irri seminar mfi mechanization
TRANSCRIPT
Interna'onal Rice Research Ins'tute
Presented By: Jehiel Oliver
Aya Consul'ng, Inc.
Mechaniza)on Schemes, Gender, Microfinance and the Rice Value Chain
“If you care about the poorest, you care about agriculture. Investments in agriculture are the best weapons against hunger and poverty, and they have
made life beDer for billions of people. The interna)onal agriculture community needs to be more innova)ve, coordinated, and focused to help poor farmers grow more. If we can do that, we can drama)cally reduce
suffering and build self-‐sufficiency.”
-‐ Bill Gates, co-‐chair of the Bill & Melinda Gates Founda'on
2
Background
3
Rice and Global Popula)on Growth • Global rice yields must increase by an es)mated 1.2%-‐1.5% per year to keep
pace with increasing demand
0
100
200
300
400
500
600
1991 1996 2001 2006 2011 2016 2021 2026 2031 2036
Tons of Milled Rice, Millions
Addi)onal Rice Needed: Over 200 million Tons by 2035!
2010 Global Rice Produc)on
Americas
Africa Asia
Source: Samarendu Mohanty, IRRI
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Climate Change
• Drought • Flood • Pest • Disease outbreak
Produc)on
• Management Failure
• Low technical skill / capacity
• Crop subs)tu)on
• ShiFing Labor Markets
Poli)cal
• Regulatory risk
• Infrastructure risk
• Poli)cal risk • Price Controls • Export Bans
Market
• Variability in input price
• Exchange rate vola)lity
• Counterparty risk
• Default risk
Challenges to Rice Produc)on Growth • While the global supply of rice must keep pace with a swelling popula)on,
covariate risks within the rice produc)on system challenge small farm produc)vity
✓
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• The average size of the world’s largest 100 ci)es has grown to almost 10 )mes their size in 1900; two-‐thirds of these ci)es are in developing countries
• This trend con)nues to transfer valuable labor resources from rural to urban areas
Impact of Urbaniza)on on Global Rice Produc)on
0
1
2
3
4
5
1900 1950 2000
Average Size of Top 100 Ci)es, in Millions
Source: World Development Report, 2009 6
0
15
30
45
60
75
Category 1 Category 2 Category 3 Category 4
Urbaniza'on and Income – Change Between 1985 and 2010
80 800 8000
Urban
iza(o
n rate, %
GDP per person, $2000 log scale
India Vietnam Thailand
Indonesia
Malaysia
Source: World Bank and CIA World Fact Book
Urbaniza)on and Income – Change Between 1985 and 2010
China
Impact of Urbaniza)on on Rice Producing Countries • Growth in urban manufacturing is changing the distribu)on of labor in major
rice producing countries as workers migrate to large ci)es for higher wages • Compelling evidence suggests a posi)ve rela)onship between urbaniza)on and
economic growth, meaning it is a trend that is here to stay
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Labor Con)nues to Shij Despite Government Efforts • India implemented a Na)onal Rural Employment Guarantee Program, but labor
con)nues to migrate from areas like Bihar, UP, AP and Karinataka • Labor that remains in these states (e.g. farm hands) command wage premiums
Source: World Development report, 2009 8
Gender Dynamic
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• As men migrate for higher earnings, women are becoming increasingly more important in rural rice farm systems and will subsequently be affected most by urbaniza)on
Gender and Urbaniza)on
India Bangladesh Sri Lanka
Agriculture share of GDP 19.3 21.0 17.9
Female intensity of agriculture 55.5 51.5 40.1
Female agricultural employment as share of total female employment
46.0 60.9 39.9
Male agricultural employment as share of total male employment
35.5 45.1 29.6
10 Source: World Bank
Cost of Labor is Increasing in Agriculture • Wage infla)on within the Indian agricultural sector increased by 18% (CAGR)
between 2010 and 2012
6% 4%
13%
18%
0%
5%
10%
15%
20%
1995 -‐ 2000 2000 -‐ 2005 2005 -‐ 2010 2010 -‐ 2012
1995 -‐ 2000 2000 -‐ 2005 2005 -‐ 2010 2010 -‐ 2012
Source: RBI, Ambit Capital Research 11
Rural Wage Inequality • Despite women’s important role in farming, men are dispropor)onately
benefi)ng from rural wage increases • Women also par)cipate dispropor)onately in unpaid work, trading farming
services with neighbors • When labor is hired, increasing wage rates place downward pressure on
women’s farm income in the absence of mechaniza)on
23.18
29.44 32.18
35.83
15.33 19.02 20.43
23.89
0 5
10 15 20 25 30 35 40
1993 -‐ 1994 1999 -‐ 2000 2004 -‐ 2005 2007 -‐ 2008
