more either obtain funding directly from banks, or from Mill 1 NG who at times organises own funding for additional loans.


Mechanisation services are offered by a Mill 1 NG sister company but also a host of private service providers that own one or more tractors that move with their drivers through the state looking for clients. The tractor is the dominant mechanisation tool here, and farmers have the fields both ploughed and harrowed. Figure 9: Large rice area in State 1, irrigated from storage dam. Farmer organisations play a crucial role in the scheme. Farmers need to form an organised group of 30 people before they can receive training. Only when they have completed training they are eligible for credit. The farmers receive a group credit for inputs, but also cash expenses such as mechanisation and labour (e.g. for transplanting). The credit is provided at 0% interest. Farmers receive a complete package of inputs, including NPK, Urea, herbicides and pesticides. The paddy is often aggregated at farmer group level and brought to the mill by the farmer group. The default rate on credit in this project is very low according to Mill 1 NG: only about 10-15%, of which most can be recovered, leaving the rate of uncollected debt at 4%. The main reasons for this low rate are that the credit is a group loan, whereby if one member doesn’t repay, the others become responsible to cover his share. Secondly, religious leaders and village elders are consulted and often part of the group. The religious leaders allegedly put a lot of pressure on defaulters to pay. Thirdly, most farmers have irrigation, which means the risk of crop failure is much lower. Finally, the NAIC (National Agricultural Insurance Company) provides crop insurance for the value of the loan. Figure 10: Left: Tube well where a mobile petrol pump can be connected for irrigation. Right: High performance Buhler equipment in the Mill 1 Partner NG rice mill


The training efforts within this program have been enormous. So far, they have trained 9,000 farmers in FBS, and 9235 farmers in GAP of which 8408 received training twice (according to CARI data, which differ from the data give by MILL 1 NG that indicate higher numbers trained in GAP). In addition, 4,500 farmers were trained in nutrition, 2,800 women in parboiling and about 5,500 in cowpea, millet and sesame farming. Figure 11: Automatic parboiling unit outside Mill 1 Partner NG rice mill, powered by a boiler burning rice husks (right) However, not all farmers are contracted. The number of contracted farmers that also receive loan is between 7,335 (according to MILL 1 NG) in the wet season and 5,490 in the dry season. In addition, despite more people being trained each year, the number of contracted farmers does not seem to grow anymore; this indicates some farmers are dropping out of the program. What this means is that Mill 1 NG has delivered 33,943 trainings for 7,335 supplying farmers, where strictly speaking 15,000 trainings should be sufficient (1 FBS and 1 GAP per farmer). It is important to understand why farmers were or needed to be re-trained in GAP. Figure 12: Overview of the Mill 1 NG -Mill 1 Partner NG program Mill 1 NG Inputs M.1NG SisterCo. GOVT. via Bank Mill 1 Partner NG


An exciting new development for the future is the establishments of 2 paddy drying and cleaning centres. The development of the centres is partly financed by the state and partly by Mill 1 NG, who will operate the centres. The farmers can drop their paddy off at the centres where it is cleaned, winnowed and dried. Farmers get paid afterwards for their paddy based on the amount of properly dried and clean paddy. The advantage for the farmer should be a lower processing cost with less product lost, while the mill will receive a uniform product and there is less cleaning to be done. 7 . 3 T h e c h a l l e n g e o f t h i s c o s t b e n e f i t a n a l y s e s Doing a traditional cost benefit analyses proved to be challenging in this case. Firstly, Mill 1 NG is not a mill, but a certified seed producer with a business in paddy trading and working with sister companies selling mechanisation, fertiliser and chemicals. Hence, their income needs to come from improved input sales and paddy trade. It is however difficult to establish which part of their input sales is additional due to CARI farmers. In addition, the relationship between the fertiliser & chemical dealer is not clear: does it have the same owner, or are they separate businesses working together. In addition, there is an enormous gap between farmers being trained and being contracted. We do not have any supply data on the trained farmers. They may have also increased input usage as a result of the training, and supplied to the paddy trading arm of Mill 1 NG outside of Mill 1 Partner NG. However, for the sake of simplicity we have decided to simply look at the increased input usage of the contracted farmers, as well as their supply and based our cost benefit analyses on this. We assume that all of these farmers were already clients from Mill 1 NG, but increased input usage under the program. We have not included the revenues of the Mill 1 NG mechanisation sister company, which would help further to earn back the investment cost in training. This business is quite separate and complex, and therefor difficult to include in calculations. On the credit side, we have assumed that the loans are provided by the Anchor Borrower Scheme, and Mill 1 NG has no loss due to default and no interest cost for borrowing the money that is provided to farmers at 0% interest. 7 . 4 F a r m e r i m p a c t The impact on contracted farmers is substantial. Mill 1 NG management and extension workers claim that the yields have improved from 3t/ha to 6.5t/ha. This is confirmed in a sample of 11 farmers we spoke to, who improved from 3t/ha to 6.4t/ha. The CARI Yield survey found yields of 7.1t/ha in the 2016 wet season and 7.3t/ha in the 2017 dry season. There are a number of explanations for this large yield improvement: • Farmers in the area tend to be very experienced, often having farmed rice for more than 15 years. Many farmers have also been trained and retrained, and have participated several seasons in the CARI program • Most farmers (we estimate 75%) have irrigation; water is thus not a limiting factor, and it makes them eligible for credit and less vulnerable • Most farmers were already using inputs and using input credits, hence this was not a new concept for them • CARI training introduced a number of new concepts that helped farmers optimise, most notably site selection, transplanting, row planting, seed selection and cleaning, and correct fertiliser application, in particular the timing • The Anchor borrower loans started to include a cash component for labour and mechanisation, which enabled the uptake of GAP such as transplanting and row planting which is labour intensive, and mechanised land preparation • Farmers switched from recycled seed of local varieties to certified FARO44 seed bought from Mill 1 NG


• Farmers on average doubled fertiliser usage, and increased the efficiency. They switched from random dosage determined by gut feel and cash available to a more optimal mix determined by rice-advice. Some farmers actually reduced fertiliser usage. Most farmers commented on the huge impact of changing the timing of the application had. • Farmers increased agro-chemical usage • Most farmers switched from manual land preparation, harvesting and winnowing/ threshing to using tractors and machines. Land preparation is done by plough and harrow. • The Mill 1 NG program has a high rate of extension workers to contract farmers compared to the projects in Ghana and Tanzania Though the fact that yields have more than doubled, there is still room for improvement, because yield of 8 t/ha should be possible under irrigation. This is however likely to come over time with experience. As a result of the higher yields, but also reductions in labour cost due to mechanisation profitability has increased per Ha. In addition to this the price for paddy has increased a lot over the past years, partly as a result of the import bans. This has made rice farming very profitable. Farmers have responded to this profitability by increasing the area under production. Mill 1 NG claims farmers increased from 0.4 to 1ha, while the 1ha is also shown in the data collected by CARI. Our sample however had increased from 1.3 to 3.2ha, which is the same increase but of a much higher base. Finally, a sample of 40 CARI farmers last year resulted in an average farm size of 1.7ha. The most likely explanation is that the farmers sampled in our interviews had much larger than average land holdings, because the amount of paddy sourced from CARI farmers is only 3.3 tons per farmer, and the interviews don’t suggest massive side selling. On the other hand, it can be possible that CARI farmers farm 1ha of rice for Mill 1 NG -Mill 1 Partner NG and the rest for another mill, because the Anchor Borrower Scheme only provides funding for 1 ha. If we however assume 1ha is farmed under CARI and delivers 7.1t/ha, of which 3.3 tons is sold to the mill, this would point to a side selling of 50%. 10% of the crop is kept aside for Zakat, the religious duty of looking after the poor and vulnerable, and another 10% in case of 1ha farms is kept for home consumption. The missing 30% is sold either to other traders, or kept in the house as a form of cash to be sold of gradually over the year. There seems to be a preference amongst many Nigerian farmers for holding rice rather than cash money, or even cash in a bank account. Table 10 shows the financial impact on a farmer who increases yields from 2.5 to 7.3t/ha and the land from 1 to 1.7ha. We can see the net profit increase from US$599 to US$1,636 per ha per season. For a 1.7ha farm that is used both in the dry and the wet season, total annual income increases more than 9 times to US$5,565. This income includes potential sales revenues of rice donated under Zakat or kept aside for home consumption.


Table 13: Farmer Impact for Mill 1 NG -Mill 1 Partner NG farmers per season In terms of training, extension workers and farmers commented that land selection, fertiliser application, transplanting, row planting and post-harvest had the highest impact of the trainings. However, it was also noted that row planting was the most difficult practise to introduce due to the high cost. Most stakeholders commented on the huge impact on farmer’s earnings, and the high interest of other farmers to join the program. Looking at the annual earning amount of nearly US$6,000 we can understand why so many rice farmers are reported to have gone on the Haj this year (the pilgrimage to Mecca). 7 . 5 I m p a c t o n M i l l 1 N G a n d t h e m i l l M i l l 1 N G The financial impact for Mill 1 NG is considerable. If we only look at Mill 1 NG itself and we only take into account the extra income from certified seed sales as well as the fee of 3 Naira (about 0.8 Euro cent) per kg of paddy supplied to Mill 1 Partner NG and the income from paddy trading for third parties, we can see net profit increasing from US$1,067,849 to US$1,263,118. However, most of the profit before and after is coming from the 15,000 tons of paddy traded for third parties, where CARI makes 15% gross profit. Table 13 provides an overview.


Table 14: Impact on Mill 1 NG If we add the income from the sister company on increased fertiliser and chemicals, profit increases from US$1,317,224 to US$1,812,383. Most of this is coming from the increased fertiliser sales. For these calculations, we use the conservative assumption that all contracted CARI farmers were already Mill 1 NG clients and purchasing small amounts of fertiliser. Farmers were using fertiliser before, but on average doubled input usage. If however some CARI farmers were buying their inputs from Mill 1 NG competitors before the CARI program, the financial impact is much larger. We have not included the revenues from the Mill 1 NG mechanisation scheme yet. This would be an important upside to the business case. Table 15: Impact on Mill 1 NG and partners Figure 20 provides an overview of the gross margin per product for Mill 1 NG and partners, so we can see where the financial impact comes from. By far the largest income comes from paddy trading from third parties. This is followed by fertiliser sales, the margin Mill 1 NG receives on rice delivered to Mill 1 Partner NG, seed sales and finally chemical sales. However, the biggest increase comes from the trading margin on Mill 1 Partner NG rice.


