Day 2, Session 1, Part 1: Unlocking Agricultural Growth through Technology and Financial Security
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Transcript of Day 2, Session 1, Part 1: Unlocking Agricultural Growth through Technology and Financial Security
Understanding diversity in irrigation potential within Nigeria
Hiroyuki Takeshima, Hua Xia, Liang You, Hyacinth Edeh (IFPRI)
NSSP National Conference 2012:“Informing Nigeria’s Agricultural Transformation Agenda with Policy
Analysis and Research Evidence”
Abuja, Nigeria – November 13-14, 2012
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Research questions and methodologies
Research questions• How much irrigation potentials are there in
Nigeria?• How does such potential vary across regions?• Which type of irrigation system is transforming
farm households in Nigeria?
Methodologies• Irrigation potential – spatial diversity• Farm household and irrigator typologies
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Irrigation in Nigeria – current picture
million ha0.9
32.1 IrrigatedNot irrigated
million ha0.03
0.2 0.6700000000000
06
Public (equipped)
Private (equipped)
Unequipped Fadama
Total cultivated area
Source: FAO (2012)0.9
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IRRIGATION POTENTIALS
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Irrigation potentials
• How accurate can they be? – What might affect the exact potentials in different locations?• Location• Common resources / externality – water use within each basin• Imperfect market integration
• Maximum potential from 4 types of technologies• diesel pumps• treadle pumps• communal river diversion• small reservoirs
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Analytical framework
Spatial disaggregation of agricultural development
domains and spillover potential
A: Ex-ante Spatial Analysis
D: Benefit-cost Analysis
B: Biophysical Modeling (SWAT) C: Economic Modeling (DREAM)
Hydrology Plant growth Predict the crop price effect from smallholder irrigations
Crop mix optimization, return to irrigation investment, and environmental impacts (e.g. water use increase).
Source: Xie et al. (2012)
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Key spatial unit of analyses: Market shed and Hydrological Basin
Source: Authors (Hua Xie & Liang You)
Market shed River Basin
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Dry season irrigation potential
Source: Simulation by Hua & Liang
Total irrigation potential area= 3.165 million ha
Average potential = 1,000 USD / ha
Net revenue (USD/ha, year)
Area (1000 ha)
Cumulative share (%)
<500 57 2500-1000 2,081 681000-2000 793 932000-3000 99 963000-4000 76 984000-5000 34 99>5000 25 100Total 3,165
USD / ha
High : 8800
Low : 0
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FARM LEVEL TYPOLOGY ANALYSIS
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Research question
Research question• Does irrigation transform farm households?• Which irrigation types are more likely to have transformed farm
households?
Objective• Construct key hypotheses
Farm level analyses – typology• Farm household level diversity• Key farm household characteristics needed for using irrigation –
despite some potential, why only certain types of farm households use irrigation?
• Key farm behavioral characteristics
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Methodology -
• Cluster analysis• Living Standard Measurement Survey –
Integrated Survey on Agriculture, 2010 (World Bank, National Bureau of Statistics in Nigeria)
• Approximately 2000 farm households after dropping outliers (1100 for the North, 900 for the South)
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Producer typology
Page 12
Behaviors Resources
-Crop patterns-Input use intensity (fertilizer, agro-chemicals, seed purchase)-Production scale (farm size, sales)-Irrigation-Mechanization (tractor / animal traction)- Market orientation
-- Rainfall variation-- Soil types-- Farming systems (North / South)-- Proximity to rivers / dams-- Population density / access to town-- Household characteristics-- Assets-- Non-farm income earning activities-- Labor cost (real wage)
Types of variables used
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Variables used for cluster analysis
(continue to next slides)
Categories VariablesAgro-ecological (Natural resources)
Agroecological zones – FAO farming system (LGA average)Soil type (LGA average)Historical rainfall variation (LGA average) Distance to major rivers (LGA average)
Market access Total population density in the region where the household is locatedDistance to towns of 20 thousand inhabitants
Resources (Human resources)
Household sizeLevel of education and literacy of household headGender of household head
Resources (Assets) Total value of assets not including landSize of livestock equivalent stock or value of animal stock owned
Labor resource Real LGA median wage of land clearing / preparation (– ratio to LGA maize price)
Land tenure Whether own any of the farm plotsProduction scale Total rainfed area Production scale under irrigation
Whether using irrigation or notTotal irrigated area
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Variables used for cluster analysis
Categories VariablesProduction intensity Overall input intensity measured as the total value of inputs per
hectare of farm area or cultivated area Fertilizer- Seed (value of purchased seed only), pesticide, herbicideAnimal traction (Number of days per ha)Whether using tractor or notTractor (Number of tractors used per ha)Whether hired labor for harvestingWhether the household took out any loan / credit (including non-agricultural credit) from either formal or informal sources
Income, non-farm activities
Total expenditure per personWhether having non-farm incomeRemittance income last month – other types of income (savings interest, rental of property etc)
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Separate by North and South
Northsystem
Southsystem
Figure 1. Farming systems in NigeriaSource: Dixon et al. (2001)
Agro-pastoral – millet / sorghum
Cereal – root crop mixed
Root crop
Tree crop
Coastal artisanal
Pastoral
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Agro-ecological / Socio-economic factors
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Major waterways / dams in Nigeria
Time of travel to nearest town with population of 20k
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Types of farm households using irrigation in Nigeria - North
Source: Author’s calculations based on LSMS-ISA.