Real Wages of Casual Laborers (Not in Public Works)
Rural Male
Rural Female
12 Source: Government of India, Ministry of Labour and Employment
Empower Women Farmers through Mechaniza)on Constraint • Unpaid work is a gender specific constraint that reduces produc)vity
of women in rural areas. • Low produc)vity at the farm level prevents women from engaging in
self-‐employment / income genera)ng ac)vi)es • Hired labor is becoming increasingly more cost prohibi)ve
Complexi)es • Land ownership is highly relevant to farm produc)vity • Women’s limited access to land assets constrains credit • Credit is crucial in accessing produc)vity enhancing technologies like
machines and improved seeds • Even with credit, certain produc)vity enhancing technologies can be
cost prohibi)ve for any one farmer ac)ng independently
Solu)on • The provision of microcredit has partly addressed rural credit access amongst asset poor women, especially in South Asia
• Despite this success, Microfinance Ins)tu)ons (MFI) have low penetra)on in agricultural lending
• Significant technical capacity building is needed to change this
Con)nuum • Approaches focusing on MFI’s, with access to asset poor women’s self-‐help groups (SHG), can unleash agricultural credit
• The promo)on of produc)vity enhancing and environmentally friendly farming prac)ces is paramount 13
Solu)ons
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Economies of Scale • Buying power
for specialized machines for small farm holder
• Bulk ordering of agricultural inputs
Input Suppliers • Machinery • Fer)lizers • Seeds • Etc.
Producers • Small Farmer Holders • Women SHG Members
• Non-‐SHG Members
• Large Farmers
Transport • Farmer Provided • Third Party Providers
Processors • Milling • Quality Control • Storage
Aggregators • Middlemen • Exporters
End Consumer • Retail outlets • Restaurants and Hotels
• Export to Global Market
Microfinance in the Rice Value Chain
Credit Access and Capacity Building • Credit to
finance machines and complimentary inputs
• Capacity building
Post Harvest • Financing of
micro-‐processers for small farm holder
• Warehouse receipts
• Quality assessment
Marke'ng Efforts • Price discovery /
transparency for small farm holder
• Market coordina)on
MFI’s Suppor)ng Small Farm Holder Throughout VC
• Past experiences informs us that value-‐chain (VC) interven)on should be targeted at producer level to maximize social outcomes (e.g. women farmers)
• MFIs can create value at various stages of the VC to benefit small farm holders
• Not all MFIs are created the same, so iden)fying the right partner is cri)cal • Focus on MFIs where credit is merely a plarorm to deliver development services • Ideal MFIs would have mul)dimensional approach to farm livelihoods (e.g. BRAC)
Self Help Group (SHG)
Results 1. Increase farm produc)vity, labor savings, yields and income 2. Secure sustainable livelihoods amidst rapid demographic change 3. Empower marginalized women farmers
Educa'on
Access to Capital
Value Chain Development
Health Care
Agricultural Extension
Access to Technology and
Inputs
Community
Mul)dimensional Approach to Farm Livelihood
16 Source: BRAC Microfinance model, Developed from previous project
No “One Size Fits All” Solu)on • Designing mechaniza)on schemes begin with deep “seed-‐to-‐seed” analysis of
local rice produc)on systems, fit with enterprise models for financial sustainability analysis
Land Prepara)on
Crop Establishment
Water Management
Pest Management
Harves)ng Drying
Storage
Milling
Produce / By Products
Mechanical Transplan)ng Direct Seeders Hand Transplan)ng
Laser Land Leveling Bed Farming
Machine Boom Spraying Manual Spraying
Combine Harves)ng Manual Threshing
Machine Drying Sun Drying
Tradi)onal Storage Sealed Storage Warehousing (Receipts)
Micro Mill Commercial Mill
Rice Rice Hull as Fuel
Animal Drawn Plow Four Wheel Drive Tractor
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Source: IRRI
MFIs Provide Knowledge Transfer Framework
Microfinance Ins)tu)ons
Rural Branch Network
Rural Branch Network
Rural Branch Network
Rural Branch Network
Rural Loan Officers
Rural Loan Officers
Rural Loan Officers
Rural Loan Officers Coopera)ves in Rice Produc)on
Zones
Farmers
Farmers
Farmers
Farmers
Farmers
Cereal Systems Ini'a've for South Asia (CSISA) • Help identify appropriate
machines and complimentary products (e.g. mechanical transplanter, soil nutrition management, participatory variety selection, water conservation, etc.