Figure 13: Gross Revenue per product for MILL 1 NG and Partners P r o g r a m s u s t a i n a b i l i t y The economic sustainability of the model is easy to understand intuitively. At a program cost of US$747,600 the cost per contracted farmer is US$102 (assuming that the same farmers supply in wet and dry season). The additional gross margin that Mill 1 NG makes on the input sales to farmers is US$57 per season. This means that if Mill 1 NG trains a farmer that is already a client, and that farmer purchases inputs and sells 50% of the crop to Mill 1 Partner NG for 2 seasons, Mill 1 NG will have earned back the training cost. For farmers that are new to Mill 1 NG, the gross margin is US$76, so Mill 1 NG starts making a profit the second time the farmer joins the program. However, training cost could be much lower than they currently are. At the moment, the conversion from trained farmer to contracted farmer is very low, and the amount of trainings conducted is very high in relation to the number of suppliers. In addition, money is spent on training that does not benefit Mill 1 NG directly, such as diversification (unless they branch of in other crops), nutrition and parboiling. In total, there have been 33,943 trainings for 7,335 supplying farmers, where strictly speaking 15,000 trainings should be sufficient (1 FBS and 1 GAP per farmer). Given these numbers, one would be inclined to say that the training cost could at least be halved. On the other hand, perhaps part of the success of the program is that most farmers were trained twice in GAP. Perhaps this is what is necessary to establish yields of over 7t/ha. In addition, because of the high rate of side selling (50%), Mill 1 NG misses out on the commission per kg of paddy supplied to the mill. M i l l 1 P a r t n e r N G - t h e m i l l The impact on the mill has also been substantial. The volume of paddy delivered to the mill from CARI farmers increased steadily over 3 seasons from 10,728 tons to 18,252 tons per season. If we assume that most farmers do 2 seasons, this would mean 36,504 tons of additional supply to the mill. Given the intense competition over paddy, having contracted farmers is a huge advantage for a mill. Everywhere in Nigeria new mills are built and existing ones are expanding. Many mills come to this region to source additional


supply without the CARI program volumes may have decreased. The CARI program helps the mill to establish some relationship with the farmer. In addition to the quantity, Mill 1 Partner NG mill has seen a marked improvement in the quality of paddy, which has improved the milling efficiency. The amount of paddy that meets the minimum quality criteria has improved markedly, which enables the mill to be stricter. Foreign matter needs to be less than 1%, moisture 12% to 15% and a minimum of 97% of grains need to be fully mature. In addition, the varieties may not be mixed. All CARI farmers bring only FARO44. As a result, the percentage of polished whole grain rice has increased from 54% to 58% of paddy. Broken currently stand at 7% and bran at 9%. This is all on parboiled rice. According to the mill, the post-harvest training is very important. Rice is harvested at the right maturity period and better cleaned. Nobody winnowed earlier, but not everyone understands it is needed. The tarpaulins help to reduce foreign matter, and farmers are now drying for 3 days after harvest, which is crucial. Given this impact, it would be reasonable for Mill 1 Partner NG as a mill to contribute to an out-grower program. 7 . 6 C o n c l u s i o n The Mill 1 NG out-grower model has a high impact on the farmer, the input dealer & paddy trader Mill 1 NG and the mill, Mill 1 Partner NG. The critical success factors seem to be the combination of: • Experienced farmers with access to cheap irrigation (shallow groundwater) and suitable land • Enough credit for a complete package of inputs, mechanisation and labour • A high rate of mechanisation • Government support and market protection (0% interest credit & import bans) and high paddy prices • A well-managed program with relatively high number of extension workers per farmer Given the high impact on Mill 1 NG and partners and Mill 1 Partner NG, the program is likely to continue even after CARI has ended. However, it would make more sense if the cost of the program would be divided over Mill 1 NG, the sister company providing fertilisers, and Mill 1 Partner NG Mill. Going forward it is still worthwhile considering support to the program, because it may allow more farmers to be included and expand the program to new areas. It will increase the speed at which the sector will grow. However, we would advise that Mill 1 NG looks critically at why few farmers that are trained end up supplying the mill, and why there is such a high rate of side selling. If this aspect can be managed training cost per farmer can probably be halved, while the earnings for the mill and Mill 1 NG should be higher due to the increased amount of paddy. In order to limit side selling, Mill 1 NG and Mill 1 Partner NG may have to get more involved in the harvesting and transport of paddy. For example, they should consider collecting paddy at farm level, or even providing a harvesting service whereby they collect the harvest directly. The plans of a dedicated paddy cleaning and drying process are promising for farmers and the mill, and could also assist in reducing side selling. In addition, we would encourage Mill 1 NG to start charging interest to cover for loan defaults if they cannot use the Anchor Borrower Program.


Finally, we think that the program should look at helping farmers finance more than 1ha so they can grow faster in scale. 8 M I L L 2 N G & M I L L 2 P A R T N E R N G , S t a t e 2 , N i g e r i a 8 . 1 T h e a r e a The Mill is in a traditional rice growing area in Nigeria, but only in the past 5- 10 years has it developed from subsistence farming for its own consumption to a large exporter of rice to other states. The Mill 2 Partner NG rice mill was set up in the capital. The factory has 2 production lines of 8 tons per hour each for the parboiling and milling of rice. This mill has provided a market for farmers and has led to a growth in rice farming. More recently, another large factory has been installed nearby. This region is relatively flat and has a large area of low-lying flood plains. According to various stakeholders there is more than 500,000 Ha of land suitable for rice. It is home to many large and small lakes, rivers and streams. Like in Mill 1 NG region, the groundwater table in these flood plains is very high: 2-3 meters. Water can be accessed year-round using simple tube wells and mobile petrol pump. In several areas, flooding is a risk during the wet season. Consequently, dry season rice farming is more popular than wet-season, because some farmers do not like to take the risk of investing in inputs when flooding can happen. Many farmers own land in both floodplains, where they farm rice, and higher up in the low hills, where they farm different crops such as millet and cowpeas. Those who do not farm rice in the wet seasons out of fear of flood focus on farming in upland areas. Input usage in rice farming is very common, though too low for those without training and access to finance. Mechanisation and certified seed are rapidly gaining popularity. Farmers traditionally have about 0.5ha of land on which they can farm rice, but many CARI farmers are now buying or renting more land. Urbanisation makes it easier to find more land. Labour is however becoming more scarce and expensive. Uptake of mechanisation has therefor been high. Both private and public organisations in the area are very involved in the development of the rice sector. MILL 2 NG is a public institution that provides extension workers but also supplies inputs, trades and stores paddy. However, private mills like Mill 2 Partner NG also run their own out-grower programs. The government operated Anchor Borrower Program is also operational in this region, and the Central Bank of Nigeria has also financed farmer training. 8 . 2 T h e p r o g r a m The MILL 2 NG & Mill 2 Partner NG program is quite similar to the Mill 1 NG program as to what it offers to farmers: training plus a guaranteed market for paddy at the prevailing market price, and enough credit to implement all the GAP practices. The credit is organised once again through the government Anchor Borrower Scheme. The CARI farmers are also limited in finance to a maximum of 1ha, but technically they can obtain finance from others to farm more. Private Service providers as well as farmer organisations are responsible for mechanisation services. However, there is no crop insurance yet. MILL 2 NG is the region’s agricultural development organisation, responsible for extension services in the area. They receive budget from CARI for the organisation of the training and the demo plots. The budget is


used for training material, demo plots, salaries for additional extension workers as well as their transport cost and training cost. MILL 2 NG can be hired by projects and private companies to provide these services. MILL 2 NG also provide the inputs through a sister company called NG Inputs. This company seems to operate as a state-owned not for profit. It sells the inputs almost at no cost to farmers. In addition, NG Inputs buys up paddy at the prevailing market price, which they store in their warehouses. Various traders and mills collect paddy from those warehouses. Like Mill 1 NG, the margin per kg of paddy traded is only 3 Naira (about US$0.01). The state subsidises some of the running cost of warehouses as well as the construction cost. Finally, the state also provides a 500 million Naira revolving working capital fund at 0% interest. In the program 40 extension officers and 224 lead farmers were responsible for training about 10,000 farmers. In the first dry season of 2016, 10,000 farmers were contracted, followed by 5,000 in the wet season and 7,000 in the 2017 dry season. There are 40 demo plots. The FBOs form a critical link in the program. Only farmers that are members of existing and functioning FBOs can be contracted and receive training. Paddy is however sold directly to MILL 2 NG. Many FBOs also provide mechanisation services. Their initial equipment is often donated or subsidised by the government or development programs, but managed by a committee on a for-profit basis. The proceeds are then used to buy additional equipment. Mechanisation in the area is mostly limited to land preparation with power tillers, spraying with a knapsack, harvesting with a brush cutter and winnowing. Tractors are seldom used because of the bad drainage of many fields, and the poor farm access roads. Rice plots are small with often narrow but high and irregular bonds. Because the drainage is often bad, tractors sink away in the soil. Bad drainage is also one of the reasons of flooding and consequently lower production in the wet season. Mechanisation is also provided by NG Inputs and private service providers.

50 C A R I C O S T B E N E F I T A N A L Y S I S O F R I C E O U T - G R O W E R P R O G R A M S M A K I N G S E N S E O F D E V E L O P M E N T Figure 14: Typical rice farming area in flood plain, with tube wells for irrigation, but area has poor drainage and prone to flooding in wet season. Note narrow high and irregular bunts and small plot sizes make mechanisation with a tractor difficult. A key challenge within the out-grower program is the high rate of defaulters, which is about 30% for both CARI and the MILL 2 PARTNER NG managed scheme. Defaulters are weeded out for a next round, so hope is that the situation will improve. What is particularly impressive in this program is the selection of participants and the organisation of training. Farmer organisations need to submit documents such as membership registers, records of meetings and proof of bank account to show they are active. They then need to form their own group of 30 farmer-members, and they need to be in close proximity of each other. Extension workers do checks to make sure members are actual rice farmers. Non-registered people who show up for training are sent away. Those who are late and miss trainings are not allowed to complete the course and do not qualify for the contract and input loans. RiceAdvice in now in the process of being rolled out, but to date only 2,000 farmers have benefitted. Hence, there is still a long way to go. Having said that the number of 2,000 advice is already impressive. In terms of training, extension workers and farmers commented that the farmer business school has the highest impact, because it really changed the mentality and way of thinking of farmers. When it came to


technical training, fertiliser application, transplanting, row planting and post-harvest had the highest impact of the trainings. However, it was also noted that row planting was the most difficult practise to introduce due to the high cost. Figure 15: Overview of the MILL 2 NG- Mill 2 Partner NG out-grower program T h e M i l l 2 P a r t n e r N G o u t - g r o w e r s c h e m e Even before CARI started, Mill 2 Partner NG rice mill has its own out-grower program. Many if not all of the CARI farmers were already supplying Mill 2 Partner NG and often financed by Mill 2 Partner NG, but handed over to CARI. Meanwhile Mill 2 Partner NG continued the expansion of its own out-grower program. Hence, there are now two programs running parallel: CARI and Mill 2 Partner NG. MILL 2 NG explicitly focuses on smaller farmers, and their goal is to include as many small farmers as possible. The farmers in CARI program are therefor on average smaller than the MILL 2 PARTNER NG farmers who tend to have between 1 and 3ha. Moving 10,000 farmers across to CARI has undoubtedly helped the mill to recruit, train and finance more farmers.

