input market initiatives for web

7/29/2019 Input Market Initiatives for Web

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Input market iniaves

that support

innovaon systems in Africa


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Contents

Execuve Summary: Input Market Iniaves

Introducon 2

Relevant Literature Review 2

Demand and Supply of Agricultural Inputs 3

Current Policies and Programmes 4

Constraints and Opportunies 5

Strategic Opons for Input Market Iniaves 5

Input Market Iniaves that Support Innovaon Systems and Agricultural Value Chains in Africa

1.0 Introducon 8

Purpose and Objecves 8

2.0 Literature Review 10

3.0 Demand and Supply of Agricultural Inputs 14

Global Macro-factors 15

The Agricultural Context 16

Income Growth and Dietary Change 16

Bio-fuels 16

Addional Agricultural Land 17

Technology 17

4.0 Current Policies and Programmes on Promong Ecient Input Market Iniaves 17

5.0 Constraints and Opportunies for Promong Ecient Input Market Iniaves 19

6.0 Strategic Opons for Promong Ecient Input Market Iniaves 24

Farmer Knowledge and Skills 24

The SCODP Approach 24

Rural Agro-Dealer Networks 25Research-Commerce Linkage to Test Input Demand 26

Financing Inputs and Aordability 26

Reducing the Package Size 27

Credit Through Building Farmer Associaons 27

Group Lending 28

Interlinked Markets in Transion 28

The Out-grower Scheme 29

Government Credit 30

Reducing Risks 31

Other Strategic Opons 32

Inputs for Relief and Food Security 32Government-Run Programmes 33

7.0 Enabling Environment for Strategic Opons 33

Smallholder Challenges 33

Organizaon of Input Markets 34

Educaon and Training 34

Role of Government and Private Sector 34

8.0 Conclusion 35

9.0 Maers Arising 35

References 36

Appendix: Terms of Reference 41Acronyms and Abbreviaons 45


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Forum for Agricultural Research in Africa

12 Anmeda Street, Roman Ridge,

PMB CT 173, Accra, Ghana

2011

Input Market Initiatives that Support

Innovation Systems in Africa

Wayo Seini

Monty Jones

Emmanuel Tambi

Gbadebo Odularu


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Citaon: Wayo Seini, Monty Jones, Emmanuel Tambi, and Gbadebo Odularu 2011.

Input Market Iniaves that Support Innovaon Systems in Africa. Accra, Ghana.

FARA encourages fair use of this material. Proper citaon is requested.

Design: www.bluepencil.in / Print: www.praga.com

Forum for Agricultural Research in Africa (FARA)

12 Anmeda Street, Roman Ridge

PMB CT 173, Accra, Ghana

Tel: +233 302 772823 / 302 779421

Fax: +233 302 773676

Email: [email protected]

Website: www.far a-a fri ca. org

ISBN 978-9988-9373-4-3 (print)

ISBN 978-9988-9373-0-5 (pdf)

Wayo Seini Professor, Instute of Stascs, Social and Economic Research (ISSER), University of

Legon, Ghana

Monty Jones Execuve Director, Forum for Agricultural Research (FARA), Ghana

Emmanuel Tambi Director, Advocacy and Policy, FARA

Gbadebo Odularu Regional Policies and Markets Analyst, FARA


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Executive Summary:

Input Market Initiatives


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Executive Summary: Input Market Initiatives

Introduction

As spelt out in the Terms of Reference (Appendix A), the purpose of the consultancy,

therefore, is to document the lessons learnt from (ongoing) successful and failed inputmarket iniaves on innovaon systems and agricultural value chain in Africa. The specic

objecves are to:

1. Collect and review literature on the input market iniaves that support innovaon

systems and agricultural value chains in Africa;

2. Idenfy the parameters (constraints and opportunies) for promong ecient input

market iniaves that support innovaon systems and agricultural value chains in Africa;

3. Examine the current policies and programmes on promong successful input market

iniaves that support innovaon systems and agricultural value chains in Africa; and,

4. Propose strategic opons (technological, approaches, partnerships and socio-economic

issues) for promong successful input market iniaves on innovaon systems and

agricultural value chains in Africa.

The methodology applied in this study is mainly desk review. Most of the review centred

on relevant academic publicaons, project and stakeholder documents.

Relevant Literature Review

Input subsidies appear to be the central theme in the discussion of agricultural input

markeng and a successful input markeng strategy for agricultural development hinges

on how input subsidies are handled. As noted by Dorward et. al. (2008), agricultural input

subsidies were a common element in agricultural development in poor rural economies

in the 1960s and 70s, including successful green revoluons. Although subsidies have

connued, to a greater or lesser extent in some countries, convenonal wisdom as well

as dominant donor thinking in the 80s and 90s was that subsidies had an ineecve and

inecient policy instrument in Africa, which contributed to government overspending and

scal and macroeconomic problems.

Dorward et.al. (2008) observe a resurgence of interest in agricultural input subsidies in

Africa, in recent years, together with the emergence of innovave subsidy-delivery systems.

The case for the resurgence in interest in subsidies in input markeng appears strong in

the literature. Subsidies play a primary role of promong the adopon of new technologies

and thus increase agricultural producvity in the process of agricultural development (Ellis

1992). This is possible because subsidies allow farmers to access purchased inputs such

as seeds and ferlizers at lower cost, and reduce the disincenves to adopon that result

from farmers cash constraints.

In spite of the strong case for subsidies, the literature also covers problems with subsidies.

The most common problem is that costs of subsidies on inputs are very dicult to control,depending partly on the way they are delivered, for example, ferlizer producon or import

2 Input Market Iniaves that Support Innovaon Systems in Africa


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subsidies. Also, market distorons introduced by subsidies, and parcularly parastatal

involvement in subsidized input delivery, tend to crowd out and inhibit private sector

investment in input markets and provide opportunies for corrupon and rent seeking,

and hence impede sustainable development (Dorward et. al. 2008).

The role of subsidies in input markeng in the successful Asian Green Revoluons has

also been widely discussed in the literature. For example, the implementaon of a

subsidized credit-ferlizer-extension programme (Masagana programme) was a key part

of the Green Revoluon in the Philippines (Djurfeldt et. al. 2005). Areas with beer than

average producon potenal were selected for programme coverage in the early phase

of implementaon, but subsidies were later re-routed to the small-scale farm sector as it

aracted priority.

Djurfeldt et. al. (2005) regard the Green Revoluon in Asia as a state-driven, market-

mediated and small-farmer based strategy to increase the naonal self-suciency in

food grains in a string of Asian countries. They argue that technology was an important

precondion for the results aained. States or governments drove the development of the

food grain commodity chains towards the goal of self-suciency, a goal that was movated

not only by the threat of famine, but also by the volale world markets for grain, which

made vulnerable those countries that depended on imports.

Dorward et. al. (2004) argue that sustained (but not indenite) input subsidies were a

major part of successful Green Revoluon packages, making a crical contribuon to

thickening and thus kick-starng markets, rst within staple-food supply chains and then

in the wider rural economy. Gregory (2006) argues that ferlizer subsidies for staple crops

are a crical requirement for this process to occur in Africa.

Input market policy reforms in Africa and other developing regions also receive aenon

in the literature. Lack of growth in agro-input business, parcularly ferlizers, has been

largely due to past governments over-involvement in its producon, importaon and

distribuon. Ferlizer subsidies were parcularly expensive, thereby making heavy and

growing demands on government budgets. These issues became the target of policy

reforms in the agricultural sector, parcularly from the mid-1980s.

Demand and Supply of Agricultural Inputs

Africas consumpon of modern inputs, parcularly ferlizers, is comparavely very

low. The FAO (2008) projects that the situaon will not change much in the short run as

Africa will account for less than 3% of world ferlizer consumpon by the end of 2012. To

understand the current low levels of modern input use in African agriculture one has to

take into consideraon the developments and factors that drive the demand and supply

of these inputs.

The demand and supply of agricultural inputs are inuenced largely by changing and oen

interrelated factors: populaon and economic growth; agricultural producon; prices; and

government policy. These changes manifest themselves in the global macro-economicfactors, the agricultural context, income growth and dietary change, bio-fuels, addional

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agricultural land culvated, and technology. They are the main drivers of both agricultural

input demand and supply. In addion, changes in technology are crucial in the supply of

agricultural inputs.