Category Maize based system with sorghum, legumes
Coarse grains / legume
Rice / vegetable
% share among northern farmers 15 4 14 35 30 3
Real wage (daily wage/maize price)
11 24 11 8 10 8
Fertilizer (Naira/ha) 4500 0 8400 4000 0 8200
Chemicals (USD/ha) 2200 3350 3900 1800 430 8600
Farm size 0.7 1.0 0.7 0.7 0.9 0.4
% using tractor 5 10 15 4 3 20
% using irrigation 10 0 1 4 4 63
% with non-farm income source 51 26 67 69 47 73
Household nonfood expenditure (annual/pc)
36 34 57 38 30 43
Household assets (USD) 198 204 510 295 149 271
Distance to the nearest river .017 .017 .017 .017 .017 .017
Distance to the nearest dam (km) 58 48 40 43 82 80
% selling their harvest 62 76 65 60 57 73
% selling or giving as gift 89 88 84 85 80 93
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Types of farm households using irrigation in Nigeria - South
Source: Author’s calculations based on LSMS-ISA.
Category Cassava Cassava, yam, grains
Cocoa system
Rice
% share among northern farmers 30 41 9 9 8 4
Real wage (daily wage/maize price)
10 10 10 11 11 17
Fertilizer (Naira/ha) 0 0 0 0 0 9000
Chemicals (USD/ha) 0 300 1420 2800 5000 15000
Farm size 0.2 0.2 0.1 1.3 1.3 2.6
% using tractor 0 0 0 0 1 100
% using irrigation 0 1 0 3 9 29
% with non-farm income source 32 54 65 29 82 80
Household nonfood expenditure (annual/pc)
49 78 109 41 108 111
Household assets (USD) 88 308 310 249 253 671
Distance to the nearest river .017 .016 .017 .016 .017 .017
Distance to the nearest dam (km) 140 130 180 64 38 43
% selling their harvest 70 68 72 87 97 90
% selling or giving as gift 74 74 81 91 97 93
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Major types of irrigators in Nigeria
• Coarse grains / legumes irrigation – mostly supplementary, little change in inputs intensity
Rice irrigators Vegetable irrigators
Coarse grains / legumes irrigators
Small-scale Tractorized larger scale
Dry season Rainy seasonSupplementary
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Types of farm households using irrigation in Nigeria
• Descriptions of key farm households using irrigation• North
• Small-scale rice / vegetable growers• Rainy season supplementary irrigation of coarse grains / legumes• Some substitutions of tractors vs (irrigation + animal traction)
• South• Larger scale rice irrigators producing rainfed maize and cassava • Their production behaviors are distinctive, but unclear whether it is
because of irrigation. More likely due to mechanization• Effects of irrigation – some but may not be substantial
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Concluding hypotheses
• Irrigation potentials vary across locations. Support for irrigation needs to focus on areas with high potentials, instead of medium to low potentials.
• Irrigation for rice / vegetables can be one of the options to transform farm households in Nigeria
• Irrigation of coarse grains / legumes • mostly supplementary• Limited effect in changing inputs intensity, transforming
farm households
• Does irrigation really transform agriculture ? How ?