NG INPUTS MILL 2 PARTNER NG BANK GOVT. via BANK


Figure 16: Mill 2 Partner NG rice mill


Mill 2 Partner NG tends to contract clusters of farmers and ensures that the chief or village elders are part of the group and or approve of the program. Mill 2 Partner NG then drops off inputs at an agreed point. Mill 2 Partner NG owns a farm where seeds are multiplied and provided to farmers. In addition, they buy inputs and even irrigation pumps. Mill 2 Partner NG also uses MILL 2 NG extension officers for its own out-grower program, and a bank to disburse funds. Their loans are also a 0% interest and disbursed via Sterling Bank. Mill 2 Partner NG buys rice directly from farmers, but asks them to aggregate at village level, where their truck can pick up a large amount. Paddy is weighed in the presence of village elders in order to avoid conflict. 8 . 3 T h e c h a l l e n g e i n t h i s c o s t - b e n e f i t a n a l y s e s What makes this cost-benefit analysis complicated is the fact that the primary service provider is actually a government-owned enterprise combined with the government extension services, with a not-for profit outlook. In addition, their activities are subsidised at many levels, and therefore it is difficult to assess the real cost of their operation. For example, most salaries are covered from the state budget, even within NG INPUTS and they have access to a revolving credit at 0%. The loans they provide are actually financed by the state, and the default risk is also at the state level. We have therefore chosen to use Mill 2 Partner NG rice mill as the entity from which to do the analyses. However, what makes the analyses difficult is that there are 2 out-grower schemes running parallel, and that there is an exchange between the two models. Knowledge and training materials are copied, participants are being moved from and to the other program. Hence, it is often difficult to see where one program starts and the other ends. 8 . 4 F a r m e r i m p a c t The impact on farmers is also comparable with the Mill 1 NG program. Mill 2 NG staff mentions a yield increase from 2t/ha to 5.6t/ha in the first dry season, 5.2 in the first wet season and 6t/ha in the second dry season. The CARI Yield survey shows a baseline of 2.5t/ha, and an average yield of 3.8t/ha in the 2016 wet season and 6t/ha in the dry season. The low average for the wet season is most likely due to flooding, which affected a large number of farmers in that year. It represents a mix of farmers who had crop failure due to flooding and those who did not experience crop failure. Those with crop failure subsequently stopped wet season farming in 2017. A sample of 12 farmers from one area showed an increase from 3t/ha to 6t/ha, with yields in the wet season being slightly lower than 6t/ha and those in the dry season slightly higher. The farmers from this area did not experience flooding. Mill 2 Partner NG mentioned an increase in their model from 2-3t/ha to 6-7t/ha, which may be caused by their farmers being larger and more experienced while CARI focuses on smaller farmers. Hence, we can safely assume yields for farmers not affected by wet season flooding are around 6t/ha per season. The explanations for this yield increase are also similar to Mill 1 NG: • Farmers are experienced with more than 15 years’ experience on average • Almost all farmers have access to water for irrigation • Most farmers were already using inputs and using input credits, hence this was not a new concept for them • CARI training introduced a number of new concepts that helped farmers optimise, most notably site selection, transplanting, row planting, seed selection and cleaning, and correct fertiliser application, in particular the timing


• The Anchor Borrower Loans include a cash component for labour and mechanisation, which enabled the uptake of GAP such as transplanting and row planting which is labour intensive, and mechanised land preparation • Farmers switched from recycled seed of local varieties to certified FARO44 seed bought from Mill 2 NG (or Mill 2 Partner NG) • Farmers on average more than doubled fertiliser usage, and increased the efficiency. They switched from random dosage determined by gut feel and cash available to a more optimal mix, in some instances determined by rice-advice. Some farmers actually reduced fertiliser usage. Most farmers commented on the huge impact of changing the timing of the application had. • Farmers increased agro-chemical usage • Most farmers switched from manual land preparation, harvesting and winnowing/ threshing to using power tillers for land preparation, a modified brush cutter for land preparation and machine threshing and winnowing. • Though not nearly as high, the MILL 2 NG program has a high rate of extension workers to contract farmers compared to the projects in Ghana and Tanzania Though the fact that yields have more than doubled, there is still room for improvement, because yield of 8tons per ha should be possible under irrigation. Indeed, there are individual farmers who reach that yield already. This yield increase is however likely to come over time with experience. Despite the program being very similar to Mill 1 NG, yields seem to be slightly lower (6 versus 7.3t/ha). We feel this could be due to the quality of land preparation, because a power tiller cannot achieve the same quality as a tractor and harrow. The rate of extension worker to farmer is also substantially lower. Finally, RiceAdvice seems wider spread in the Mill 1 NG scheme. As a result of the higher yields and reductions in labour cost due to mechanisation, profitability has increased per Ha. In addition to this, the price for paddy has increased a lot over the past years, partly as a result of the import bans. This has made rice farming very profitable. The profit per Ha per annum over 2 years (using 2017 paddy prices) has increased from US$531 to US$3,007. The profit per ha per season are half of this (US$216 and US$1504). The profit per Ha is higher than for Mill 1 NG farmers despite the model of production being largely the same due to the lower prices for inputs. Where Mill 1 NG and partners sell inputs with a commercial margin, NG Inputs sells inputs basically at wholesale cost. The effects on farm size are more difficult to estimate. The yield surveys show a decrease in farm size of 1.37ha in the 2016 wet season to 0.9ha in the 2017 dry season. This seems at odds with the reality of the field, being a higher number of dry season farmers. Our sample of 12 farmers, on the other hand, started with 1ha, and were now farming 2ha on average. In response to the improved profitability, most farmers have increased the area by renting or buying additional land. It also seems different from the sample of 12 farmers who did not indicate to farm less in the dry season than in the wet season. We have therefore chosen to use the data from our sample, which indicate 1ha before CARI and 2ha after CARI. The total profit per annum for the farmers who increased yields from 3 to 6t/ha per season and increased land from 1 to 2ha increased from US$531 to US$5,293. Table 16 shows the data for such a farmer. A farmer who can only farm half of his land in the wet season, still has a profit of US$3,825 per annum, while those who can only farm the dry season would earn US$2,357.


Table 16: Impact on MILL 2 NG- Mill 2 Partner NG farmers The key challenge for farmers in this area is to find enough capital to grow the farm size, because the loan in the Anchor Borrower Scheme is limited to 1ha. Some farmers only implement GAP on the 1ha contracted, while others combine 2 out-grower schemes for their land. In some cases, farmers manage to save enough money to pay input cash for 1 additional ha. So they continue to borrow, in order to increase the land. 8 . 5 I m p a c t o n t h e m i l l The impact of the various out-grower programs on the mill has been very high, both on quantity and quality. When the mill started in 2014-2015, they were operating at only 30% of capacity (22,500 tons per season). The quality of the rice was not great, and it was a mix of many varieties. The company subsequently tested many varieties before settling on FARO 44. In the 2016 dry season, paddy farmers supplied 18,000 tons of paddy, which was 57% of supply and 1.8 tons per farmer which is 36% of the yield. In the wet season CARI farmers increased supply to 27,500 tons, with fewer farmers because 4,000 farmers did not want to sign a contract out of fear of floods. Nevertheless, some of these farmers produced and Mill 2 Partner NG bought the paddy anyway. Subsequently the last season Mill 2 Partner NG only contracted farmers for 1.8 tons per farmer, which explains the low amount of paddy sourced from farmers. Nevertheless, they have now started to buy additional paddy, and expect to reach the same level as the wet season 2016. Therefore we use the quantity supplied in the 2016 wet season for this evaluation. Mill 2 Partner NG expects to reach 85% of production capacity in the current season, which equates to 64,000 tons per season. The impact on profitability is considerable. Table 16 shows an increase from US$6,626,494 in profit to US$15,682,090. The quality of the paddy, and subsequently the end product has improved a lot as well. This has resulted, together with the import ban, in high demand. Rice storage warehouses have been converted into paddy storage, because milled rice is directly loaded on trucks bound for Lagos and other major markets. The mill is currently expanding paddy dryers and pre-cleaning, and have plans to add another processing line. They are also in the process of establishing their own 2,500ha farm, and increasing mechanisation services to farmers via a sister company.


Table 17: Impact on Mill 2 Partner NG rice mill 8 . 6 C o n c l u s i o n The program has been very successful with a high impact on both the farmers and the mill. There is no doubt the program will continue, even without CARI support. The fact that the mill is hiring MILL 2 NG and copying CARI material is the proof of this. Some people may argue that the mill did not need CARI because they had their own program running. However, the CARI program seems to have increased the speed at which supply to the mill has grown, and it has improved the quality of the training of the Mill 2 Partner NG program as well. We would argue the programs have been complimentary. Furthermore, CARI has focused on the ‘less profitable’ smaller farmers. Going forward it is still worthwhile considering support to the program, because it may allow more farmers to be included and expand the program to new areas. It will increase the speed at which the sector will grow. However, there are four major areas of improvement. Firstly, one should consider expanding the credit scheme to over 1ha in order to help farmers to grow quicker. It will also increase the returns on investment of the training, because farmers are more likely to sell the harvest of the second or third ha via MILL 2 NG to Mill 2 Partner NG. Secondly, the program should consider assisting farmer organisations in planning the layout of their areas. The lack of proper drainage and bonds limits wet season farming, and together with the lack of proper access roads it makes mechanisation more difficult. This limits farmers to power tillers and brush cutters, while long-term tractors can offer a more efficient and better-quality service. Thirdly, the program should look at innovations such as planters that can make the transplanting in rows less labour intensive. Finally, the program should look into the savings behaviour of farmers who prefer to store wealth in the form of paddy over savings accounts. This practise increases side selling, and probably impacts negatively on paddy quality.