Macro-factors aecng global demand and supply of agricultural inputs include: the

economic context; oil; trade; freight rates; and exchange rates. In the economic context,

developing countries and economies in transion connue their strong economic

performance, and hence a connued increases in the demand for agricultural commodies

and inputs (FAO 2008). High oil prices could depress the use of oil-based agricultural inputs

(ferlizers and agro-chemicals) which have been behind much of the increases in farm

producon during the past half century (FAO 2007). At the micro (farm level) the income of

farmers is the most important factor aecng their demand for agricultural inputs.

Growth of world exports is more than double that of global output markeng, a further

deepening of economic integraon that can have posive eects on the demand and supply

of agricultural inputs that are internaonally traded (FAO 2008). The impact of transport

costs on imported agricultural input prices will grow as they are produced in fewer localies

close to raw materials and ample energy availability (Ibid). The decline in the United States

Dollar against most currencies in the world since 2005 has made imports from the United

States cheaper (World Bank 2007). This is the major reason behind the brisk world import

demand for agricultural inputs, parcularly ferlizer and agro-chemicals, that in spite of

high prices, shows lile sign of retreat.

Current Policies and Programmes

Since input market iniaves in Africa and developing countries in general are dominated by

subsidy issues, the new thinking in input market policy and programmes is also dominated by

the same issues. The new thinking of subsidies in input market iniaves arise fundamentally

from increased quesoning by African policians, NGOs and some policy analysts about

the failure of liberalized policies in supporng broad based agricultural development,

parcularly sustainable intensicaon of staple food crop producon (Dorward 2009).

Thus, the concerns expressed by various stakeholders have led to the potenal for input

subsidies to deliver a wider range of policy objecves than those formerly recognized in

the convenonal wisdom. These policy objecves, as espoused by Dorward (2009) include:

(i) short term private input market development; (ii) replenishment of soil ferlity; (iii)

social protecon for poor subsidy recipients; (iv) naonal and household food security;

and, (v) meeng broad based polical demands.

Some of the current policy issues are reected in current programmes in Africa. These

include: (1) Naonal Ferlizer Subsidy Programme in Ghana; (2) Zambia Ferlizer Support

Programme (FSP); (3) Kenaya Naonal Accelerated Agricultural Input Programme (NAAIP);

(4) Malawi Agricultural Input Subsidy Programme (AISP), Targeted Input Programme (TIP),

and Starter Pack Programme (SP); (5) Sasakawa Global 2000; (6) Millennium Villages;

(7) Malawi Sustaining Producve Livelihood through Iputs for Assets (SPLIFA); and,(8) Developing Agricultural Inputs Markets in Nigeria (DAIMINA).



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Constraints and Opportunities

The major challenges faced by the dierent products in the broadly suitable agro-ecological

areas in SSA include:

i. Technical challenges and opportunies to increase producvity and stability, though

the nature and extent of these challenges and opportunies varies between productsand contexts;

ii. Underinvestment in public goods provision (technical research and extension, market

and instuons) parcularly for staples where prices and value chain prots are

limited; and,

iii. Uncertainty and variability in global commodity prices as they aect input and output

prices. This aects all commodies.

In addion to these broad challenges classied by product and agro-ecological zones,

there are other constraints and challenges pertaining directly to limited expansion in input

use by smallholder farmers in Africa. They are mainly supply side issues and include:

i. Lack of sucient agro-input dealers to ensure that smallholder farmers, especially

those in remote rural communies have adequate access to agro-inputs.

ii. Limited business incenves (mainly tax) for agro-input dealers and business constraints

including high transport costs (mainly due to poor infrastructure and long distances

covered to source their goods), lack of adequate working capital, low demand, lack of

market informaon, lack of storage facilies, and limited business skills and knowledge.

iii. High farm level (or farm gate) prices for agro-inputs, compounded by lack of credit

services for smallholder farmers.

Nevertheless, there are opportunies for increased producvity in African agriculture.

Dorward (2009) argues that the high potenal yields achievable with the high response

cereals and roots and tubers suggests that these have the potenal to make major

contribuons to driving and supporng pro-poor growth in African countries where these

crops can be produced, depending on other potenal drivers of growth in these countries.

Strategic Options for Input Market Initiatives

A wide variety of eorts have been made to relieve the constraints of agricultural input

market iniaves. These eorts have revealed a number of successful strategic oponsfor promong ecient input market iniaves in Africa, parcularly Sub-Saharan Africa

(SSA). These opons are related to the three broad categories of demand and supply side

constraints, i.e. knowledge and skills, nancial and risk issues.

Farmer Knowledge and Skills: Strategic opons idened under this category include:

(i) The SCODP Approach; (ii) Rural Agro-Dealer Networks; and (iii) Research-Commerce

Linkage to Test Input Demand.

Financing Inputs and Affordability: Opons in this constraint category include: (i) Reducing

the Package Size; (ii) Credit Through Building Farmer Associaons; (iii) Group Lending;(iv) Interlinked Markets in Transion; and (v) The Out-grower Scheme.

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1.0 IntroductionThe performance of African agriculture has been disappoinng over many decades. For

example, sub-Saharan Africa is the only region in which per capita agricultural value

added has not seen a substanal increase, with declining trend on average, since 1961,

and considerable variaon over me and across countries (FAO 2008). As suchAfrica isthe only region of the world where per capita food producon has been declining over

the past three decades. As a result, there is increasing rural poverty, rising food prices

widespread famines and increasing food imports now esmated at US$ 25 billion per year

(FAO 2007). Unfortunately, the Green Revoluon, which has saved many lives in Asia and

South America, has bypassed Africa and hunger sll prevails on the connent despite the

past research and development eorts.

Some of the factors militang against agricultural development in Africa include inter alia,

inadequate investment in agriculture; limited access to credit by smallholder farmers;

high cost and unavailability of inputs such as ferlizers and improved seeds; inadequateuse of modern technologies; inecient agricultural input markets; and the absence of a

conducive policy environment. In parcular, the use of improved agricultural inputs is very

low in Africa and has remained largely stac over the last 25 years, with parcularly low

usage in smallholder food crop and livestock producon systems.

In response to this challenge, it is widely accepted that increased use of inputs (seeds,

ferlizers and chemicals) play a crical role, along side organic soil ferlity enhancing

pracces, in the technical change needed for sustainable smallholder agricultural growth in

Africa. Indeed, farmers require ecient input markets in order to deliver the right product,

at the right me, in the right amounts, at a convenient place, and for an aordable price.

Against this background, there is a dire need to document the lessons learnt from (ongoing)

successful and failed input market iniaves on innovaon systems and agricultural value

chains in Africa. One of the juscaons for this study is that many African policymakers

are not well informed about how input markets work and why the prices uctuate

(Heinemann 2002). Further, they are inadequately informed about the successful input

market iniaves that support innovaon systems and agricultural value chain. There is

also a need to increase awareness about policy and instuonal implicaons of successful

input market iniaves that support innovaon systems and agricultural value chain. Thisstudy will provide policymakers and key stakeholders with evidence-based informaon for

strategic input markets policy formulaon in Africa.

Purpose and Objectives

The purpose of the consultancy, as spelt out in the Terms of Reference (Appendix A), is to

document the lessons learnt from (ongoing) successful and failed input market iniaves

on innovaon systems and agricultural value chain in Africa. The specic objecves are to:

1. Collect and review literature on the input market iniaves that support innovaonsystems and agricultural value chains in Africa;



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2. Idenfy the parameters (constraints and opportunies) for promong ecient input

market iniaves that support innovaon systems and agricultural value chains in Africa;

3. Examine the current policies and programmes on promong successful input market

iniaves that support innovaon systems and agricultural value chains in Africa; and,

4. Propose strategic opons (technological, approaches, partnerships and socio-economic

issues) for promong successful input market iniaves on innovaon systems and

agricultural value chains in Africa.

A crucial component of the study will include drawing conclusions and lessons learnt from

ongoing unsuccessful input supply because it is more economically impacul to document

reasons why an iniave goes wrong than why it works perfectly.