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
UDP Technology in Nigeria
Prof. B. Tarfa & Brian Kiger
NSSP National Conference 2012:“Informing Nigeria’s Agricultural
Transformation Agenda with policy analysis and research evidence”
Abuja, Nigeria – November 13-14, 2012
UDP Technology… Agenda
What is UDP technology?
What are USG? Benefits Challenges Building Demand Enabling Supply Moving Forward
What is UDP technology?
Urea Deep Placement (UDP) is the practice of placing briquetted urea 5-7cm deep in puddled transplanted rice fields, at spacing of 40 cms.
40 cm
What are USGs?
Urea Super Granules (USGs) are applied once a growing season— a week after transplanting rice seedlings.
One USG is applied geometrically between 4 rice stands.
They are oval compacted pellets produced by briquetting granular urea using briquetting machines to 1.8 gram or 2.7 grams.
Notore Chemical industries is currently producing and marketing 2.7g in 10 kg bags.
USG releases N slowly and is placed out of the reach of weeds’ roots.
The briquette product
Urea Briquettes NPK Briquettes
Urea + Diammonium phosphate +Muriate of Potash
How do farmers apply UDP technology?
In Grain23%
In Straw9%
In Soil33%
Unaccounted35%
Comparison of N Balance in Rice Fields
In Grain42%
In Straw23%
In Soil31%
Unaccounted4%
Urea Deep Placement
Urea Split Application
Comparison of Urea Applications
1 Out of 3 Bags of Urea Lost using USG
2 Out of 3 Bags of Urea Lost using Split Application
What are the benefits of UDP technology?
Increases efficiency of N use in rice by placing it in the soil—reducing N loss through gaseous emissions and/or floodwater run-off. In broadcast application of urea, 40% of N fertilizers volatizes into the atmosphere.
Reduces weed competition as fertilizer is placed near rice plants’ roots.
Nitrogen use efficiency under irrigated rice increases by 40%.
Irrigated rice crop yields increase up to 50% (Niger State 2012).
UDP Benefits Rice Sector Stakeholders
For farmers:• Decrease in production cost• Increase in yield• Increase in profit
For entrepreneurs:• New area of business & profit• Opportunity to contribute to national development
For the national economy:• Increase in rural employment opportunities• Increase in rice production
For the environment:• Reduces Nitrogen
runoff and volatization
What are the challenges of UDP technology adoption in Nigeria?
Limited Supply and Demand of USG UDP Best Practices are not well-
known to rice farmers Many farmers complain that USG
application is labor-intensive Farmers incorrectly apply USGs to
other crops and/or do not practice rice cultivation and field management best practices, limiting USG’s yield effect.
In 2012…
The FMARD (via NPFS), Notore and MARKETS II began collaborating on expanding the Supply and Demand of Urea Super Granules in targeted Nigerian rice producing regions.
Building Demand:2012 UDP Technology Transfer Centers (TTCs)
Kebbi 2012
Kebbi 2012
Gombe Kebbi Niger Average -
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00 6.79
7.74
6.68 7.07
4.18
5.71
3.26
4.38
2.61 2.03
3.42
2.69
UDP (Mt/Ha)* Farmers' Practice (Mt/Ha)*Difference (Mt/Ha)
Yie
lds (
Mt/
Ha
)
2012 Dry Season Yields with Transplanted Rice
Cost-Benefit Analysis from 2012 UDP Demonstrations
Production Costs
Harvest Revenue
Overall Profit (50,000)
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
311,813
267,847
(43,966)
299,150
447,051
147,900
Farmer's Practice UDPN
air
a
In 2012, MARKETS II facilitated…
• 3 Technology Transfer Centers (TTCs) managed by rice farmers and state ADP officers;
• Trained more than 2,000 farmers (including Notore staff) on UDP technology best practices in 2012;
• Developed training curriculums to improve dissemination of USG benefits to farmers for coming seasons;
• Partnered with Notore and the FMARD (via NPFS) on supplying USG to pilot rice growing markets.
Building Supply: Notore’s Commercial Production of USG in 2012
Distribution (by state) of USG Sold in 2012
Gom
be
Kebbi
Nig
er
Kaduna
Kano
Zamfa
ra
Benue
Ebon
yi
Jigaw
a
Sokot
o0
5
10
15
20
25
30
2012 Pilot States
US
G S
old
(M
T)
In 2012, Notore…
Developed a production line for briquetting urea, packaging and shipping it to select retailers;
Developed supply channels of USG to targeted rice grower regions in Nigeria;
Sold 75 Mt of USG in 10kg bags (7,500 unit sales);
Developed agro dealer demonstration plots after attending the MARKETS II trainings at TTCs.