9 M i l l 1 BF , Bu r k i na F a s o Figure 17: Farmers on the irrigated plain use draft oxen to prepare land a month ahead of the planting season 9 . 1 A r e a Mill 1 BF is situated in Community A outside the second largest city in Burkina Faso, 350km South West of the capital in the agriculturally important region. The region enjoys annual rainfall of between 900 and 1,200mm, which falls in the 5 month wet season between May and September. Community A itself is adjacent to a 1,260 ha irrigated rice plain in a Valley, which was established by the Chinese in the 1970’s. A dry season rice crop is possible, but not in all irrigated plains. The area has a well-established culture of rice farming with several small mills in the town. There are 8 cooperatives operating on the irrigated rice scheme in Community A with a total of 1,300 members who supply most of the paddy milled by Mill 1 BF. Most farmers in the program have between 0.5 and 1ha of land in the irrigated scheme for rice production. It is illegal to grow other crops on the irrigated plain during the wet season. However, during the dry season, those farmers whose plots supposedly do not access enough water for rice production grow other crops including sweet potatoes, onions, cabbages and aubergines. Many farmers also farm rice, maize and vegetables on land outside of the irrigated plain. Almost all farmers also keep livestock. Under the CARI program, Mill 1 BF has also contracted supply from farming cooperatives in a Community B, 50km to the northwest of Community A. Here the rice is farmed on 1,460ha of improved lowland with water management infrastructure installed by the Taiwanese in the 1970’s. An improved lowland is a system where available rainwater is controlled during the rainy season via a system of canals and valves. But no supplementary water is supplied and no dry season rice crop is possible. In Community B, almost 100% of farmers reported farming various other crops, both on and off the improved lowland. The rice is mostly farmed as a subsistence crop, for home consumption and village trading while the other crops are cash crops. Community B is also an important cotton growing area with a large cotton ginner and an oilseed plant.


Figure 18: Improved lowland in Community B (dry season) compared to the irrigated plain in Community A with a dry season rice crop 9 . 2 T h e p r o g r a m Mill 1 BF has two mills in Community A. The first was established in 2008 to process paddy for traders, farmers and parboilers, for a fee per kilogram. This service provider business model was chosen initially, because Mill 1 BF lacked the working capital to buy sufficient paddy to run the mill profitably. However, the profit margins on service provision are much lower than on processing paddy for sale. Hence, Mill 1 BF purchased a second mill to process paddy for sale on their own account. However, the problem remains that working capital required to reach an economic scale is lacking. The mill has had to increase its scale gradually, as working capital becomes available. This second mill is supplied by farmers in the CARI program and is the subject of this cost benefit analysis. Figure 19: Schematic of the Mill 1 BF out-grower program Mill 1 BF COMMUNITY B YIELD IMPROVEMENT COMMUNITY A’S YIELD IMPROVEMENT MICRO FINANCE BANK


The Mill 1 BF out-grower program works with 8 cooperatives in Community A irrigated plain and 20 in the improved lowland at Community B. The program has four main elements: 1. Farmer training in GAP, FBS, and crop diversification 2. Procurement contracts for the supply of improved varieties, TS2 and Orylux between the cooperatives and Mill 1 BF. 3. Farmers have received access to finance from a Micro Finance bank through the facilitation of Mill 1 BF. A peer guarantee system is used whereby groups of farmers who trust each other are lent working capital for an agreed period, usually a season or 8 to 10 months. At the end of this period the group collectively repays the loan with interest of between 1 and 2% per month. The system seems to work very well with no defaults reported by any of the cooperatives interviewed. 4. Cooperatives have received some tarpaulins and humidimeters from Mill 1 BF to facilitate the improvement in drying practices in an attempt to reduce foreign matter in the paddy and most importantly to ensure that paddy is dried to the optimal moisture content of between 12 and 14%. 9 . 3 F a r m e r i m p a c t Because of the radical difference in the production systems between Community A and Community B, business models for farmers in the two schemes have been analysed separately. However, numerous benefits from the Mill 1 BF out-grower program were common to both systems. A c c e s s t o w o r k i n g c a p i t a l f i n a n c e Access to finance through the peer guarantee system has allowed farmers in both Community A and Community B to buy certified seed and use the specified fertilizer application rates. This is reflected in the yield increases. The expectation was that farmers would use credit to access more mechanization services, or to hire labour to increase their area farmed and reduce the dependence on unpaid family labour. However, this was not the case for two structural reasons: The lack of available land in the irrigated plain in Community A, and the general lack of mechanization services in Burkina Faso, where only 14% of farmers have access to mechanization (SAVADOGO Boukary, CARI coordinator, Burkina Faso). G r o u p b u y i n g o f i n p u t s A government fertilizer subsidy to cooperatives was only sufficient to meet a small percentage of the fertilizer needs of farmers and a far greater impact on fertilizer use was achieved through cooperative buying of fertilizer attributable to the training and structuring of cooperatives under CARI. Before CARI Table 18: Mill 1 BF farmer training data Community A 8 Community B 20 FARMERS TRAINED BY MILL 1 BF OUT-GROWER PROGRAM


farmers reported paying between US$33 and US$38 per 50kg bag of NPK or Urea, which reduced to between US$26.50 and US$33 per bag through group buying. S t r u c t u r i n g o f t h e c o o p e r a t i v e s Improved structuring of the cooperatives, specifically a strengthening of the relationship with the mill and uptake of credit management and contractualisation training have had an impact in terms of access to credit and group buying. These benefits are passed on to members. C r o p d i v e r s i f i c a t i o n Crop diversification economics have struck a chord with farmers in the out-grower program. Most farmers would farm a range of other crops such as maize, cotton, sorghum and millet, as well as vegetables, but only for subsistence. However, FBS training has made farmers aware that they can gain substantial revenue from high value diversification crops. In Community B in particular, almost 100% of farmers now farm other cash crops in addition to rice. Community A is becoming a major vegetable production area. In some instances these crops are more lucrative than rice production. In time, this may result in more farmers focusing on high value crops and actually reducing their rice farming activities, which could be considered a negative impact for the millers. 9 . 4 C o m m u n i t y A F a r m e r i m p a c t Based on farmer interview data, in Community A, the average production of paddy per ha rose from 3.9t/ha to 5.9t/ha in the wet season and from 3.1 to 4.2t/ha in the dry season. However, of the farmers interviewed, only 50% (5 out of 10) farmed a dry season crop. Those who did not farm rice in the dry season due to insufficient water, used their land to produce other crops with a lesser water requirement, such as sweet potatoes and vegetables. For farmers with only wet season crop, the yield increase is 23%, increasing net profit from US$411 to US$632, or 53%. Farmers who had both a wet and dry season crop saw an increase in annual profit from US$695 to US$1,326, or 91%. At 3.1t/ha pre-CARI, the dry season crop was marginal, earning less than US$100 in additional net profit. Unless farmers are able to get a dry season yield of at least 4t/ha, they are better off farming other crops in the dry season. As the CARI yield survey data was for wet season only, and the average yield per hectare was considerably higher than reported by farmers, (4.8t/ha before CARI and 6.8t/ha after) the farmer interview data was used, being both more conservative and including dry season data. Table 19: Yields and revenue increases for Community A farmers COMMUNITY A FARMER BENEFIT FROM MILL 1BF OUT-GROWER PROGRAM


In interviews with the Union of Cooperatives in Community A, a shortage of government extension workers, down to 6 from 15, has hindered the implementation of certain good practices, particularly drying. This is compounded by a lack of sufficient tarpaulins and humidimeters. The cooperatives also lamented a lack of mechanization, particularly for winnowing and threshing. Issues related to post harvest handling in Burkina Faso are a serious barrier to the competitiveness of Burkinabe rice. Over drying in field and the presence of foreign matter reduce milling efficiencies because it increases breakages dramatically. Compounded by less efficient small-scale equipment, millers are forced to sell the majority of their produces as second grade and at lower prices. Figure 20: Infield drying increases the risk of over-dried paddy and the presence of foreign matter like pebbles and sand 9 . 5 C o m m u n i t y B f a r m e r i m p a c t . In Community B, the average production of paddy per hectare rose from 1.7t/ha in 2016 to 3.7t/ha in 2017 according to farmer interviews. The 2016 CARI yield survey showed an average yield of 3.1t/ha, and the 2017 5.1t/ha. In Community B, farmers before CARI were actually in a loss-making situation if all costs are considered and paid for in cash. This would suggest a continued heavy dependence on unpaid family labour. But, with this substantial increase in yields of 114%, Farmers have gone from losing US$30.7/ha to making a healthy profit of US$462/ha. With the average area per farmer interviewed in Community B of 2.16ha, farmers are making on average US$998 as a result of the CARI program.


Table 20: Yield and revenue increases for Community B farmer farmers Despite a large improvement, yields per hectare in Community B remain low. The relatively large area per farmer compensates for this, but numerous poor agricultural practices persist, despite the GAP and PHH training. The GAP manual for improved lowlands in Burkina advocates transplanting from a nursery in irrigated systems where the timing of water application can be controlled. In improved lowlands such as Community B, the manual recommends direct planting in rows of 25 x 25cm. In Community B, no evidence of row planting can be seen. Community B farmers use an ox-drawn planting machine called a “semoire”. This device appears to be poorly adapted to planting rice as it does not plant in rows. There is no doubt this machine is used as a labour saving device due to the relatively large area cultivated. Figure 21: Rice stubble in the dry season shows no evidence of row planting A second bad practice is the drying of paddy in field. Not only does this increase the amount of foreign matter in the paddy, but means that it is easily over dried in the hot dry season that follows harvests. Again, this practice is to free up farmers to engage with other crop farming activities. With a long history of parboiling in Community B, this over drying would not have presented a serious problem. However, Mill 1 BF was forced to reject substantial quantities of paddy from Community B because the moisture content was as low as 8% compared to the ideal of 12 to 14% required for milling. 9 . 6 I m p a c t o n t h e m i l l The project has provided a major growth in the volume of paddy procured as well as the quality. Nevertheless, the business is not profitable at its current scale, with the low milling efficiency and high cost of the out-grower program. Community B Farmer Benefit from Mill 1 BF Out-grower program