This study is in line with the Abuja declaraon of December 2006 which highlighted the

categories of development iniaves that could be included in the eld of research for a

successful African Green Revoluon. These are:

i. Naonal food security programmes to accelerate staple food producon, e.g. cassava,

NERICA, maize, legumes, livestock products, etc;

ii. Eecve and nancially sustainable support systems to increase farm producon,

markeng and trade;

iii. Staple food processing of high quality products that could be marketed through space

and me, e.g. conversion into high value products: feed for livestock and aquaculture

producon, bio-fuel, and other industrial uses;

iv. Eecve and sustainable research, extension and producer organizaon pracces for

producon, processing and commercializaon; ecient management of naonal foodreserve systems;

v. Linking smallholders to commercial opportunies, such as fast growing supermarket

chain operaons;

vi. Emerging successes to improve nutrional value of staple foods, e.g. forcaon,

diversicaon of food commodies, Home Grown School Feeding Programmes,

nutrion educaon, etc; and,

vii. Strategies for targeng vulnerable groups and implemenng sustainable programmes

linking food security objecves with wider developmental goals.

The methodology applied in this study is mainly desk review. Most of the review centred

on relevant academic publicaons, project and stakeholder documents.

The report is presented in nine secons. Aer the literature review in secon two, the

demand and supply of agricultural inputs is discussed in secon three. Secon four

discusses the current policies and progremmes on promong ecient input market

iniaves while the constraints and opportunies for promong ecient input market

iniaves in African agriculture are discussed in secon ve. Secon six discusses strategic

opons arising from the desk review followed by a discussion on creang an enabling

environment for successful implementaon in secon seven. A brief conclusion is providedin secon eight followed by maers arising in secon nine.

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2.0 Literature ReviewThe literature on input market iniaves in Africa in parcular (and in developing countries

in general) is largely historical in nature and concentrate on ferlizer, seeds, pescides

and, to a lesser extent, irrigaon. Subsidies, experiences of the Asian Green Revoluon,

government intervenon, and policy reforms are the common features in the literature.Aer independence, most organized economic acvies in the African countries were

largely owned and operated by the public sector through various public agencies. Such

state intervenon was partly rooted in the past policy regimes and was partly a de facto

outcome due to the absence of the previous entrepreneurs and instuons (Zohir 2001).

However, input subsidies appear to be the central theme in the discussion of agricultural

input markeng and a successful input markeng strategy for agricultural development

hinges on how input subsidies are handled. As noted by Dorward et. al. (2008), agricultural

input subsidies were a common element in agricultural development in poor rural

economies in the 1960s and 70s, including successful green revoluons. Although subsidies

have connued, to a greater or lesser extent in some countries, convenonal wisdom as

well as dominant donor thinking in the 80s and 90s was that subsidies had been ineecve

and inecient policy instrument in Africa, which contributed to government overspending

and scal and macroeconomic problems.

Dorward et.al. (2008) observe a resurgence of interest in agricultural input subsidies in

Africa, in recent years, together with the emergence of innovave subsidy-delivery systems.

The case for the resurgence in interest in subsidies in input markeng appears strong in

the literature. Subsidies play a primary role of promong the adopon of new technologies

and thus increase agricultural producvity in the process of agricultural development (Ellis

1992). This is possible because subsidies allow farmers to access purchased inputs such

as seeds and ferlizers at lower cost, and reduce the disincenves to adopon that result

from farmers cash constraints.

Subsidies, it is argued, also play a role in rural development and are somemes implemented

to support agricultural development in more remote areas, mainly with pan-territorial

pricing and subsidized delivery systems. Input subsidies have also been a means for raising

farm incomes parcularly where farmers are being taxed in other ways through export

taris and low xed domesc prices (Dorward et. 2008). The need for complementarycredit and extension services, have been stressed to encourage economically and

technically ecient use of inputs (Ibid.).

In spite of the strong case for subsidies, the literature also covers problems with subsidies.

The most common problem is that costs of input subsidies are very dicult to control,

depending partly on the way they are delivered, for example, ferlizer producon or

import subsidies. It is argued that subsidies could be required for a short term for learning

purposes (about both input use and benets), and then phased out. Yet, strong polical

pressure for the expansion of subsidies oen make exits very dicult, with strong

resistance to scaling down or terminaon of subsidies. Targeng input subsidies toparcular types of farmers is very dicult, with problems of diversion and leakage. Even



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when it is used by the target group, arcially low prices may lead to overuse of inputs,

or the adopon of input-intensive more than more economically ecient labour-intensive

producon methods (Dorward 2009).

Another problem with subsidy in the literature is that benets may be regressive in

that they tend to benet large farmers who can aord subsidesed inputs. Also, market

distorons introduced by subsidies, and parcularly parastatal involvement in subsidized

input delivery, tend to crowd out and inhibit private sector investment in input markets

and provide opportunies for corrupon and rent seeking, and hence impede sustainable

development (Dorward et. al. 2008).

Input subsidies are normally designed to promote the producon of an output. Thus, the

need for complimentary policies that aect the output has been stressed in the literature.

Policies aecng staple food prices, investment in roads, communicaon infrastructure

and agricultural services, and facilitang private sector development and non-farm

diversicaon are required to promote the eecveness of input subsidies in agricultural

development (Dorward et. al. 2007).

The role of subsidies in input markeng in the successful Asian Green Revoluons has also

been widely discussed in the literature. The implementaon of a subsidized credit-ferlizer-

extension programme (Masagana programme) was a key part of the Green Revoluon in

the Philippines (Djurfeldt et. al. 2005). Areas with beer than average producon potenal

were selected for programme coverage in the early phase of implementaon, but subsidies

were later re-routed to the small-scale farm sector as it aracted priority.

In Indonesia, shortages of ferlizer supplies and domesc credit, at the beginning of

the Green Revoluon, prompted the government to start the BIMAS Gotong Royong(BGR or mutual self-help programme) in which foreign manufacturers of ferlizers and

pescides were invited to parcipate directly in supplying credit and distribung inputs

and management advice to rice farmers and extension sta in certain locaons (Djurfeldt

et. al. 2005). The importance of government role in the Asian Green Revoluons was

parcularly demonstrated in the Indonesian case with the establishment of BULOG (Badan

Urusan Logisc), the new food logiscs agency directly responsible to the President,

which developed into one of Asias most powerful food agencies. BULOG developed and

implemented a comprehensive rice policy that beneted both consumers and producers

and maintained appropriate price relaonships both within Indonesia and internaonalrice markets (Mears and Moeljono 1981).

The success of the Indonesian Green Revoluon was also aributable to the strong

commitment of the government to food self-suciency and rural development (Djurfeldt

et. al. 2005). The governments vision on rural development resulted in two decades of

sustained rural bias which included not only the protecon and support of agriculture but

also substanal spending programmes to increase the provision of physical infrastructure

and social services in rural areas. In addion, the creaon and expansion of a naonal

ferlizer industry formed part of the strategy to become self-sucient in rice. Support

to farmers during the Green Revoluon was mainly indirect through subsidized inputs ferlizers and credit (Ibid).

11


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India represented a major variant of the Asian Green Revoluons in the sense that its

agriculture is very diverse. Wheat and other cereals play a signicant role making it

necessary to consider food grains as a group when trying to understand the countrys

agricultural policy. Consequently, the early Green Revoluon in India was a queson of

both wheat and rice producon, and it was the early success of the wheat sector that

explained most of the growth (Djurfeldt et. al. 2005).

Following the recommendaons of a group of American experts in the 1959 report on

Indias Food Crisis and Steps to Meet It, the Indian government set up the Intensive

Agricultural District Programme (IADP) to develop and implement policies for the Green

Revoluon. The IADP was based on a package approach to increase Indias agricultural

yields. The package included instuonal, economic and technical innovaons that were

implemented at the district, block, village, farm, and eld level. On the basis of one pilot

district in each of the seven states, India marshaled all the inputs that were needed for

intensive high-yielding pracces, and made available to capable farmers (Perkins 1997).

Apart from technical components improved seed, ferlizer, irrigaon and pescides thepackage approach also stressed the importance of adequate credit facilies, technical advise

and a guaranteed price providing an incenve to accept the risk of trying a new technology.

Following minimum inial success, due mainly to low yield response to ferlizer and

other inputs in use of the then recommended variees which were locally developed,

the objecve was narrowed down and instuonal support in the credit and cooperave

elds was de-emphasized (Barker et. al. 1985). The new strategy was embodied in the High

Yielding Variees Programme (HYVP) and involved a concentraon of seeds, ferlizer and

extension in areas with high quality irrigaon condions. Shipment of semi-dwarf wheat

seeds from Mexico and rice seeds from IRRI were rapidly supplied to the promoted areas.