Moving Forward
Work with old and new partners to expand USG supply while continuing to develop and expand market demand
Explore USG application rates on other crops (soya, maize, tomatoes, sorghum)
Explore briquetting NPK options Develop a mechanized applicator to
facilitate labor of USG application
Thank you
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
The role of information and social networks in technology adoption: A case study of Urea Deep Placement technology
Oluyemisi Kuku (IFPRI), Saweda Liverpool-Tasie (MSU), Akeem Ajibola (IFPRI)
NSSP National Conference 2012:“Informing Nigeria’s Agricultural
Transformation Agenda with policy analysis and research evidence”
Abuja, Nigeria – November 13-14, 2012
Presentation Outline
Introduction Factors that affect technology adoption Social Networks and social learning UDP Farmer field day visits
• Farmer’s perceptions• Village promoters
Lessons learned Future steps
Introduction The agricultural sector is crucial to the Nigerian
economy• Largest employer• Food self sufficiency
Agricultural productivity is low – working in agricultural sector is hard and unrewarding• Agronomic factors (e.g seed quality)• Farm management
poor production technologies outdated farming methods
Many technological innovations that can dramatically increase productivity• How to encourage adoption?
Adoption Decisions
Most adoption studies in Nigeria use characteristics of the farm as well as demographic characteristics of farm households to predict adoption.
Information as a factor growing in importance• often proxied by some measure of farmer
contact with extension agents, or membership of farmer’s organization of some sort
• farmers characterized as passive recipients of information from change agents e.g extension officers or sales agents representing producers
These measures not robust enough to capture important information about adoption decisions
Social Networks and social Learning Social networks: systemic setups
characterized by agents that develop, diffuse and use innovations, their interactions, and structures and rules
Farmers can learn by doing or learn from others (Bandiera and Rasul, 2006).
In the “learning from others” model: • learn through collective
experimentation, discussion and persuasion
• direct observation of neighbors’ experiments
Social Networks and social Learning While farmers learn from others, they
do not learn from all farmers. Networks which involve more
purposeful interactions (like friends) are more likely than mere spatial links (like neighbors who may or may not be friends) to appropriately disseminate information
Not much information on the process of social learning in Nigeria :• Relevant studies treat farmers as
passive recipients of information
Urea Deep Placement technology
placement of 1-3 grams of urea supergranules or briquettes at a 7-10 centimeters (cm) soil depth shortly after the paddy is transplanted.
Importance of irrigation
Urea Deep Placement technology
Benefits• Lower costs:
Reduction in fertilizer costs per hectare due to only one application of urea
Reduction in weeding costs (weed only once)
• Decrease in Nitrogen losses (40%)• Increase in yield (25-30 %)
Exploratory field work
Farmer field days in Gombe and Niger
Notore, USAID markets, IFDC Qualitative interviews with
• About 10 farmers in Niger and Gombe
• The main agrodealer in Niger• Several Notore officials • Relevant ADP extension agents
Exploratory field work
Farmer’s practice UDP technology
Benefits identified by farmers
Better yield Faster growth Less fertilizer use – for one
farmer it was 6kg of USG as opposed to 20kg of normal fertilizer that he used previously.
Lower overall labor costs – apply fertilizer only once.
Benefits identified by farmers
Hands on learning: Many of the farmers were also able to tell us clearly the steps required to utilize UDP, even those who were not demonstration farmers.
New associated technologies and methods: the farmers learned about transplanting and dry season irrigation, and also appeared to be very excited about this information
Social networks and social learning: The Village promoter A unique blend of social networks and commercial
motivation to propagate a new technology. In Niger:
• a model farmer, open to innovative practices, very popular, very well respected and well liked.
• Called a village meeting to propagate the technology. Everybody we interviewed pointed to him as the source of their knowledge.
• He has credibility because he also uses the technology on his crops in addition to selling
• We are liaising with him as we plan a return trip In Gombe – perhaps not as effective. Farmers did
not know that USG was available locally even though they expressed a wish to purchase.
The village promoter (Niger State)
Fari Muhammed Shesi
Lessons learned
Demonstration plots: An excellent tool being used by IFDC, and USAID markets. The farmers were very excited by the results of the use of UDP even on the look of the plants. They were very excited and enthused about what they saw and vowed to adopt for the rainy season.