I m p a c t o n p a d d y v o l u m e s The Mill 1 BF out-grower program trained 5,047 farmers at a total expenditure of US$ 401,934 on the CARI program. But because of the lack of working capital the mill was only able to purchase a fraction of their production. Mill 1 BF saw a 5-fold increase in paddy processed during the first year of the CARI program, from 112 tons in 2016 to 550 tons in 2017. However, this is still very far from the scale it needs to make the business profitable, and to run an out-grower program of 5,000 farmers. If we divide the total production by the number of farmers trained, we get to an average purchase of 111kg per farmer trained per year. This means the training cost per kg of additional paddy are extremely high. The margin the mill makes on the 555kg of paddy that a farmer supplies over a 5-year period is not enough to recover the training cost of 80$ per farmer. So in fact, Mill 1 BF is training farmers from whom it doesn’t buy the crop. They are providing a public good that is not in the economic interest of the mill. The number of farmers trained is far too high for the turnover of the mill. Our calculations show that in order to carry the cost of the current CARI program and turn a small net profit, the company would need to mill 2,000 tons per annum. However, this is still only 400kg per farmer. The high number of farmers trained is not the only reason for the lack of profitability. Even if the number of farmers trained would be drastically reduced the mill is still not very profitable. If we assume that we can bring the training cost down to 10% of the current budget by training only 250 farmers in GAP and FBS and buying 2.2 ton per farmer to get to the 550 tons the mill barely breaks even. The low production volume is one of the main reasons of low profitability. At a scale of 550 tons per year the fixed cost per kg of paddy are high. The biggest challenge for Mill 1 BF in achieving scale is working capital. Mill 1 BF was forced to borrow substantially from commercial banks at an interest rate of 14% (including taxes) in order to achieve the scale of 550 tons. In addition, it had to put up substantial physical and financial guarantees of 100 to 140%. The target of the company is to process for 9 months of the year at full capacity which requires 5,760 tons of paddy per year and a working capital loan of US$ 150,000. Mill 1 BF lacks the physical and financial assets to secure this amount of working capital. I m p a c t o n p a d d y q u a l i t y An important improvement in CARI is the harmonisation of the rice varieties supplied. In the CARI program farmers are trained to use certified seed of the varieties TS2 and Orylux. TS2 is white long grained rice that meets consumer expectations in terms of consistency and taste. Orylux is a Basmati style perfumed rice, which attracts a premium. By milling only these varieties, Mill 1 BF is able to gain consumer market access and has received supply contracts with the government schools feeding scheme Another important improvement is an increase in grain size and reduction of the percentage of empty husks. The improvement is due to the implementation of GAP, specifically the use of improved seed, increased and correct fertiliser usage. Unfortunately, there has been little improvement in post-harvest handling of rice, and as a result most of the rice is too dry when processed, which increases breakage dramatically. In addition foreign matter is still an issue. This reduced the yield of rice per kg of paddy, and it makes the final product more difficult to sell. As it is local rice in Burkina Faso has the bad reputation of containing small stones, sand and other foreign matter, which consumers need to sort out before cooking the rice. This time-consuming practice means consumers prefer imported rice.


As such, the paddy quality is still far from what is needed to run an efficient mill. Poor quality paddy combined with inefficient milling equipment results in low milling efficiency, as measured in the amount of rice (63%) and particularly whole grain rice obtained from 1 unit of paddy. This in turn contributes to low profitability. There appear to be 2 major reasons for the low uptake of correct post-harvest handling methods. Firstly, local farmers are still mostly unaware of the problem. Most of their rice is traditionally parboiled, and thus the low moisture content is not an issue. Secondly, there is a lack of labour for manual threshing and winnowing during the harvest period, because farmers prepare their fields for other crops, particularly vegetables. The rice simply gets left in the fields for up to 2 weeks in a period when daytime temperatures often reach 40 degrees. By the time it gets processed it is bone dry and full of dust and sand and little stones, also because very few people dry on tarpaulins or concrete drying platforms. At the level of cooperatives, extension workers and miller’s there is a good level of awareness of the problem. Equipment for mechanical harvesting and threshing would be the best solution for this issue, potentially operated by service providers and cooperatives. Unfortunately there is very little equipment around at the moment. Table 21: Low scale and high CARI investment show a negative impact on the mill I m p a c t o n r e l a t i o n s h i p s w i t h f a r m e r s The third strategic objective for Mill 1 BF is the building of a direct relationship with the farmers and cooperatives. Farmers have enjoyed increased yields and revenues, group selling, access to credit and inputs, and a guaranteed market through the out-grower program. Cooperatives have become better structured through the CARI credit management and contractualisation training. Crop diversification and FBS in general have had a positive impact on farmers’ revenues. All of this reflects very well on Mill 1 BF and the trust established has meant that cooperatives are prepared to reserve paddy for Mill 1 BF, allowing the mill to take delivery as and when working capital becomes available. 9 . 7 C o n c l u s i o n The Impact of the program on rice yields and farmer incomes has been substantial. Another important contributor to farmer incomes has been the uptake of additional cash crops as a result of FSB and diversification training. IMPACT OF THE CARI PROGRAM ON MILL 1 BF


The impact on the mill has also been substantial. Production volume have increased 5fold, and the mill now processes uniform varieties in demand with consumers. Milling efficiency has also increased due to fewer empty husks and larger grains. However, the mill is still far from being profitable, and the scale of the current out-grower program is unsustainable for the mill. Poor post-harvest practises combined with inefficient milling equipment means low milling efficiency and a high amount of broken rice which forces the mill to sell all the produce as second grade. All of these reduces profitability. In addition the production volumes are low, mainly due to a lack of working capital. The low production volume means the fixed cost per kg is high. Finally, the size of the out-grower program and thereby the cost of the program are far too high for the current size of the mill. The mismatch between the scale of operation and the training program also becomes clear if we look at the total cost of the program versus the turnover. It is clear that an investment of US$401,934 in farmer training is not affordable to a mill whose gross revenue (turnover) was only US$226,182 in the first year of the CARI program. However, we also have to take into account that the program has only been running for a year, which was also a drought year. Many investments in training and relationship building still need to show dividends. For the mill to become profitable and the program to be sustainable, the size of the program would need to be scaled back to about 250 to 500 farmers in the first year. In addition, the mill would need to receive assistance to obtain enough working capital to increase the scale to at least 1,000 tons. Finally, introduction of threshing and winnowing equipment as well as centralised drying facilities are essential to increase paddy quality and milling efficiency.


1 0 M I L L 2 BF , Bu r k i na F a s o 1 0 . 1 A r e a The MILL 2 BF is situated in the southwestern part of the country, and thus operates and sources paddy in the same region of the country as Mill 1 BF. The MILL 2 BF out-grower program operates in 6 production areas. The farming areas visited in this cost benefit analysis were Village 1 and Village 2. Hence, the analysis will focus on these two areas. Village 1 is a pure rain fed system on the border with Mali. Village 1 is a village without electrification, or formal roads. The farming system is very traditional subsistence based. Many of the costs of production and agricultural products produced are traded in kind, rather than in financial terms. Paddy and other grains are usually stored in thatched granaries in the Community B and the exact quantity in terms of weight or sacks of paddy produced is often unknown. Village 2 by contrast is a highly sophisticated irrigated plain, with infrastructure installed by the Chinese in 1969. The yields per hectare, quality of paddy and degree of professionalization is high by Burkinabe standards. 1 0 . 2 T h e p r o g r a m The Mill 2 BF out-grower program is very similar to the Mill 1 BF program. Farmers have received training in GAP, FBS, and crop diversification. Verbal contracts for the supply of improved varieties TS2 and Orylux between the cooperatives and Wend Yam have been agreed. The primary difference is that Mill 2 BF does not have a credit program with banks. Some farmers and cooperatives receive seed and fertilizer on credit from the mill. Once the paddy is delivered, the cost of the credit is deducted. Farmers in the program have received 7.8tons of certified TS2 seed from the mill, which is repayable in kind over 3 years. The reason for this extended repayment period is that the certified seed can viably be recycled three times before the quality of the seed declines. Cooperatives also received 7 tons of fertilizer from Mill 2 BF, which is repayable in kind. The decisions of which farmers receive input credits seems a bit random, and not based on a needs analysis or agronomic model, but more based on gut-feel (who is likely to pay back and how much would they need) and availability of working capital. Farmers were trained by 5 trainers from three service provider companies. Farmers received two sessions of GAP training and 1 session on FBS. The target number of farmers for training had not been achieved at the time of the fourth and final semester report. However, training is continuing and the target should be met this year. The reason given for not completing all of the training sessions was that several farmer cooperatives had not respected the terms of the contract in terms of the amount of paddy supplied. In the two zones visited during the cost benefit analysis, Village 2 cooperative had Table 22: Mill 2 BF farmer training data FARMERS TRAINED BY MILL 2 BF OUTGROWERS PROGRAM


fulfilled its supply agreement. For Village 1 on the other hand, the cooperative was only able to deliver 49.7 tons of the 150 tons contracted. The reason for this was that during the 2017 season, large parts of the production area were flooded. Other staple crops such as maize and millet failed entirely and as a result the rice was reserved for home consumption. Other farmers whose plots were flooded prior to planting decided to keep back certified seed for the following year. Despite having secured a loan of FCFA 150 million (US$285,000) from CBC bank to finance inputs and purchase paddy, MILL 2 BF was unable to access all of the paddy contracted and the miller was forced to accept that it was a bad year in many of the production zones in the CARI program. Hence, the mill was only able to purchase 1,309 tons of paddy, sufficient to operate the mill for only three months of the year. 1 0 . 3 V i l l a g e 2 F a r m e r i m p a c t I m p r o v e m e n t i n y i e l d s a n d p r o f i t p e r h e c t a r e In Village 2, 632 farmers, of whom only 48 are women have between 0.5 and 1ha each on the irrigated plain, producing 2 rice crops per year, although one third less land is farmed during the dry season. According to the farmers interviewed the average yield increased from 3.5t/ha to 5.3t/ha in the wet season and from 3.2t/ha to 4.4t/ha in the dry season. The 2017 yield survey using crop cuts had only sampled 4 farmers in the area and calculated an average yield of 1.1t/ha, which is unlikely. Hence we have used our interview data. Yields increased by 51% in the wet season and 38% in the dry season. However, yields of 5.3t/ha (wet) and 4.4t/ha (dry season) remain low compared to irrigated farms in Nigeria. We identified 3 main reasons: • Limited uptake of GAP, particularly poor post-harvest handling. It was perceived during interviews that because of the long farming history, farmers are under the impression that they know best how to farm rice and in some instances are reluctant to change their methods. In addition, there is no credit to pay for certain GAPs, although with the small farm size, family labour may be sufficient for GAPs such as transplanting in rows. • Lack of the mechanization required to improve rice yields through better land preparation and post-harvest handling. • Average soils. The soils in Community A are not the most fertile to begin with, and 40 years of intensive rice farming doesn’t make them any better. Farmers would benefit from a proper soil analysis and personalized fertilizer recommendation. As in Community A, the extent of the irrigated scheme is limited as farmers have small plots, averaging 0.64 ha, up slightly from 0.6 ha, and with little opportunity to increase their area farmed. Farmers have not been able to increase their area to take advantage of higher profitability. Despite the modest yield increase and stable land size, we have seen a substantial increase in farmer profits from US$355 to US$987. The reasons are: • The introduction of certified seed of high yielding varieties TS2 and Orylux. Orylux also attracts a slight premium: US$304 per ton compared to US$285 for other varieties. The market for the aromatic Orylux variety is however limited. • Reduction in production costs due to a halving of the amount of seed used through correct transplanting and a reduction in the cost of fertilisers.