From the late 1970s to 2000, a period during which the Indian populaon doubled, food

producon more than doubled as a result of the spread of the Green Revoluon within

the country (Djurfeldt et. al. 2005). Compared with the Philippine and Indonesia cases,

the Indian Green Revoluon recorded slow growth rates, at least inially, and had limited

impact on poverty (Ibid).

Djurfeldt et. al. (2005) regard the Green Revoluon in Asia as a state-driven, market-

mediated and small-farmer based strategy to increase the naonal self-suciency in

food grains in a string of Asian countries. They argue that technology was an important

precondion for the results aained. States or governments were driving the development

of the food grain commodity chains towards the goal of self-suciency, a goal that was

movated not only by the threat of famine, but also by the volale world markets for grain,

which made vulnerable those countries that depended on imports. They argue further

that the Asian Green Revoluons were market-mediated in the sense that markets played

a fundamental role in dierent parts of the chain, with regards to farm inputs and the

trade and processing of grain. Also the Asian Green Revoluons were small-farmer based,

i.e. they were not based on large-scale mechanized farming (Ibid).

Djurfeldt et al. (2005) emphasize the crical role of market mediaon in the Asian GreenRevoluon. They argue that really exisng markets are not like the ideal type ones which



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the economists build their theories around. Really exisng markets are not free ones,

they show tendency to monopoly and monopsony and, most important of all, they are

instuonalized and regulated by the surrounding society and in parcular the state. They

contend that the Asian Green Revoluons were state-driven and market-mediated, in the

sense that governments relied on private business to handle at least parts of the provision

of inputs (seed, ferlizer irrigaon etc.) and to distribute the food grain produced from thefarm gate to the consumer. These markets were not free and in important respects they

were controlled by the state. In many of the Asian countries, state agencies operated in

farm markets, both on the input and the output sides (Ibid).

Dorward et. al. (2004) argue that sustained (but not indenite) input subsidies were a

major part of successful Green Revoluon packages, making a crical contribuon to

thickening and thus kick-starng markets, rst within staple-food supply chains and then

in the wider rural economy. Gregory (2006) argues that ferlizer subsidies for staple crops

are a crical requirement for this process to occur in Africa.

Input markets policy reforms in Africa and other developing regions also receive

aenon in the literature. The convenonal wisdom in the 1960s to the early 1980s was

for African countries to indulge in large scale (universal) agricultural input subsidies as

a major feature of agricultural development policies. These were generally implemented

as across the board price subsidies accessible to all producers, or to all producers of a

parcular commodity (Dorward 2009). Convenonal arguments for subsidies in agricultural

development have focused on the promoon of agricultural producvity through the

adopon of new technologies (Ellis 1992). If subsidized inputs were sold through a state

monopsony, then there were oen aempts of price discriminaon, with, for example, only

smallholder farmers allowed to purchase subsidized inputs and forbidden from selling it on.

Lack of growth in agro-input business, parcularly ferlizers, has been largely due to

governments over-involvement in ferlizer producon, importaon and distribuon.

Ferlizer subsidies were parcularly expensive and made heavy and growing demands on

government budgets as they smulated increased ferlizer consumpon. In Nigeria, for

example, subsidy on ferlizer was up to 85% of the cost of the ferlizers (FMARD 2003). In

many cases price subsidy did not reach the intended beneciaries because of increasing

corrupon and ineciency in the enre chain from procurement to logiscs management

and delivery (Ibid).

These issues became the target of policy reforms in the agricultural sector, parcularly from

the mid-1980s, when most African countries adopted structural adjustment programmes

(SAPs). The ulmate goal of the policy reforms was the liberalizaon of agricultural input

markets. In most countries in Africa, and in most developing countries, reforms followed

a similar paern: deregulaon of input prices (parcularly ferlizers); phasing out of input

subsidies; transfer of procurement (import) and distribuon of inputs to private dealers;

and divesture of state-owned agricultural enterprises ( Seini et a. 2005; Zohir 2001).

Since the beginning of economic reforms in Sub-Saharan Africa, donors have generally

discouraged the use of free or subsidized input distribuon. This discouragement waslargely due to some nancially unsustainable approaches that led many pre-reform

13


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governments to the brink of bankruptcy. However, many SSA governments and some

donors believe there are legimate food security and environmental issues that could be

addressed by input subsidies (Kelly et al. 2003). In this regard, analysts agree that ferlizer

subsidies should only be considered when ferlizer use is economically protable (Ibid).

In other words, there should be a considerably strong crop response that ferlizer use

remains protable when price distorons from subsidies and taxes are removed.

Credit is another issue that received aenon under policy reforms in SSA, since nancing

problems have long been evasive and aecng all sectors of the economy and all levels

of the input markeng sector. Intervenonist policies dominated nancial sector markets

in the 1960s and 1970s in most SSA countries and became the target of policy reforms

(Aryeetey et al. 2000). In many countries poor repayment rates led to huge government

decits that led, in turn, to donor condionalies on government spending (Commander

et al. 1989).

3.0 Demand and Supply of Agricultural InputsDierences in the state of agricultural development between countries and regions of the

world can somemes be explained or illustrated by the intensity/quantum of consumpon/

usage of agricultural inputs per unit of land. Table 1 shows the levels of ferlizer (Nitrogen)

usage in regions in the world.

Clearly, Africas consumpon is comparavely very low. The FAO (2008) projects that

the situaon will not change much in the short run as Africa will account for less than3% of world ferlizer consumpon by the end of 2012. To understand the current low

levels of modern input use in African agriculture one has to take into consideraon the

developments and factors that drive the demand and supply of these inputs.

Three major developments in recent mes disnguish current state of agricultural markets

from past uctuaons: hike in world prices (aects nearly all food and feed commodies);

record prices at the me of abundance rather than scarcity; and, the strengthening of

linkages between agricultural commodity markets and other markets. These observaons

Table 1: Regional Fertilizer (nitrogen) Consumption, 2008

Region N fertilizer (%)

Africa 3.4

Europe 14.1

America 19.8

Asia 61.4

Oceania 14.1

Source: FAO Rome (2008): Current World Fertilizer Trends and Outlook to

2010/11.



19/52

refer to a paradigm shi in agriculture away from decreasing real food prices over the

past thirty years (FAO 2008). This paradigm shi has eect on the demand and supply of

agricultural inputs, parcularly ferlizers.

The demand and supply of agricultural inputs are inuenced largely by changing and oen

interrelated factors: populaon and economic growth; agricultural producon; prices; and

government policy. These changes manifest themselves in the global macro-economic

factors, the agricultural context, income growth and dietary change, bio-fuels, addional

agricultural land culvated, and technology. They are the main drivers of both agricultural

input demand and supply. In addion, changes in technology are crucial in the supply of

agricultural inputs.

Global Macro-factors

Macro-factors aecng global demand and supply of agricultural inputs include: the

economic context; oil; trade; freight rates; and exchange rates.

In the economic context, developing countries and economies in transion connue

their strong economic performance, and hence a connued increases in the demand for

agricultural commodies and inputs (FAO 2008).

High oil prices contribute to price increases for most agricultural crops by raising input

costs on the one hand, and by boosng the demand for agricultural crops used as feedstock

in the producon of alternave energy sources (bio-fuels) on the other (Integer 2007).

High oil prices could depress the use of oil-based agricultural inputs (ferlizers and agro-

chemicals) which have been behind much of the increases in farm producon during thepast half century (FAO 2007).

World trade expanded rapidly in the recent three years driven by increased trade of oil

and non-oil commodies as well as capital goods (FAO 2008). Growth of world exports

is more than double that of global agricultural commodity output markeng, a further

deepening of economic integraon that can have posive eects on the demand and

supply of agricultural inputs that are internaonally traded (Ibid).

Freight rates have become a more important factor in agricultural markets than in the past.

Increased fuel costs, stretched shipping capacity, port congeson, and longer trade routes

due to altered trade paerns, have pushed up shipping costs. The impact of transport costs

on imported agricultural input prices will grow as they are produced in fewer localies

close to raw materials and ample energy availability (FAO 2008).

Exchange rate swings play a crical role in all markets, including agricultural markets. Yet

rarely have currency developments been as important in shaping agricultural prices as in

recent mes. The decline in the United States Dollar against most currencies in the world

since 2005 has made imports from the United States cheaper and lessons the true impact

of the rise in world prices (World Bank 2007). This is the major reason behind the brisk

world import demand for agricultural inputs, parcularly ferlizer and agro-chemicals,that in spite of high prices, shows lile sign of retreat.