Hands on learning: Many of the farmers were also able to tell us clearly the steps required to utilize UDP, even those who were not demonstration farmers.
New associated technologies and methods: the farmers learned about transplanting and dry season irrigation, and also appeared to be very excited about this information.
Lessons learned
Information: Some village promoters are more effective and credible than others
Financing: Village promoter has reported low adoption rates despite farmer enthusiasm• probably 10-15 percent of rice farmers in the
village purchased the UDP in any appreciable quantities
• Finances often mentioned as reasons for not adopting.
• On return trip, these group of farmers would be interviewed to find out:
If these farmers bought any fertilizer at all, and just decided not to buy USG in addition (taking a risk averse OR
If they truly lacked the finances to buy any fertilizer at all.
Future Steps
Exploratory visit to back to Niger state in December. Interest in:• Rate of adoption• Yields• Sources of and flow of UDP related
information Identifying if the flow of information
and recognition of expertise has transcended the village promoter
Larger evaluation of the technology in 2013 in collaboration with MSU and IFDC
Thank you
Policy Options for Promoting Agricultural Credit in Nigeria: Insights from Recent Innovations in
Developing Countries
Kamiljon T. Akramov
International Food Policy Research Institute
Washington, D.C., USA
IFPRI-NSSP 2012 Research Conference
Abuja, Nigeria
November 13-14, 2012
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Outline
• Background
• The financing gap in agricultural sector in Nigeria
• Recent advances in agricultural finance• Credit delivery structures• Risk mitigating instruments• Value chain financing
• Summary and conclusions
Page 63
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Background
• Agriculture plays a pivotal role in developing economies, driving
equitable development and poverty reduction • Access to credit is one of the important challenges in agricultural
sector• High real and perceived risk• High transaction and loan supervision costs
• Governments and development partners have tried various approaches to improve farmers’ access to credit• Access to agricultural credit remains as a major problem in developing world
• This presentation draws insights from recent advances in agricultural credit in developing countries to inform policy options in Nigeria
Page 64
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Financial intermediation in Nigeria improved in recent years
Page 65
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
M2/GDP (%) (CPS/GDP) (%)
Source: Central Bank of Nigeria (2012)
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
But only small share of loans reaches agriculture
despite its substantial share in overall economy
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1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0.0
10.0
20.0
30.0
40.0
50.0
60.0
AGGDP/GDP AGC/CPS
Source: Central Bank of Nigeria (2012)
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
How to improve farmers’ access to credit?
• In the past, governments heavily invested but often unsuccessfully in agricultural development banks and various subsidy schemes
• The Nigerian government has also launched a number of interventions to promote agricultural producers’ access to credit• ACGSF, ACSS, CACS, BOA• NIRSAL
• In recent years a number of innovative approaches are being practiced to address constraints in agricultural credit• Advances in credit delivery structures (CDS)• Novel risk mitigating instruments (RMI)• Inventions in value chain financing (VCF)
Page 67
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CDS: Foreign investment and institutional strengthening of rural banks
• Rabobank created two institutions to advance rural banking and access to credit in rural areas of developing countries (van Empel 2010)• Rabo Development (RD) invests in financial institutions and provides management
services • Rabo International Advisory Services (RIAS) provides technical assistance to
banks and financial cooperatives• Provision of credit to farmers is focused on the value chains• Investments in Mozambique, Tanzania, Zambia, Rwanda, Paraguay, Brazil
• Institutional strengthening of rural and community banks (RCB) in Ghana• Establishment of Apex Bank to provide payment clearing and liquidity
management services to RCBs• Strengthening institutional capacity and policy framework to effectively oversight of
rural financial services• Building ICT infrastructure including local area networks and satellite-based wide
area networks• Mixed financial performance but credit to agriculture yet to increase
Page 68
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CDS: Linkage banking
• Agricultural development bank or commercial bank – MFI partnership arrangements (Harper et al. 2008; Hannover 2005)• Banks do on-lending to MFIs or pay service fee or share part of
interest earning• Allows to reduce transaction costs for banks and provides
access to wholesale funds for MFI• Increases access to credit by poor smallholders• Improves repayment of credit because MFIs know how to
provide and monitor financial services for poor rural households• Examples: NABARD (India), AFC (Kenya), BOA (Nigeria)
Page 69
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Extending agricultural credit in combination with RMI
