Dr. syed-zahoor-hassan-dawn-pakistan-food-agri-conference-2016

05/02/2023 Syed Zahoor Hassan 1

Increasing Value To Small Farmers Through Intermediation: Role of Entrepreneurship

Syed Zahoor HassanSuleman Dawood School of Business (SDSB)

Lahore University of Management Sciences (LUMS)Lahore, Pakistan

April 5, 2016Dawn Food and Agri Conference 2016


Increasing Value To Small Farmers Through Intermediation: Role of Entrepreneurship•The Issue• Small farmers in developing countries get relatively low return for their efforts• Small farmers key to socio-economic progress

•Two ways to address this issue• Increase size of the pie – create more value• Have better allocation of pie – more value capture

• Our approach •Focus on one crop to understand the issues and develop ideas for possible interventions –> Potato value chain in Pakistan


Increasing Value To Small Farmers Through Intermediation: Examples from Pakistan•Pakistan – A snap Shot (2014)• Population: 188 million• GDP: 243.6 billion US $• GDP per capita: 1296 US $•Agriculture and related industries nearly 40% of GDP•45% of labor directly associated with Agriculture•Growth rate of around 4% with population growth of around 3 %•Large majority of farmers are small (less than 25 acres) Enhancing earning of small farmers can have huge socio-economic impact


Increasing Value To Small Farmers Through Intermediation: Examples from Pakistan•Potato farming in Pakistan•Grown by small farmers in many parts of Pakistan•Not heavily regulated by the government•Seen as most profitable, but high investment and high risk crop by farmers•Low profitability and productivity for small farmers•High growth in cultivated area in recent year•Wide variations in price•Hypothesized large differences in productivity across farmers

May serve as a good starting point for learning the overall issues of farmers and agricultural supply chain


Increasing Value To Small Farmers Through Intermediation: Examples from Pakistan

The SEED project: Oct 2013 – Aug 2014

•Objectives•Study the supply chain for representative sample of small potato farmers in Pakistan to develop a deep understanding of the key underlying issues that impact the profitability of farmers•Develop ideas for a large scale intervention that creates economically sustainable value, and benefits the small farmers

Re-crafting the Agricultural Supply Chain – Study of Potato Farmers in Pakistan

Re-crafting the Agricultural Supply Chain – Study of Potato Farmers in Pakistan

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Four Areas of Research

Increasing Value To Small Farmers Through Intermediation:Examples from Pakistan

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Relative seed investment

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Comparison of Fertilizer Investment

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Comparison of Investment in Chemicals

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Comparison of Harvesting and Grading Investments

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Comparison of Investment in Sales

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Comparison of Total Investment

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Much higher investment in Taxila and Mansehra primarily due to higher costs of seed, more labor intensive processes in harvesting and greater sales cost

Okara Khairpur Taxila Mansehra0

500

1,000

1,500

2,000

2,500

3,000

3,500

Figure 6.11 Comparison of Total Investment in Potato Cultivation per acre across Regions

$/Ac

re

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Comparison of Effective Yield per Acre

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Yields per acre within 10% range across the regions except for Khairpur that has very different cultivation practices

Okara Khairpur Taxila Mansehra0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Figure 6.12 Comparison of Effective Yield per Acre Across Regions

Kgs/

Acre

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Price and Cost across Regions - $/Kg

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Costs and prices obtained are much higher in Taxila and Mansehra – impact ofInefficient farming practices and timing of harvest, respectively.

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Comparison of Average Profit per Acre

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Higher profits in Taxila and Mansehra primarily due to higher price of potato at the time of harvesting

Okara Khairpur Taxila Mansehra

(1,000)

(500)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Figure 6.15 Comparison of Profit per Acre across Regions$/

Acre



Overall Analysis and Conclusions



Some common issues across the four regions1. No proper advice, counseling and training for small farmers

- Agricultural technology and practices• Agri—business aspects

2. Lack of access to quality seed at affordable prices3. Lack of financing on terms that small farmers can understand & use4. Lack of use of modern technologies and lower level of mechanization5. Very limited market knowledgeSpecific problems in some areas:

6. Lack of reliable cold storage facilities 7. Low level of mechanization and high reliance on manual labor



Initial recommendations for re-crafting the supply chain to bring more value to small farmersFour Categories

1. Comprehensive Value Chain intervention- education, use of technology, provision of inputs & access to

market2. Narrow and Deep Value Chain Intervention

- Pick one key issue like provision of quality seed and address it in a comprehensive way



Initial recommendations for re-crafting the supply chain to bring more value to small farmersFour Categories3. Intervention aimed at selected components tailored to the

conditions of the area

4. Serve as orchestrator of Value Chain and use selective outsourcing approach- Aggregate and coordinate among and across various value chain

players and trigger provision of needed infrastructure facilities like cold storage



What are the main issues:1. High cost of production?