15


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Global economic growth is seen as remaining suciently robust to sustain demand for food

(especially high value foods such as meat, fruits and vegetables) in emerging economies,

thereby strengthening demand for ferlizers and other agricultural inputs (FAO 2008). At

the micro (farm level) the income of farmers is the most important factor aecng their

demand for agricultural inputs.

The Agricultural Context

Global populaon and economic growth are the major forces driving increased world

food demand, crop producon and agricultural input use. With regards to populaon

growth, absolute annual increments connue to be large in spite of slowing down of word

populaon. More food and bre will be required to feed and clothe these addional people

and to increase the daily uptake of millions of undernourished worldwide. There is thus

signicant scope for further increases in demand for food and for that maer agricultural

inputs, even as populaon growth slows down (FAO 2007).

Income Growth and Dietary Change

Global agricultural value added per capita has grown at an average rate of 0.4% per year in

real terms since 1961. Sub-Saharan Africa is the only region in which per capita agricultural

value added has not seen a substanal increase with declining trend on average for the

period and considerable variaon over me and across countries (FAO 2008). At the same

me, global dietary paerns have changed dramacally over the past four decades, both

reecng and driving these changes (Ibid).

Income growth, relave price changes, urbanizaon and shis in consumer preferences

have altered dietary paerns parcularly in developing countries. Diets have shied away

from staples such as cereals, roots and tubers and pulses towards more livestock and

shery products, vegetable oils and fruits and vegetables. Increasing meat and aquaculture

producon will require more feed (coarse grain and oilseed meals). Conversion of grain

areas to vegetable and food producon will translate into higher ferlizer and agro-

chemical agricultural input demand as average applicaon rates for these inputs are about

double those of grain crops (FAO 2007).

The above trends support connuing and increasing demand for agricultural inputs,

parcularly mineral ferlizer to restore and enhance ferlity of the worlds agricultural

land for higher yields and improved produce quality.

Bio-fuels

High oil prices are creang new markets for agricultural commodies that can be used as feed

stocks for the producon of bio-fuels. Bio-fuels are being promoted as contribung to a wide

range of policy objecves, most notably as providing greater energy security with regards

to liquid fuels, increasing rural incomes, lowering greenhouse gas emission and providing

economic opportunies for developing countries (Integer 2007). Increasing producon ofbio-fuel agricultural commodies could lead to increased demand of agricultural inputs.



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growth. Instruments proposed for implemenng smart subsidies include (i) demonstraon

packs; (ii) vouchers; (iii) matching grants; and, (iv) loan guarantees.

Nevertheless, the interest in geng input subsidies to serve new funcons and policy

objecves, and the extent to which input subsidies are the most cost-eecve way

of achieving these policy objecves connues to be controversial. For example, while

recognizing all the features of smart subsidies listed above, the 2008 World Development

Report on Agriculture for Development takes a more restricted and convenonal posion,

focusing on the roles of subsidy as being to provide sustainable soluons to market failures,

through market smart approaches to jumpstart agricultural input markets, underwrite

risks of early adopon of new technologies to help achieve economies of scale to reduce

input prices, as part of a comprehensive strategy to improve producvity with credible exit

opons (World Bank 2008). In other words subsidies, no maer how laudable the policy

objecves may be, should have a life span.

Some of the current policy issues are reected in current programmes in Africa. Theseinclude: (1) Naonal Ferlizer Subsidy Programme in Ghana; (2) Zambia Ferlizer Support

Programme (FSP); (3) Kenya Naonal Accelerated Agricultural Input Programme (NAAIP);

(4) Malawi Agricultural Input Subsidy Programme (AISP), Targeted Input Programme (TIP),

and Starter Pack Programme (SP); (5) Sasakawa Global 2000; (6) Millennium Villages;

(7) Malawi Sustaining Producve Livelihood through Iputs for Assets (SPLIFA); and,

(8) Developing Agricultural Inputs Markets in Nigeria (DAIMINA).

These current programmes are well spread in all sub-regions in SSA. They are ongoing and

success or failure cannot be judged now. However, the current programmes in Africa have

some common features in line with the new policy thinking, and also embody a range ofdierent approaches. With the excepon of the Global 2000 programme, all of the current

programmes were iniated in response to the high food prices as well as rising ferlizer

prices in early 2008. The common feature in all the current programmes is the role of

government and the involvement of private sector operaves. Private companies import

the ferlizers and other inputs under government tender. The distribuon is done through

a government agency (as in the cases of Ghana and Nigeria), prastatal input suppliers (as

in the case of Malawi), cooperave sociees (as in the case of Zambia) or through private

agro-input dealers (as in the case of Kenya).

A number of innovave approaches are also involved in these new programmes:

i. Starter Pack: All farm households under the Malawi programme were given an input

starter pack comprising 15kg of ferlizer, 2kg of maize seed and some legume seed in

an aempt to boost producon of maize and legumes.

ii. Targeted Input Programme: Targeted beneciaries were selected and inputs (mainly

ferlizer) were provided to them (Malawi).

iii. Demonstraon Plots: An approach used by Sasakawa Global 2000 under which farmers

were given assistance in acquiring inputs on demonstraon plots

iv. Millennium Villages: Integrated projects in selected villages to demonstrate thesubstanal changes that are possible with investments in health, agriculture and



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Table2:TypologyofAgricultura

lProductsbyRoles,CountriesandChallengesandOpportunities

StapleProd

ucers

NonStaple

Producers

Highresponse

cerealsMaize,

rice?

wheat?

Lowresponsecereals

Sorghum,

millet

Ro

ots/tubers

Ca

ssava,

(sweet

po

tatoes)

Domestically

consumed

non-tradable

Domestically

consumedtradable

Tr

aditional/non-

tra

ditionalexports

Bro

adrole

Pro-poorgrowth

Leastcostwelfare,

growthplatform

Pr

o-poorgrowth

Supportgrowth,

with

staplespillovers

Supportgrowth,

with

staplespillovers

Drivegrowthwith

staplespillovers?

Countrieswith

min

erals

Supportandsp

read

growth

Subsistence,

support

andspreadgrowth

Su

pportandspread

growth

Supportandspread

growth

Supportandspread

growth

Minordriverand

sp

readsgrowth

Coastal,nominerals

Regionaldriver

and

supportsgrowth

Subsistenceand

supportgrowth

Re

gionaldriverand

su

pportsgrowth

Supportgrowth

Supportgrowth

Regionaldriverand

su

pportsgrowth

Landlocked,

no

min

erals

Majordriverandthen

supporter

Subsistence

Majordriverandthen

su

pporter

Supportgrowth

Supportgrowth

Driver

Technology

Irrigation

Yieldpackage?

Pr

ocessing?

Various

Various

Va

rious

Challenges

Publicgoods

(research,

infrastructure,

institutionalenvironment)

Policycoordination

Complementaryservicecoordination

Globalcommodityandproductprices(protability,inputaffordability)

Priceinstability

(intraandinterseasonal)

Price/productivitytightrope

Sea

sonalinputnance

Source:

Dorward

A.

2009

.Re

thinking

Agricu

ltura

lInpu

tSu

bsi

dy

Programmes

ina

Chang

ing

Worl

d.



25/52

need to be addressed in order to achieve increased producvity. Disncons are made

between dierent types of crops and products (and implicitly between dierent agro-

ecological zones associated with them). In the Table 2, maize, rice (notably NERICA) and

possibly wheat (a much less important crop in Africa) are classied in Dorward (2009) as

cereals with potenally high responses to signicant investments in inorganic and organic

ferlizer applicaon.

Millet and sorghum have generally lower yield potenal, but there are sll possibilies

for signicant yield responses in the context of integrated soil ferlity management

(ISFM) pracces, involving, for example, beer water control, use of organic maer and

micro-dosing with crical nutrients (Ibid). Root crops, parcularly cassava sweet potatoes

and yam, have the potenal for signicant yield increases with intensicaon but will

require signicant increases in ferlizer inputs, there are inial opportunies for major

yield increases from improved variees. Non-staple products are considered in terms of

non-tradables and tradables, the laer broken down between domescally consumed and

exported tradables.

Dorward (2009) argues that the high potenal yields achievable with the high response

cereals and roots and tubers suggests that these have the potenal to make major

contribuons to driving and supporng pro-poor growth in African countries where these

crops can be produced, depending on other potenal drivers of growth in these countries.