Table 23: Yield and revenue increases for Village 2 farmers The savings in the cost of fertiliser (US$33.25 to US$31.35 per 50kg bag) were made through group buying by the cooperative. The input supplier RMG has a warehouse on the cooperative premises, adjacent to the irrigated plain. Farmers in Village 2 produce higher quality paddy than farmers in improved lowland or rain fed systems. MILL 2 BF reported that milling efficiency of paddy from Village 2 produced 63% white rice compared to 59% from rain fed and improved lowland systems. Therefore they receive a slight premium from MILL 2 BF of FCFA 150/kg for TS2 and FCFA 160/kg of Orylux, compared to the government base price of FCFA 140. The primary need expressed by farmers in Village 2 is for mechanization, especially winnowing and threshing equipment and humidimeters. 1 0 . 4 I m p a c t f o r V i l l a g e 1 f a r m e r s The remote village of Village 1, close to the Malian border had the most basic production environment seen. Rice is grown in the wet season on rain fed plains along with cotton and staple crops including maize, millet and white sorghum. Before CARI, the emphasis was clearly on food security, rather than commerce and only surplus rice was sold or traded in most cases. Village 1 saw floods in 2017, which affected rice production and also sales of rice. Because the maize, millet and sorghum crops failed the vast majority of rice was retained for food security, and the cooperative failed to fulfill its contract obligations to MILL 2 BF. This presents problems for a truly representative cost benefit analysis of their activities. However, an increasingly erratic climate in Burkina Faso, with a shorter and less predictable wet season causing a ‘bad’ year roughly every second year, this situation is a reality that needs to be taken into account. It raises the question of the suitability of rain fed systems for participation in contract farming or out-grower program as they present a high risk of default in terms of the miller’s investment in farmer training and input credits. VILLAGE 2 FARMER BENEFIT OF MILL 2 BF OUT-GROWERS PROGRAM


Small yield and revenue increases were reported by farmers interviewed. Average yields per hectare rose by 50% from 2.28t/ha to 3.42t/ha, according to the farmer interviews.1 There is no yield survey for 2017 we could use, while the 2016 yield survey seems to suggest that non-irrigated farmers had higher yields than irrigated farmers, which seems unlikely and therefore we chose to use our interview data. Farmers revenues, based on paddy produced rather than sales, rose by US$68/ha from a previously loss making situation. In response, farmers increased their area under rice by an average of 25%. The yield of 3.42t/ha is quite substantial given the difficult conditions for rice farming. Soils are not ideal for rice as they are very sandy. There is limited control over water, with both flooding and drought occurring. There is no mechanization. Only one rice crop per year is possible. Table 24: Yield and revenue increases for Village 1 farmers. Figure 22: Vegetables are grown in woven grass enclosures and are watered from shallow wells. The thatched granaries used to store rice and other grains make estimating yields difficult By far the greatest impact for Village 1 farmers of the CARI program is the massive adoption of cash crop diversification. Before CARI most farmers reported growing a small amount of tomatoes, onions or okra for sauces for home consumption. However, they have increased production dramatically with the surplus sold on the market. At the time of the cost benefit analysis, which coincided with the dry season, vast areas of vegetable plots could be seen, being established in woven-grass enclosures, a technique introduced by the CARI program to avoid destruction of crops by livestock. Water is drawn from shallow wells to irrigate vegetable production in the dry season. The water table is approximately 1.5m below the surface. The income from these activities is high. The reported income from a 0.25ha of tomato production can be in within FCFA 300,000 or US$570, depending on the market. Although, a cost benefit analysis was not VILLAGE 1 FARMER BENEFIT FROM MILL 2 BF OUT-GROWER


conducted for these crops, the gross income from 0.25ha of tomatoes is comparable to a hectare of rice production in this low yielding environment. While this would suggest that Village 1 farmers, like Community B farmers, will focus more on high value crops at the expense of rice production, the production of rice does not compete head on with cash crops. Rice is produced in the wet season, when the plain is largely inundated with water, while the vegetable crops are produced in the dry season and are irrigated from shallow wells. Rice, millet, sorghum and maize will remain very important staple crops for Village 1 farmers. Vegetable farming as crop diversification should therefore be seen as a necessary adjunct to cereal production, providing farmers with additional income, better nutrition and spreading climate risk over different crops and different seasons. Whether investment in these activities should be the responsibility of rice millers who only benefit from rice production remains the question. Village 1 Cooperative also reported benefits in respect of the structuring and professionalization of the cooperative. The government fertiliser subsidy in 2017 took the form of 20tons of NPK and Urea donated to the cooperative as a form of working capital. The cooperative sells the fertiliser to farmers on credit at a small profit. The revenue from sales is then reinvested in fertilisers for the following year. The fertiliser subsidy cannot be attributed to the CARI program, however, the good management of this fund by the cooperative is at least in part due to CARI FBS training. The current yields of 3.42t/ha of paddy, generating average farmer net profit of only US$37 are dangerously close to the breakeven point. The suitability of rice as a crop for this area will depend on further yield increases. There remains considerable scope for improved GAP uptake in Village 1, however the introduction of a water management system will be key to the sustainability of rice production in the area. 1 0 . 5 I m p a c t o n t h e m i l l The amount of paddy processed by MILL 2 BF rose from 781tons in the 2015/16 season to 1,309tons in the 2016/17 season. This represents an increase of 67%. However, this was still insufficient to reach the scale needed to run the profitable and to afford the significant investment in the CARI program. Table 25: Low production volumes and high program costs show a negative impact for the MILL 2 BF IMPACT OF THE CARI PROGRAM ON MILL 2 BF


Revenues for the mill increased from US$292,311 to US$473,244, through the increase in paddy processed. While the gross margin of 17% is comparable to the larger mills in the CARI program, the low volumes processed are insufficient to cover fixed costs and the investment in the CARI program As a result the mill’s loss making position of -8% or US$23,086 for the 2015/16 season worsened to -18% or a loss of US$84,585, largely due to the large investment of US$306,488 in the CARI program. Admittedly, this investment must be amortized over the 5 years of expected impact, and 40% of this cost was covered by the CARI matching grant. However, it remains clear that a mill with revenues of only US$473,244 per year cannot support an investment of US$306,488 in farmer training. This is especially true if the mill receives only a small part of paddy produced by the farmers trained (0.46tons/farmer compared to 4tons seen in other programs). The situation was exacerbated for MILL 2 BF in 2017 because supply contracts were not honored due to drought and flooding in some production areas. Our economic analysis shows that if the scale of the project would be scaled down from 2,500 farmers to 500 farmers (and the cost reduced to one fifth), and the scale increased to 2,000 tons, the mill would make a small profit (4% net profit). 1 0 . 6 C o n c l u s i o n Like Mill 1 BF, the scale of the CARI program was too large for the mill. Too many farmers are trained that do not deliver to the mill, or too small quantities. That is economically not sustainable. In addition, the scale of the mill is too small and the milling efficiency too low to be competitive in the first place. Farm impact has been significant in Village 1. However, without investments in water management infrastructure yields and earnings will remain limited. It is questionable whether rice is the best crop for these areas. The quick adoption of more lucrative vegetables hints that this may be a better option for farmers. Farm impact in the irrigated Village 2 area was limited. Experiences from other programs suggest that introduction of mechanization, particularly for post-harvest, tailor made fertiliser advice based on soil testing and credit for inputs, service providers and labour can boost yields.


1 1 L e s s o n s l e a r n e d f r o m t he v a r i o u s p r o g r a m s 1 1 . 1 A w e l l - m a n a g e d o u t - g r o w e r p r o g r a m i s a g o o d i n v e s t m e n t f o r a m i l l o r i n p u t s u p p l i e r The programs that have been properly managed, even those that do not offer credit, seem to have increased the company profit substantially. We have used a five-year horizon for the program, meaning that we assume the cost of a 3-year program are written off over a 5-year period. However, even if we would have used a 3-year period, the results would have still been positive. The reason that these programs are a good investment is that the profit of the mill (or in one case the input dealer) can make enough margin on the paddy to pay back the training cost. In order for us to get a better understanding of the effect of out-grower programs on profitability, we have calculated how much extra paddy a mill would need from a farmer in order to earn back the training cost of that farmer. For this calculation, we have calculated the gross and the net profit per kg of paddy processed, and compared this with the training cost per farmer. The latter is calculated by dividing the total program cost by the number of farmers contracted at the end of the program. Finally, we divided the training cost by the gross margin as well as the net profit per kg to calculate the volume the mill needs to get to break even on the training cost of that farmer. Table 18 shows an overview for 3 mills. The Ghanaian mills were excluded from this calculation because one mill was not operational, while the data for the out-grower program for the other mill is uncertain. In order to for these calculations to be possible for loss making mills in Burkina Faso a hypothetical break-even scenario was created. Finally, Mill 1 NG is not a mill so it is difficult to compare. For MILL 1 NG we would need to look at how much additional inputs need to be sold. Whether one looks at the gross margin or the net margin is a matter of discussion, which is why we included both. On the one hand, one could argue that if you look at gross profit, you underestimate the cost because you are not taking fixed cost into account. On the other hand, one could say that the fixed cost are there anyway, and that CARI is supposed to give additional volume that will not change the fixed cost. The truth is probably somewhere in the middle, as fixed costs are only fixed until a certain production level, after which the factory needs to be enlarged. Furthermore, it depends on the importance of CARI farmers to the overall supply of the mill. If CARI is the majority of supply, then the CARI farmers are responsible for covering the fixed cost.