• Market-based arrangements can help to mitigate both price and weather related risk and improve access to credit by poor farmers• Futures and forward contracts• Risk pooling and index-based weather insurance
• Extending agric. lending through insurance – BASIX in India (WB 2005, BASIX 2012)• BASIX is a group of companies that aims to expand agricultural credit by
attracting funds from mainstream capital markets• BASIX reduces its institutional-level risk through appropriate mix of three risk
mitigation techniques• Group-specific lending to increase repayment• Portfolio limits: 45% agricultural lending, 45% non-farm loans, 10% other• Loans offered in conjunction with insurance products: group term life
insurance, cattle insurance, weather index insurance• Performance in 2010: about 1 million loans for total amount of over 14bln Rs;
performing assets-99.2%, on-time repayment – 98% (BASIX 2012)
Page 70
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Partial credit guarantee schemes in agriculture
• Renewed interest in PCG schemes to increase investment into agriculture (Meyer 2011)• PCG schemes are also used in Nigeria
• PCGs can (FAO 2011) • Provide additional collateral to farmers but cannot improve their capacity
to repay loans• Leverage scarce public resources by “unlocking” private capital but
cannot make up for lack of liquidity
• Recent WB study shows that (Beck et al. 2008): • When governments are involved in credit risk assessment, default rates
are higher• Role of governments in PCG schemes should be limited to funding and
management, and banks should be responsible for credit risk assessment and recovery
• Limited use of risk management mechanisms by banks
Page 71
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VCF instruments: Warehouse receipts
• Warehouse receipts system (WRS) is an old form of collateralized agricultural lending instrument
• But limited scale economies and lack of appropriate institutional arrangements limit its use, especially for smallholders (Meyer 2011)• WRS are more prevalent in east and southern Africa than in west or central
• Recently MFIs start to develop so-called micro-warrant financing systems• FONDECO (Bolivia) uses micro-warrant financing for rice and corn small
producers• Smallholders have access to lower-cost seasonal loans, backed by stored
grain while FONDECO benefits from less risk and reduced loan management costs
• Grain mills benefits from higher demand for their facilities (Miller 2011)• Similar efforts are under way in Uganda and other countries (Meyer 2011)• But these schemes seem costly for smallholders without external financial
and managerial support (Besigye 2009)
Page 72
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VCF Instruments: Providing market linkages
• Provision of credit to smallholder farmers becomes increasingly feasible when they are connected to a formal network of supply chain participants (Campaigne and Rausch 2010)
• DrumNet project in Kenya is operating since 2005 by combing supply-chain approach with microfinance principals
• It establishes relationships with key actors along a supply chain- a buyer, farm input dealers, a financier and links them to smallholders through a dedicated transaction platform
• DrumNet serves as the intermediary in the flow of payments to ensure credit is repaid before earnings reach farmers’ accounts
• This infrastructure enables access to credit for smallholders by• Assuring banks that farmers have a market for their produce and the
means to adequately serve that market• Minimizing loan diversion by directly paying certified input retailers after
distribution of inputs
Page 73
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VCF: Providing market linkages (cont.)
• DrumNet encountered two major challenges • Partner noncompliance• Low agricultural yields
• To address these challenges, DrumNet identified new products that can be bundled with supply chain• Performance rating• Crop insurance• Soil analysis• Payment systems similar to M-Pesa
Page 74
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Agricultural credit constraints addressed by innovative approaches: Summary
Mitigating risks Reduction of transaction & loan supervision costs
Credit delivery structures
• Attracting foreign investment + +
• Strengthening rural banks +
• Linkage banking +
Risk reducing instruments
• Combining credit with insurance
+
• PCG +
Value chain financing
• WRS + +
• Providing market linkages + +
Page 75
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Overall policy lessons
• Review of recent advances in agricultural credit suggests that promoting innovations in agricultural credit rests on • Creating supportive legal and institutional framework for provision of a
variety of financial services to low-income rural households• Strengthening institutional capacity and ICT infrastructure of rural
financial institutions• Providing appropriate training in both technical and management skills • Investing in economic and technological infrastructure in rural areas
necessary• Interventions are more successful when they are implemented as a
package• Government can play an important role in providing wholesale
funding to credit constrained microfinance and rural banks• Monitoring and evaluation of new interventions in agricultural finance
is very important
Page 76
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Thank you
Page 77