On the other hand, in the more challenging agro-ecological condions the low response

cereals achieve improved yields that are sll low. These improved yields will not be able

to drive growth substanally but they should have important roles in supporng growth

and in providing a lower cost and more developmentally benecial subsistence safety

net (as compared with humanitarian relief). These developmental opportunies will vary

between countries with opportunies for minerals, manufacturing industries and cash

crops to drive growth (Ibid). Nevertheless, the more challenging agro-ecologies where

these crops are grown are also likely to limit cash crop and livestock development opons.

In these situaons, investment in increased staple producvity may be a least cost way of

providing safety nets in a way that encourages economic acvity rather than dependency.

The lower part of the Table 2 lists the major challenges faced by the dierent products in

the broadly suitable agro-ecological areas. These challenges include:

i. Technical challenges and opportunies to increase producvity and stability, thoughthe nature and extent of these challenges and opportunies varies between products

and contexts;

ii. Underinvestment in public goods provision (technical research and extension, market

and instuons) parcularly for staples where prices and value chain prots are

limited; and,

iii. Uncertainty and variability in global commodity prices as they aect input and output

prices. This aects all commodies.

The locaon of the text and thickness of arrows in the Table 2 show that there areconsiderable dierences between dierent products in the challenges they face.

21


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A.Farm-levelconstra

ints

B.Traderconstraints

PurchaseInputs

SupplyInputs

Doesfarmerhave

knowledgeof

protableinputsthat

heisnotusing?

Doestraderbelieve

thereiseecve

demand?

Doestraderhave

enoughtechnical

knowledgetoorde

r

andmarketinputs?

Doestraderhave

capitalneededtos

tock

inputs?

Isthereasupplier

available?

Cantransportaon

bearrangedfora

reasonableprice?

Islevelofrisk

acceptable?

Doesfarmerhave

knowledgeandskills

neededtoeciently

usetheinput?

Areinputsthebest

useofavailable

nancialresources?

Areinputsaordable

orcreditavailable?

Areinputsavailable?

Islevelofriskacceptable?

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No

No

No N

o

No

No N

o

No No N

oNo

No

Yes

Yes

Yes

Yes

Ye

s

Linkwithcreditservices

Agro-dealerpr

ograms

Programt

osu

pportsuppliers

buildingdistr

ibuonnetworks

Supportinputdealer

associaons

Ruralroadin

vestments

Lowervehicletaxes

Supplierrisk

sharing

Insurance

Tradertrain

ing

programs

Informaon

campaignb

y

researchan

d

extension

Promoon

ofinput

traderasso

ciaons

Inputvouchers

Mini-packs

ISFM

Outputpricesupport

Insurance

Mini-packs

Credit

Subsidy

Improveprotabilityrelave

toalternaveusesthrough

researchorsubsidy

Developsupply

Extension

Adversing

On-farmd

emos

Parcipatory

research

Figu

re1:IdentifyingandReducingInputMarketingConstrai

nts

Source:

V.

Ke

llye

tal./Food

Pol

icy

28(2003)379404



27/52


28/52


29/52

The awareness-raising campaigns, carried out at markets and churches where farmers

congregate, are a key component of the success. They were complemented with extension

assistance to farmers willing to test the inputs.

The strength of the programme appears to be its ability to inform both farmers and traders

about inputs, and its ability to address mulple constraints: farmer knowledge through

awareness campaigns, farmer skills through parcipatory input tesng, aordability

through the use of min-packs and availability by establishing SCODP shops and smulang

general merchandise traders to stock ferlizers.

The lesson from the SCOPD experience is that eecve demand for inputs to be used on

food crops can be developed among poor farmers if the knowledge, skill, availability, and

aordability constraints are addressed. The most crucial step appears to have been raising

awareness of inputs and their potenal among farmers seldom targeted by extension

services (Kelly et al. 2003).

In spite of the numerous successes of this strategic innovave opon, its sustainability willbe dependant on measures that are taken to migate the eects of subsidy withdrawals

when donor support ends.

Rural Agro-Dealer Networks

Rural agro-dealer programmes increase retailer knowledge and decrease supplier risks.

Therefore, an increasingly popular innovave strategic approach to agricultural input

promoon focuses on rural agro-dealer networks (Kelly et al. 2003). These networks

increase input availability by rst improving the technical knowledge of inputs and

managerial skills among rural traders and then reducing capital constraints through a systemof guarantees that reduce the risk of input distributors supplying credit to retailers (Ibid).

There are three disnguishing features of rural agro-dealer networks:

i. Rural shop owners are trained by NGOs on general business management and technical

knowledge of agricultural inputs;

ii. Once cered, the agro-dealers are connected to major input supply companies using

a credit guarantee scheme, which covers some of the risk-related costs normally borne

by rms building rural input supply networks; and,

iii. Linking agro-dealers to farmers eld schools, where they exist, to build eecvedemand for inputs by improving farmers knowledge.

Kelly et al. (2003) idenfy three advantages to this strategic input markeng approach:

i. It builds on exisng entrepreneurs who already have business skills and are able to take

risks;

ii. It moves inputs closer to farmers through a viable private sector system; by bearing

a high proporon (up to 50%) of the input guarantee costs and retailer training, the

suppliers share in the risk of developing these networks; and,

iii. Scaling up is based on the ability of the agro-dealers to sell their products and repayinventory credit, rather than donor funds.

25


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Agro-dealer networks have been used in input markeng programmes in Zimbabwe,

Malawi and Mozambique. In general, performance in these cases suggests that agro-

dealer programmes can eecvely link input suppliers to rural markets. As rural markets

expand, farmers input search costs and prices should decline. An absence of policy

reversals or government intervenons that cripple private sector incenves is crical in

the development of agro-dealer networks.

Research-Commerce Linkage to Test Input Demand

Most smallholders in Africa culvate open-pollinated crops (e.g. millet, sorghum, peanuts,

soybeans, cowpeas). Much research has gone into improved variees of open-pollinated

seeds (OPV), yet the number of farmers using these improved variees on a regular basis

remains very small (Kelly et al. 2003). Local traders are oen unwilling to stock such seeds

because they perceive farmer demand as weak. Even when demand is strong, the fact that

farmers need to purchase the OPV seeds only once in a year and can then subsequently

produce their own seeds tend to hinder the development of commercial OPV seed markets.

ICRISAT undertook a pilot programme with Seed Company of Zimbabwe (SeedCo) to improve

the companys knowledge of potenal demand for OPV maize seeds, and recognized

the importance of addressing the aordability constraint at the farm level. To improve

aordability, the company was encouraged to sell OPV seeds in small packages. SeedCo,

the major wholesaler of hybrid maize seed in Zimbabwe, then introduced the OPV small

packs to farmers using an already well-established network of 14 credit-worthy retailers in

Southern Zimbabwe who were familiar with seed markeng. SeedCo oered retailer credit

and reduced retailer risk by taking back unsold stocks at the end of the season.

However, the programme was disrupted by government price controls that forced wholesale

margins to zero and a free distribuon programme that increased uncertainty not only in the

emerging OPV seed market but also in the tradional hybrid maize market. Nevertheless,

the experience shows that research instuons have an important role to play in raising

awareness of new inputs among potenal suppliers. This type of research-private sector

partnership, worked well in Zimbabwe (at least for some me) because a strong commercial

seed sector had already been developed to supply hybrid maize. Consequently, SeedCo was

able to draw on nancial reserves and distribuon networks to test the market for OPVs.

Two important sub-components of the success story in this case were SeedCos buy-back

policy, which reduced retailer risk, and their aenon to aordability through prescribed

retailer margins and packaging in smaller units. On the other hand the case also shows

that a supporve policy environment (i.e. absence of unreasonable price controls and

compeon from seed give-away programmes) is necessary for both the inial success

and long-run sustainability of commercial input markets.

Financing Inputs and Affordability

A number of recent eorts on the alleviaon of agricultural inputs aordability constraints

employ two broad categories of strategic opons: (i) reducon in package size and (ii)a variety of acvies to improve access to input credit. Many publicaons have noted



31/52

that the current credit problem in Sub-Saharan Africa is typically characterized by one of

market failure associated with imperfect informaon in the presence of risk (for examples,

Dorward et al. 1998; Kydd et al. 2002). They inmate that market failures occur because it is

costly to screen input credit applicants and instuons for contract enforcement are weak;

moreover insurance is absent (for similar reasons) and farmers lack collateral for loans.