Table 26: Amount of paddy need for mills to earn back their farmer training costs What we can see in table 15 is that Mill 2 Partner NG only needs to receive 882kg of paddy from a farmer to earn back the training cost, while this is 1.26tons for Mill 1 TZ and 2.6tons for Mill 2 TZ. The difference can be explained by the fact that Mill 2 Partner NG has by far the lowest training cost per contracted farmer (US$81) and the highest net profit per kg of paddy. Mill 1 TZ has the highest training cost, but a much higher net profit per kg of paddy than Mill 2 TZ group, despite paying a higher price to farmers. The reported milling efficiency of Mill 2 TZ is 10% lower than Mill 1 TZ In addition, Mill 2 TZ sells most of the rice as third grade. For this calculation to be possible for Mill 1 BF and MILL 2 BF, the mills will have to reach a scale of 2,000tons and 3,000tons per year respectively in order to break even. While the gross margin per kg of paddy processed is comparable to the other larger mills, the amount of paddy milled, even at a break even scale, is simply too small to cover fixed costs and the investment in the CARI program in the short term. The table illustrates a number of key lessons: 1. The efficiency of the mill has a large influence on profitability, and ultimately how profitable an out-grower program is. 2. The lower the cost per farmer, the easier it is to make the program pay for itself. 3. The amount of additional paddy needed per trained farmer is actually very modest for the larger mills but escalates dramatically for the small-scale mills in Burkina Faso, due to the disproportionately large investment in the CARI program. However, we do have to mention that none of these examples include the cost of farmers defaulting on loans. Loan defaults are the one area that can erode the benefits of an out-grower program very quickly, Mill 2 Partner NG Mill 1 TZ Mill 2 BF Mill 1 BF Mill 2 TZ


which brings us to lesson number 2. The two Nigerian CARI programs as well as Mill 2 TZ are not responsible for the credit component of the program. This is outsourced to other financial institutions. 1 1 . 2 T h e s i z e o f t h e C A R I p r o g r a m n e e d s t o b e p r o p o r t i o n a t e t o t h e s i z e o f t h e m i l l The main conclusion of the cost benefit analysis in Burkina Faso is that the size and thus cost of the program needs to be proportionate to the size of the mills. Table 26 below shows the massive discrepancy in the scale of the mills in the Burkina Faso programs, compared to Tanzania and Nigeria. Though the Burkina Faso mills are processing 10 to 40 times less than mills in Tanzania and Nigeria, the cost of the Nigerian and Tanzanian programs is only about twice that of the Burkina Faso mills. All programs train thousands of farmers, but the Burkinabe mills would only need about 250 farmers. The result is that the amount of paddy received per trained farmer is much lower in Burkina Faso, and the cost per kg of additional paddy much higher. Mill 1 BF and MILL 2 BF receive only 0.11 tons and 0.46 tons of paddy per farmer trained. Which is far less than the 2.39 to 4.72 tons received per farmer trained by the other mills in the CARI program. The cost per kg of additional paddy are US$0.19 and US$0.12 compared to US$0.01 in Tanzania and US$0.001 in Nigeria. It would make more sense for these smaller mills to run proportionately smaller out-grower programs, perhaps focused on the irrigated plains where high yields would allow them to purchase more paddy from fewer farmers. For example, if Mill 1 BF trained only 500 farmers in Community A and purchased 4 tons of paddy from each of them, a total of 2,000 tons per year and would break even. At the current investment per farmer of US$81.42 this would require an investment of no more than US$40,710 in the CARI program. Table 27: cost comparisons of farmers trained, paddy supplied and the effect on mill profitability Mill 1 TZ Mill 2 TZ Mill 2 & Mill 2 Partner NG Mill 1 & Mill 1 Partner NG Mill 1 BF Mill 2 BF


Default on credit is the one issue that can make an out-grower program unprofitable very quickly, but it can be managed This point can be best demonstrated using a real-life example. A full credit package in the case of Mill 1 NG and MILL 2 NG farmers is US$792 per ha and US$546. If we would take a default percentage of 20% on a non-interest-bearing loan, the cost per farmer for the program would be US$158.40 and US$109.20. This is higher than the total amount of other cost. MILL 1 TZ mill experienced this issue first hand, which is why they stopped providing credit. This potential loss means that ideally the mill or input dealer needs a bank or micro finance institution to manage this component. If the mill or input dealer needs to manage this component themselves, it is essential to design the program in a way that default rate is kept low, and to charge an interest rate that can compensate for the defaulters. If for example an interest rate of 20% is charged, this can help to claw back most of the cost (assuming that part of this 20% is needed to cover the interest the mill needs to pay on these funds). The three programs, Mill 1 N, MILL 2 NG, and MILL 1 TZ provide some interesting clues as to how the default rate can be kept low: 1. Using the credit history of applicants; micro finance organisations have a tendency to speak to neighbours and previous suppliers to assess if the applicant has a history of defaulting. 2. Using a group loan structure where other members become liable for the debt. 3. Using village elders and religious leaders to put social pressure on defaulters. 4. Only providing credit to farmers with a weather risk management system: irrigation and or weather index insurance. 5. Provide a market related buying price for paddy to lower the incentive for side-selling. 6. Make credit conditional to having completed FBS and GAP training. 7. Only provide credit to farmers with a sales contract. 8. Throw defaulting farmers out of the training and supply and credit program completely. 1 1 . 3 T h e r e a r e 8 i n g r e d i e n t s f o r a s u c c e s s f u l r i c e o u t - g r o w e r p r o g r a m Looking at the various programs, we can see that there are 8 key ingredients to a successful program. The programs that encompass the most of these ingredients seem to be the most successful and sustainable. The ingredients are: • Training: farmers, extension workers and mills have all been very enthusiastic about the quality of CARI training. All programs have been centred on training. • Credit: arguably the most important lesson of this evaluation is that credit is the driving force behind implementation of GAP. Without credit, only GAPs with little financial implication are implemented. • Mechanisation allows for a higher yield (better quality of land preparation, lower post-harvest losses) and reduces cost. It also helps farmers to increase the land farmed, because the amount of family labour is no longer the limiting factor. • Irrigation is critical for high yields. Water management in itself increases yields, but without irrigation it is difficult to obtain credit for the implementation of GAP, and farmers are reluctant to invest themselves. • An efficient mill with a good marketing strategy is critical for the competitiveness of the value chain compared to imports and other domestic producers. If the mill has a low ratio of whole grain white


rice to paddy it either will have problems competing on the market and thus offering a good market for farmers, or it can only afford to pay a low price for the paddy which reduces farmer incomes. • The right agronomic conditions are essential; without the right soils, weather or easy access to water for irrigation, yields will remain low or production will become very expensive. For example, if water needs to be pumped from far. • The right profit split between farmers and the mill; if a program only benefits the farmer, the mill will not continue the program. If the program only benefits the mill, farmers will stop farming rice. • Finally, subsidies and imports bans or import duties are necessary, at least during the start-up phase of the industry, as a protection against cheap imports from Thailand, India and other Asian countries. The rice imported from these countries is so cheap, that only mechanised farmers supplying to highly efficient professional large-scale mills can compete. Furthermore, the only reason they can compete is because of the transport cost, because the rice industry in Thailand, the main exporter, is highly subsidised. Table 27 provides an overview of the various programs, and how they rate on these 8 criteria. The darker the colour of the cell, the higher the programs scores on that criteria. What becomes clear from table 19 is that programs which fulfil the most criteria are also the ones who score the best on Farmer Impact, Impact on the mill and sustainability. Table 28 provides an overview of the mill and farmer impact per program.

Table 28: Scoring of 8 programs on 8 critical success factors Mill 1 TZ Mill 2 TZ Mill 1 GH Mill 2 GH Mill 1/Partner NG Mill 2/ Partner NG Mill 1 BF Mill 2 BF Community A Only Village 2 only


Table 29: Summary comparison of 8 programs 1 1 . 4 W i t h o u t c r e d i t , G A P i s l o w , b u t w i t h o u t i r r i g a t i o n t h e r e i s n o c r e d i t Without credit, uptake of GAP tends to be low. Farmers will only implement those practises that cost very little money, and can be done by family members. Often this also means that only on a small area GAP is applied, and that farmer stays small. For example, instead of following rice advice and applying 10 bags, a farmer may only apply 3 bags because that is the money he has. Uptake of certified seed seems to be also linked to credit. Transplanting and planting in line, as well as mechanisation are also taken up by farmers without credit, but to a lesser extent. Finally, selling mechanisation services to small farmers with less than 1 ha is much easier if they have credit. However, in order to obtain credit, irrigation is essential. It seems few commercial banks and even public-private loan schemes are willing to finance rice farmers that don’t have irrigation or at least some form of water management. Irrigation is also important to improve the yields, and thereby the return on investments in other inputs such as fertiliser and certified seed, but also row transplanting and other labour-intensive practises. Yield is determined by the weakest link. A farmer can do everything right but still have a poor yield in dry years. Mill 1 GH Mill 2 GH Mill 1 TZ Mill 2 TZ Mill 1/ Partner NG Mill 2/ Partner NG Mill 1 BF Mill 2 BF


Therefor it’s not only the lack of credit for pure rain fed farmers that limits GAP uptake, but also the risk perception of the farmer. Climate change, which appears to lead to less frequent and less reliable rains, only increases the need for irrigation. 1 1 . 5 R i c e i s p r o b a b l y n o t t h e r i g h t c r o p f o r a r e a s w h e r e i r r i g a t i o n i s c o s t l y o r d i f f i c u l t Given the need for irrigation, investing in areas where irrigation is difficult or expensive does not make sense. The only exception would be if government is willing to invest in the construction of a large irrigation scheme. But even than one has to ask whether rice gives you the best return on investment. Rice remains a global commodity and a very political crop that is highly subsidised in many places. It is a high volume low margin crop. If large investments need to be done in water, one has to ask whether it is not more lucrative to invest in fruit or other crops with better margins. In addition, if water needs to be pumped over large distances, or from deep aquifers, the cost will be too high to be competitive. 1 1 . 6 Y i e l d s o f 8 t o n s p e r h e c t a r e a r e p o s s i b l e f o r A f r i c a n s m a l l h o l d e r f a r m e r s The Mill 2 TZ program in Tanzania and the two programs in Nigeria demonstrate that with a complete package of training, irrigation, credit, soil testing or rice advice and mechanisation experienced farmers can get to 8t/ha. All of these programs have many farmers that achieve this level within 1 or 2 seasons after training. 1 1 . 7 M e c h a n i s a t i o n c a n w o r k f o r s m a l l h o l d e r f a r m e r s i n A f r i c a The uptake of mechanisation has been very high in most programs, particularly those where farmers can obtain credit to pay for these services. Private Service providers and farmer organisations seem to have little problems to find clients willing to pay for these services per ha or bag. Most farmers recognise the quality of land preparation is better, and there are fewer post-harvest losses. In addition, farmers want to expand their land area and this can only be done with mechanisation. Due to the farmer business school, GAP training and high yields farmers are now starting to see rice farming as a business and career opportunity. However, this also means they realise they need to increase the scale of their farms if they want to have a decent standard of living. 1 1 . 8 A n i n p u t s u p p l i e r o r g o v e r n m e n t e x t e n s i o n s e r v i c e c a n b e g o o d p a r t n e r The examples from Nigeria show that though a mill always needs to be involved, there are alternatives for the primary managing organisation of the program. Mill 1 NG shows that an input dealer can also manage a program well, and that there is sufficient financial incentive through the increased sale of inputs and small margin on rice traded to make investment in the out-grower program lucrative. MILL 2 NG shows that public development organisations are also good potential partners.