- Due to high input costs? Spending more due to o Seed: cost and qualityo Fertilizer: cost, usage and qualityo Chemicals: cost, usage and qualityo Farming practices: links to other crops and activities

- Lower yields?o Primitive farming practices and lower skillso High wastages at and post harvestingo Timing of harvest – weather, financial constraints

2. Lower price obtained for the produce



What are the main issues:2. Low price obtained for the produce?

o Quality issues – variety, grading ..o Too much supply compared to demando Timing of harvestingo Too many (three to four) middlemen between the

farmers and the end-consumero Lack of linkage with the end market and its

requirements



What are then the underlying issues for small farmers?1. Small scale and related inefficiency?

o But he gets same or higher yields in some cases?2. Scope - is the small farmer trying to focus on too much or too

little in terms of activities?3. Skills - agricultural and business?4. Slack – not enough and no social cushion to avoid short-term

maximization - poor economics?5. Social norms – disproportionate allocation of resources on

weddings, funerals, …6. Support is missing – marginalized in terms of access to

resources and provision of infrastructure



What are the ways of addressing these issues?A. Become part of the ‘right’ value chain and be able to

obtain ‘fair’ share of the overall value o Will small farmer get the support to overcome the

weaknesses?o Will the other players be patient enough as the small farmer

acquires the needed capabilities?o Do the other players in the chain have the incentive to involve

the small farmers?B. Create a ‘new’ value chain that creates more value and

also allows small farmers to capture greater shareo Who will create this chain? And Why? What are the

requirements? How will it be sustained?



Need to look beyond the small farmers in the overall chain ?


Increasing Value To Small Farmers Through Intermediation: Examples from PakistanWho else is interested in this issue and why?

1. Players within the supply chain

4. Players with development agenda

3. Service providers – Telecom, Banks, Insurance ..

2. Entrepreneurs with a social agenda


Increasing Value To Small Farmers Through Intermediation: Examples from PakistanWho else is interested in this issue and why?1. Players from within the value chain:• Pepsico Fritolay in Pakistan that produces crisps and related

products• Kevlaar: A supplier to food processing companies and food

service organizations 2. Entrepreneurs with a social agenda• Ricult – Attempt to create e-bay of agriculture• Kissanbook – Creating a platform for providing support to

small farmers• CAVC – Attempt to aggregate farmers into clusters and connect

them with input suppliers and markets


Increasing Value To Small Farmers Through Intermediation: Examples from PakistanWho else is interested in this issue and why?3. Service Providers• Telenor – looking at agriculture as a future business growth

areas for application of latest 3G and 4G technologies• Faysal Bank – Required by the regulation to offer services to

agriculture area but also looking for long term growth prospects4. Players with social development agenda• National rural support program - NRSP• International development organizations – World bank, USAID,

DFID• Local philanthropic and poverty alleviation organizations –

Akhuwat (provides interest free loans), Micro-finance banks etc.


Increasing Value To Small Farmers Through Intermediation: Examples from PakistanMain issues in working on interventions involving small farmers1. Cost effectiveness – how to use aggregation to avoid high transaction and

coordination costs2. Increasing working capital requirements due to higher costs of inputs

and significant advantages in holding produce inventories3. Coordination across multiple dimensions to ensure positive impact4. High risks of defaults on loans – circumstantial and willful5. Difficulty and delays in enforcement of legal contracts6. Need for a long term and area-specific approach Need to combine a deep understanding of local conditions with strong market

linkages, access to inputs, information and financial resources, knowledge of best relevant agricultural practices AND solid MANAGEMENT PRACTICES

Need to select an appropriate form of intermediation!


Increasing Value To Small Farmers Through Intermediation:Examples from PakistanSome insights and questions:1. Driven from own priorities (telecom, management

and finance, SCM, …) and not primarily on creating more value for all, including small farmers

2. Focus relatively narrow and on a problem considered to be ‘most’ important – exploitation by middlemen, low quality of inputs etc.

3. Besides focus on substitution, scale and structure of value chains, for agricultural value chains involving small farmers, also need to consider stability, slack and social value


Increasing Value To Small Farmers Through Intermediation:Examples from PakistanSome insights and questions:4. Attempt to replace existing structure and players

rather than reforming and redefining their roles may cause resistance from incumbent players

5. Lack of focus on real collaboration in design of new value chain –

6. Technology (especially mobile and IT based data analytics) generally seen as a game changer but not clear whether it will be accepted and adopted by the small farmers.


Increasing Value To Small Farmers Through Intermediation:Examples from PakistanPossible areas of opportunity:1. Understand small farmers’ total business model – all crops and

other economic activities along with the resource allocations, capabilities employed, cash flow implications and profitability – and the related value chains.

2. Look for opportunities that leverage the unique characteristics of small farmers (flexibility, low capital requirements, low cost labor costs and broader scope), address key weakness (less use of technology, limited financial resources, small scale and behaviors related to being in a poverty trap – tunneling etc) and target matching market opportunities (existing or new)


Increasing Value To Small Farmers Through Intermediation:Examples from PakistanKey ideas:

MUST FOCUS ON VALUE CREATION ALONG WITH VALUE CAPTURE

VALUE IS DETERMINED BY THE END MARKET AND HENCE MARKET DEVELOPMENT IS KEY

APPLICATION OF PROPER MANAGEMENT PRACTICES

Thanks

Dr. syed-zahoor-hassan-dawn-pakistan-food-agri-conference-2016

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