Nevertheless, there have been innovave eorts, in recent mes, to solve the credit

problems of smallholders. These have been led mainly by donor-funded NGOs to build

farmer associaons capable of accessing private sources of input credit, group lending,

interlinking market arrangements for export crops in various stages of transformaon from

pre-reform parastatals to post-reform compeve markets, out-grower schemes, and

government-run input credit programmes (Kelly et al. 2003).

Reducing the Package Size

Small packages of inputs appeal to farmers in general and to smallholder farmers in parcular

for various reasons. It makes it possible for them to experiment with new seed variees

without making a major nancial commitment; they can diversify their crops to reduce

risk by purchasing small packages of several dierent seed types; and they can purchase

ferlizers in small, incremental quanes as the rainy season progresses as this reduces the

risk of purchasing large quanes that cannot be used eecvely due to poor rainfall.

An enabling policy environment is crucial to encourage trader-led small-pack approach

to input markeng. Policy reforms that remove price controls and subsidies as well as

government withdrawal from direct market intervenon in the input sector are necessary

to create an enabling input market environment.

Both the SCODP and SeedCo programmes in Kenaya and Zimbabwe respecvely (discussed

earlier) aribute a large share of their successes to the use of small and aordable

packages. The trader-led small-pack approach in response to policy reform worked well

where input dealers were already present and agriculture was highly protable. However,

in the connued absence of commercial networks in marginal producon zones, there is

the need for the expansion of NGO iniaves to act as catalyst to develop the demand

necessary to enhance the commercial sector (Kelly et al. 2003).

Credit Through Building Farmer Associations

The logic behind the associaon building approach is that collecve acon has the capacity

to reduce farm-level transacon costs for potenal input suppliers and output buyers. The

approach is an aempt to foster the development of boom up associaons characterized

by self-selecon and self-management.

There are several examples of the associaon based approach in several countries in SSA.

A collaborave CARE/CLUSA eort in Mozambique through the Viable Iniave for the

development of Agriculture (VIDA) used this approach to organize 80,000 farm families

into 1400 associaons to access credit from commercial companies for input purchase and

output markeng. Maize yields doubled and incomes increased by 20-30% for parcipangfarmers (Kelly et al. 2003).

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In Malis coon zone, USAID encouraged banks to provide input credit by oering loan

guarantees to CLUSA-supported associaons during their rst four operang seasons. Both

guarantees and farmer training were necessary to get the credit process started. Again

in Mali, the promoon of village savings and loans associaons substanally improved

access to input credit and repayment in Malis Oce du Niger irrigated rice producon

zone where major credit defaults were common in the early 1990s (Kelly et. al 2003).

An example of an integrated associaon system is a ve-year CLUSA programme in Zambia

that has supported farmers in creang 371 rural group businesses (RGB), a network of

97 depots (groups of RGBs which coordinate input distribuon and crop dispatch), and

a farmer-operated extension service. According to Kelly et al. (2003), maize yields for

parcipang farmers have tripled and the producon of newly introduced cash crops

(paprika and chilies) has increased input use and net income.

A common thread in the programmes for developing famer associaons is the need to

develop farmer literacy and management skills for both individual and cooperave

acvies. Another important element is the need to support banks through assistance

with management informaon systems and/or loan guarantees. Also, promong

agricultural input credit through farmer associaons works best when there are protable

input technologies (oen a funcon of public goods such as roads, markets, irrigaon

infrastructure as well as technology research) and strong contract-enforcement instuons

(either social, polical, or legal).

Group Lending

An approach to micronance for rural farmers which has gained popularity among NGOs,

in parcular, and donors in Ghana is the group lending scheme which is quite similar to

farmer associaons. The raonale for group lending is to reduce transacon costs to the

banks as well as the borrower, and to enhance repayment rates. Loans are accessed by

groups of farmers (10-20) but disbursed to individuals within the group who are solely

responsible for repayment. However, all group members are held jointly responsible for

the total loan amounts (Al-Hassan 2000). Group lending has been useful in targeng poor

and vulnerable rural farmers, parcularly female farmers.

Interlinked Markets in Transition

Interlinked markets permit exporters or processors to use farmers expected harvests as

collateral for seasonal input credit. The system is expected to be mutually benecial: farmers

get credit for yield-increasing inputs while buyers can lock-in potenal supply. Kelly et al.

(2003) have observed that historically, credit repayment oered in the context of interlinked

markets in SSA has experienced higher than average rates of repayment because the output

markets were monopsonisc farmers had no alternave outlet so they sold to their creditor.

However, as compeon for the targeted crop grows, opportunies diminish for linking

input/output transacons capable of reducing credit risk and lowering input nancing costs.

Examples of programmes involved in interlinked markets abound in SSA. Coon produconin Francophone West Africa has long been done under an arrangement where naonal



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the required inputs. The Agricultural Development Bank (ADB) idenes input suppliers

who are authorized to supply inputs to the nucleus farmers. It is the responsibility of the

nucleus farmer to distribute inputs to out-grower farmers, monitor their use, and recover

loans from the out-growers. Because the nucleus farmer is required to be a successful

large scale farmer (and in some cases a processor of the raw commodity, in addion) he/

she is expected to impart best pracces to the out-growers.

The target crops under the scheme in Ghana are maize, pineapple, plantain, rice, soybeans,

and vegetables. These are selected for reasons of improved food security (maize and

plantain), increased non-tradional agricultural exports (pineapple and vegetables) and as

import substutes to save foreign exchange (soybean). The out-grower scheme in Ghana

has parcularly been successful in oil palm producon.

Government Credit

Government-run input credit programmes have been a common feature in most SSA

countries, parcularly in the pre-reform era. Such credit programmes make credit more

accessible in situaons where commercial banks nd costs prohibively high. Moreover,

government-run credit programmes can increase aggregate demend for purchased inputs

when there is a credit market failure, thereby boosng commercial interest in developing

input supply networks. However, the poor performance of these programmes suggests a

failure to address the underlying problems. Many beneciaries oen regard such credit

as gis from government and in the emerging democracies, ruling polical party acvists

regard government credit as rewards for their eorts. Thus, repayment rates are oen very

low, ranging from 30% in Zambias programme to 60% in the case of Senegal (Kelly et al.

2003).

A sort of success story is the Ethiopia government-guaranteed credit scheme which

was the driving force behind the Parcipatory Agricultural Development and Extension

Training Service (PADETS), which followed the successful introducon of improved maize

technologies by Sasakawa Global 2000. Approximately 42% of farm households rich and

poor had access to modern inputs, and the programme is credited with making a major

contribuon to increased cereal producon and a very high (over 98% in most years) loan

repayment rates (Howard et al. 1999). The high repayment rate is aributed to Ethiopias

very strong stand on repayment, with arrest or conscaon of assets where necessary

(Kelly et al. 2003 with reference to Stepanek 1999). The success of the programme led to a

drasc drop (80%) in maize prices, illustrang the need to combine technology promoon

programmes with output market development acvies, including improvement in

transportaon infrastructure to smulate more trade between surplus and decit zones.

This second generaon problem arising out of a success story was encountered in Malawis

agricultural input subsidy programme (MAISP) too (Chirwa et al. 2010).

The issue of lack of cost-eecveness of these programmes in smulang commercial input

market development has been raised. This arises out of the high cost of the programmes;

heavy credit administraon obligaons placed on extension sta, making it dicult forthem to perform normal extension acvies; and high levels of rent seeking associated



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with a tendency to favour polically well-placed suppliers, thereby constraining the

development of lower cost, truly commercial input supply networks (Chirwa et al. 2010;

Jayne et al. 2003; FSRP Zambia 2000).

Reducing Risks

Upton (1979) points out both price and producon risks that face African farmers (both

subsistence and commercial farmers) and stresses the fact that household food security is

the major objecve of smallholder farmers rather than output maximizaon. Thus, African

smallholder farmers are oen reluctant to use new inputs because of both producon

and price risks that can render input use unprotable in a given season or threaten food

security. It is reported that risk averse behavior on the part of SSA farmers, has been

found to account for ferlizer applicaon rates that are, at least, 20% below economically

opmum rates (Binswinger and Sillers 1983).