1 1 . 9 D e s p i t e c o m p e t i t i v e p r i c i n g , t h e m i l l s o n l y r e c e i v e a s m a l l p a r t o f t h e p r o d u c t i o n o f t r a i n e d f a r m e r s Finally, the amount of paddy supplied per farmer remains low, despite the fact that the mills all pay a market related price instead of a fixed price that can be trumped by other buyers. Even those mills that offer more, for example through a guaranteed minimum price, do not get all the paddy. In most cases farmers sell less than 50% of their crop to the mill responsible for their training. From the perspective of the mill it makes more sense to reduce the number of famers trained and increase the amount of paddy per farmer. There seem to be many reasons for the low amount of paddy supplied per farmer: 1. Some programs, notably in Nigeria, only contract farmers for maximum one hectare and only provide input/ credit for 1ha. Farmers who do more feel limited loyalty to the mill for that area, or they find other financers. 2. In some cases, farmers feel the need to pre-sell to traders before the harvest because they need credit for personal or even business expenses. 3. Farmers sometimes like to store paddy to wait for price increases, while mills prefer to buy rice at a low price at the harvest time and store. 4. Farmers keep rice as a form of cash, and prefer rice over money in a bank account or cash. 5. There is heavy competition from other mills and traders. 6. Farmers don’t like to be dependent on one client. 7. Farmers keep considerable amount for home consumption as well as donations to Community B (in Nigeria). 8. It is not always clear that the mill finances the training. Not all these issues are easy to address, but some work is definitely possible. 1 1 . 1 0 O p t i m i s a t i o n o f t h e p r o g r a m s e e m s p o s s i b l e . We are however convinced that a private company can change the out-grower program to reduce the cost and increase the amount of paddy obtained from farmers, and thereby make it even more lucrative to invest in a program. For example, a private company would probably not engage in diversification or parboiling training if they do not trade in diversification crops. This would reduce the training cost per participant considerably. We feel that this is a public good or social investment for which public money may be more appropriate. In addition, we feel that in several programs there is a large gap between the number of farmers trained, and those actually supplying to the mill. It seems more farmers are trained than end-up supplying. We need to understand better why this gap occurs. One of the reasons is that sometimes the mill does not have the working capital to contract all farmers. However, if this is the case we would argue that they should have trained fewer farmers. Training farmers that do not supply is a lost investment. Finally, the amount of paddy sourced per farmer is low: less than 50% in many cases. Activities that should be considered is a personal credit and savings component in trainings combined with financial products in order to reduce side selling to traders for credit and paddy storage as cash. In addition, contracts and credit schemes should offer the possibility for farmers to increase land and supply larger amounts.


1 1 . 1 1 R i c e i s a v e r y c o m p e t i t i v e c r o p g l o b a l l y , a n d i t n e e d s s c a l e . B u t g e t t i n g t o s c a l e r e q u i r e s s o m e p r o t e c t i o n f r o m i m p o r t s African rice is no longer competing with small-scale rain fed farmers in Asia, who bring their rice to a village mill. Export rice tends to come from medium and large-scale farmers with irrigation and full mechanisation, including combine harvesters. They use a full spectrum of inputs. Their rice gets dried by industrial dryers, cleaned by machine and milled in professional fully integrated rice mills ranging from 10 tons per hour to 100 tons per hour. Parboiled rice comes from the same large-scale factories. In addition, in places like Thailand there are subsidies at most levels of the value chain, from research to inputs to milling and export. This means that Asian rice, including transport cost, small import duties and a margin of the importer can end up at wholesalers in Africa at prices below that of local rice. In addition, the quality in terms of visual appearance and flavour is often far better. In order for African rice to compete, farming yields need to improve and scale is needed at the level of the mill. Only with enough volumes can a mill afford the highly efficient equipment Asian competitors need. However, to get to that scale is often impossible without import duties or bans because the rice is not competitive enough to sell large volumes. It is a classical chicken and egg story: without scale it is difficult to compete, but how do you reach scale when you can’t compete? We therefor believe some degree of market protection is needed, at least in the infancy stage of the industry. Once scale is reached, a government can decide to decrease barriers to keep food prices low. The two countries where programs are more sustainable, Tanzania and Nigeria, both have serious import duties and barriers. Without these barriers scale will be difficult to achieve. 1 1 . 1 2 A g o o d c o u n t r y p r o g r a m m a n a g e m e n t o r g a n i s a t i o n i s e s s e n t i a l Both the Ghana and Tanzania cases lack some critical elements to get most farmers to yields over 6 tons, most notably universal access to irrigation and credit. But the programs in Tanzania perform a lot better than those in Ghana, and the main difference is in the strength of the implementing mill as well as the country implementation partner. In Tanzania, Kilimo Trust has good relationships with the projects and exercises oversight, while the Ghanaian mills seem to have had much less oversight and support from TechnoServe Ghana. 1 1 . 1 3 G a t h e r i n g a n d u s i n g d a t a f o r m o n i t o r i n g a n d e v a l u a t i o n i s a c h a l l e n g e From the data collection sheets, we can see that a lot of data is not filled in, or not filled in correctly or consistently. It some instances it seems unclear what the definition is of the various numbers and how they are calculated. This means that different projects may interpret them differently. For example, it is difficult to understand what the definition is of a contracted farmer, or a registered farmer. When it comes to number of farmers trained, it is unclear is this is about unique numbers or the number of trainings. Hence, one project may fill in unique numbers, while the other adds the retrained farmers on top of the trained farmers. Part of the issue in interpreting the data is also that the boxes meant for clarification are often not used. Hence, when it comes to area contracted, it is not clear whether this is all the land farmers have, or if they limited the area per farmer. This should be mentioned in the box. We can also see that shortcuts are taken. For example, when the number of trained farmers is a rounded off number that corresponds exactly with the target in the contract. Or when the area of contracted farmers is exactly one hectare.


There is also some crucial information missing, which is the yield per ha, and the correlations between the various trainings and activities. For example, we cannot see how many farmers followed how many trainings (e.g. are the diversification farmers the same as the GAP farmers, or are there diversification farmers who were not trained in GAP), and we cannot see the overlap in seed usage, fertiliser usage, mechanisation and credit. The discrepancies in the data gathered means that a lot of cross checking and verification from the M&E managers is required, which does happen. This is a difficult and time-consuming exercise. We can also see the need for the separate yield surveys that have been carried out. This is a very important activity, because it can provide independent yield data, which is the most important indicator of farm impact. Given the high rate of side selling in some programs, as well as the limited ability of mills to contract all farmers trained or the full production of these farmers, the amount of paddy supplied to the mill is not a good indicator of farm yields. It is essential that this yield survey is conducted by a party that is independent from the program. We also appreciate the fact that this survey does actual measurements as opposed to relying on interviews with farmers.


1 2 R e c o m m e n d a t i o n s f o r C A R I 2 Based on the lessons learned we can provide a number of recommendations that can be divided into the following categories: 1. Recommendation for how to choose partners and programs. 2. Recommendations for program activities. 3. Recommendations for monitoring and evaluation. 1 2 . 1 P r o g r a m c h o i c e r e c o m m e n d a t i o n s While selecting countries, areas and project partners to work with, we advise the following: 1. Choose countries that have a trade regime in the form of import duties and/ or non-tariff barriers that protects the domestic rice market to some extent from Asian imports. In order to establish whether a country can be competitive on the domestic market, one needs to look at the price at which importers sell rice to wholesalers. This is the benchmark price, at which a mill should be able to sell to the same wholesalers, provided the quality is comparable. The next step is to take the average price of paddy in the domestic market over the past 2-3 years, and add a reasonable cost for transport, milling and marketing to see if this price is lower than the benchmark price. If this is equal or lower, starting a program makes sense. If it is higher, than domestic rice will struggle to compete. It is important to use the milling efficiency and cost appropriate to the type of mill that is most likely to be used. If the quality of domestic rice is lower, the program will need to include measures to improve this quality (e.g. introduction of aromatic varieties, optical sorters). 2. Choose regions with the potential to irrigate at low cost, and preferably regions where farmers can do two crops per year. If irrigation is difficult, farmers will not be able to get input loans for rice production, which means the uptake of Good Agricultural Practices will be low, and consequently the return on investment of training will be lower. If irrigation is possible, but at high cost, rice will probably struggle to become competitive. In these cases, it seems better for farmers to farm other crops. 3. Choose regions and mills with sufficient rice farmers and suitable land for rice production in a radius of 100 kilometres from the mill. If paddy needs to come from much further and farmers are spread out over a large area, chances are the cost of transport and training will be too high. 4. Choose mills that are at least using a mini-rice mill that processes about 2,000 tons per annum. This is the minimum scale necessary to operate modern equipment that at least has separate processing steps for cleaning, dehusking, polishing, sorting on size. 5. Choose areas and mills that have the potential to grow to the scale at which a professional mill of 4 tons per hour becomes feasible. In the long run a professional mill is the only way a value chain can be competitive with imports and other regions within the country. The smallest size is a 2-4ton/ hour mill based on Chinese equipment that can run for up to 10 hours a day without compromising quality. To run this mill 6 days a week for 6 months at 10 hours per day one needs about 6,000 tons of paddy. 6. The MILL 1 NG example shows that input dealers can also be a good implementation agent. However, one needs to work with larger dealers that already have sales representatives or extension workers that provide training and advice to farmers. 7. The MILL 2 NG model shows that government extension and development organisations can also be a project partner.


1 2 . 2 R e c o m m e n d e d P r o g r a m a c t i v i t i e s 1. Continue with the program of farmer business school, followed by GAP training and post-harvest training. 2. Ensure there is less ‘leakage’, in the form of farmers trained that are not contracted by the mill or do not end up supplying, or that drop out after one or 2 years. 3. If diversification is trained, ensure it is integrated with a buyer, for example the mill that wants to diversify 4. Include a credit component in the program that includes credit for labour and mechanisation and not just inputs. Credit should be limited to those that have irrigation and have successfully completed the FBS and GAP trainings and signed a contract with the mill. In order to make credit sustainable, the default rate needs to be kept low. We therefor propose the concept used by Mill 1 NG, where loans are structured as group loans and traditional and religious leaders are involved. The loan component is preferably implemented by a bank or micro finance organisation. 5. Don’t limit the credit to only 1ha for experienced farmers. Those farmers who will be successful will always want to increase farm size in order to increase their income. The larger the farm size is, the higher the yield and thus return on investment of training cost 6. Include a savings component with a savings account and training that helps farmers to keep cash instead of rice, and to save money for next seasons inputs to reduce the need for credit as well as the need of pre-selling 7. Promote mechanisation through farmer organisations and private service providers. This may require support to find the appropriate equipment for the area, to calculate the price per service per ha, calculation of sales targets for the operators, technical training, business training and finally help to access finance. 8. Include a program component that helps farmers and farm organisation to plan a rice farming area with proper dykes, bonds, drainage, and access roads for tractors 9. Ensure that the link between training and the mill or input dealer is clear to farmers 10. Make sure the number of farmers to be trained is in proportion to the size of the mill. There is no point in training 5,000 farmers to supply a mill that processes only 1,000 tons per year. 1 2 . 3 M o n i t o r i n g a n d e v a l u a t i o n 1. Find a way to improve the data collection, for example through training of the agents responsible for the programs in a central location, and having one person go once per year to each program to help with the data collection and filling out of the sheets 2. Adapt, test and re-design the sheets to make them even easier to understand and to include some important data


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