Most of the strategic opons discussed above addressed the risk issues in some way. These

include:

i. Small packs that reduce the monetary outlay necessary for input use thereby reducing

the size of potenal losses;

ii. Rescheduling of credit reduces farmers risk of having to pay for the negave

consequences of producon risks in a single season;

iii. Input quality control reduces the risk of farmers purchasing ineecve inputs;

iv. Donor-funded credit guarantees provide a bridge between banks and farmer associaons

and reduces the risk to banks and potenal input suppliers, thus encouraging themboth to enter the market and expand distribuon networks;

v. Agro-dealer programmes provide a donor/distributor risk sharing mechanism that

encourages distributors to oer credit to new input retailers;

vi. The SeedCo buy-back scheme encouraged small retailers to parcipate in tesng the

market for improved OPVs because they did not need to worry about the risk of carry-

over stocks; and,

vii. Contract enforcement in Ethiopia has reduced the risk of default and contributed to

sustainable funding of an input credit programme.

In addion to these, governments can reduce risks associated with input use and markeng

in relavely low-cost ways as suggested by Kelly et al. 2003:

i. Support for market informaon systems that report input and output prices on a

regular basis will help farmers and traders make beer input use and supply decisions;

ii. Extension services that train farmers parcipang in demonstraon programmes to

evaluate the protability of input use over me, taking into account producon price

variability, can improve farmer decision-making concerning input use;

iii. Research and extension to provide soil ferlity management pracces can reduce therisks and costs of input use;

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iv. Naonal programmes of input quality controls can increase farmers condence in input

suppliers and protect honest suppliers against competors selling adulterated products;

v. In negoang more equitable terms of trade for African farmers through WTO, African

governments could reduce price volality in export markets and protect farm incomes;

vi. Crop insurance programmes tend to be costly and inecient in developing countries,

but recent research on rainfall insurance may ulmately provide a viable alternave for

reducing producon risk associated with bad weather.

Risk is widely regarded as pervasive at both the farm and commercial level. Governments

have numerous opportunies to invest in public goods capable of reducing risk and should

not be in a posion of increasing risks for economic actors through unnecessary intervenons.

Other Strategic Options

There are other strategic opons oen applied by Non-Governmental Organzaons and

governments. They are controversial in nature and widely applicable to the three generalcategories of constraints. Such controversial strategic opons include inputs for relief and

food security; and government-run programmes.

Inputs for Relief and Food Security

Following drought or civil unrest, governments (and donors) oen instute programmes of

input distribuon to vicms as a relief measure. They are also somemes used to redress

circular declines in agricultural producvity and rising food insecurity. Such programmes,

however, increase risk and uncertainty for the emerging commercial sector.

Seed is oen distributed aer a drought when it is thought that seed stocks have been

depleted. However, the tendency of governments and donors to resort rapidly to input

distribuon programmes, which are somemes connued beyond the inial emergency,

erodes the incenves for local traders to develop markets that can respond to future

emergencies. Among the recent innovaons for reducing the negave market impacts of

relief programmes are:

i. The use of empirical data to establish a real need for relief. For example, ICRISAT

has developed a Seeds Needs Assessment Tool which has been used successfully in

Mozambique;

ii. Local purchase of seed by relief agencies;

iii. Distribuon of cash rather than seed (used successfully in Mozambique);

iv. Distribuon of vouchers redeemable for seed through established seed retailers or at

seed fairs.

Vouchers have been used in many African countries to the benet of both beneciaries and

input markeng agents. Vouchers can target poor household while promong commercial

input distribuon. For examples, cash-equivalent input vouchers, which farmers can

redeem from a menu of approved inputs, have been used in Zimbabwe; the SG 2000

programme uses vouchers to distribute their inputs in Uganda; Malawi used vouchers inconjuncon with its starter pack and targeted input programme. Also seed vouchers have



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been used in conjuncon with seed fairs sponsored by Catholic Relief Services (CRS) when

the key constraint was access rather than availability. This oers the farmers exibility

in terms of suppliers as vouchers can be redeemed for local seed purchased from other

farmers or commercial seed purchased from established retailers (Remington 2002; Jones

2002).

Government-Run Programmes

Concerns over the slow expansion of commercial input supply networks in the face of

declining soil ferlity and rising food insecurity have rekindled interest in government-run

distribuon programmes. A typical example is the Malawi starter pack (SP) programme

which aimed to increase household and naonal food security by promong naonal food

self-suciency. The instrument for achieving these objecves was free distribuon of seed

and ferlizer packs perming all farmers to plant 0.1 ha of maize/legume intercrops.

Resource constraints led to more targeted distribuon and this targeted input programme

(TIP) encountered numerous dicules in liming the input packs to the most needy

farmers (Chirwa et al. 2010). SP/TIP used vouchers rather than direct delivery in an

eort to contribute to input market development. However, SP/TIP largely passed up

the opportunity to build commercial capacies to esmate, nance, procure, store and

distribute inputs. Retailers simply act as depots for turning starter packs over to voucher

recipients. There is also general agreement that SP/TIP is responsible for some crowding

out of demand for ferlizer purchases (Adesina 2002).

Government input distribuon programmes face several problems: polical interference,

ineecveness of means-targeng, sizable leakages, procurement and distribuon delays,

and inadequate farmer training that reduces the eecveness of the package (Chirwa et

al. 2010).

7.0 Enabling Environment for Strategic OptionsDorwards (2009) classicaon of development opportunies and constraints facing

African farmers by ecological zones implies that these strategic opons are country

specic. Besides, the behavior of private operators in the input markets will vary from

one country to another. Thus the successful implementaon of the strategic opons will

depend on the creaon of a favourable enabling environment in each specic country.

It is parcularly pernent to address issues pertaining to the challenges and factors that

confront smallholder farmers in accessing input markets; the organizaon of input markets;

the role of educaon; and the specic roles that governments and private sectors need to

play in creang the enabling environment.

Smallholder Challenges

The major challenge that smallholder farmers face is poverty that also aect all aspects of

their use of modern inputs. Smallholders oen rely on their own sources of input supply,parcularly seeds, that lead to low producvity. Even when they use modern inputs their

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applicaon is oen below recommended dosage or me of applicaon. They oen face

long distances to the supply base of inputs and this adds to the cost of modern inputs.

Smallholders also face challenges from the input suppliers in the input market chain. Inputs

are oen not properly stored or catered for in storage with the result that the inputs get to

the farmers in very poor state with their viability quesonable. The general impression is that

there are too many actors in the input market chain feeding on the poor smallholder farmers.

This is exacerbated by cartels that exist among the oligopolisc input dealers in Africa who

are oen protected by rent seeking ocials in privilege posions to inuence policy.

Organization of Input Markets

In most sub-Saharan African countries, the agricultural input markets are not well organized

and are dicult to understand. An enabling environment for the successful implementaon

of the strategic opons requires a well organized and transparent input market system.

Transparency must transcend from input imports or manufacturing through wholesalers andagro-input dealers down to the smallholder farmer. Transparency will be enhanced by well

dened enforceable laws, rules and regulaons that must be obeyed by all stakeholders in

the input market chain, and there must be no protecon for deviants no maer their status.

Education and Training

Educaon will create awareness among stakeholders and farmers and improve input

markets in Africa. It is a well known fact that human capital is the most strategic factor

for agricultural development. The educaon and training of stakeholders will create input

market chains that will open the doors to knew knowledge and allow them to enter into

reliable arrangements for the ecient delivery of inputs. The training of smallholder

farmers will enable them to use inputs eciently, increase their demand for inputs and

improve on their producvity. In parcular, educaon and training of stakeholders and

smallholder farmers will enhance the use of modern technologies such as informaon and

communicaon technology (ICT) as a devise to transform input market space. For example,

the use of electronic plaorm to deliver prices of inputs to smallholder farmers through the

medium of cell phones requires an understanding of stakeholders and smallholder farmers.

Role of Government and Private Sector

The role of government and the private sector in creang an enabling environment for the

successful implementaon of the strategic opons is crucial. Governments in Africa need

to shi emphasis from commodity markets, where they oen like to intervene, to that of

making factor and input markets work more eciently. Governments need to build strong

instuons with legal mandate to provide input quality control, parcularly with regards

to industrial inputs such as ferlizer, fungicides and pescides. There are ve funcons that

these public instuons must serve for the input markets to work adequately: protecon

of property rights, market regulaon, macroeconomic stabilizaon, social ins

input market initiatives for web

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