• Host “Trainer of Trainer” capacity building sessions for MFIs on use of technologies 18
Farmer feedback loop • Ensures farmer needs are met • Replaces biased informa)on sources
(e.g. pes)cide salesman giving pes)cide advice)
• MFIs have management informa)on system in place for project impact repor)ng (see Appendix A)
Cost Reduc)on through Resource Alloca)on Planning • Through MFIs network of self help groups (SHG) the cost of a mechaniza)on
scheme can be reduced by amor)zing cost over a larger pool of recipients • MFIs have compe))ve advantage over machine service contractors who lack
access to large pool of SHGs to absorb cost of interven)on • Technologies like loca)on alloca)on algorithms in GIS, using Leaf Indexing, can
provide insight on rice produc)on cycles, op)mizing a machines usefulness across mul)ple SHGs within a spa)al market
One Coopera)ve may not have capacity to absorb the cost of a technology
Mul)ple SHGs, opera)ng within a MFIs branch catchment area, with complimentary produc)on cycles, can share the cost of a machine
SHG SHG SHG SHG
SHG SHG SHG SHG
SHG SHG SHG SHG
SHG
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Environmental Impacts: SHG Coordina)on for CDM
Rice produc)on accounts for 1.5% of GHGs globally
It takes 2,500 liters of water to produce 1kg of rough rice
The Clean Development Mechanism (CDM) allows emission-‐reduc)on and water saving projects, in developing countries, to earn cer)fied emission reduc)on (CER) credits
CER credits can be bought and sold in the open market but most emission reduc)on projects are cost prohibi)ve for small farmers
By grouping farmer SHGs, CER credits could finance various GHG reducing and water saving projects, for the benefit of the environment and the small farmer
• Rice farmers are significant contributors of green house gases (GHG) and water resource use
• Environmental interven)ons can be cost prohibi)ve for a single farmer
Source: Ole Sander, IRRI and UN Framework Conven)on on Climate Change
Project Structuring -‐ Shared Risk and Benefit • Mechaniza)on schemes, collateralized by tangible assets, mi)gate covariate risks
(weather, disease, etc.) related to financing agricultural produc)on • Credit risk is further enhanced by SHG social capital • Leveraged leasing structures provide an example of op)mal structure to balance
stakeholder incen)ves and risks:
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Specialized Machine
Manufacturer
Single Purpose Leasing Company
(Fee Based Management Provided by
CSISA)
Lessee (Rice Farmers in Microfinance Coopera)ves)
Delivery of Customized Machines
Purchase (Bulk) of Customized Machines
Equity Investors (Machine
Manufacturer, MFI)
Provide Customized Machines on
Lease
Leasing Fee Paid by SHG
Tech. Capacity, Machine Repair,
Support
Share Capital Distribu'ons
Debt Investors (MFIs)
Debt Investment For Asset Purchase
Lien on Assets
MFI
Provision of Credit and complimentary
agri-‐inputs purchased at bulk
Repay principal and interest on microloans
Tradeoffs: Leverage Leasing Structure
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Pros • Small farmers needs remain at the forefront • Sustainable model that provides market based long term solu)on • Shared ownership provides key stakeholders a financial incen)ve to engage • Helps mi)gate biased informa)on to farmers • Reduced risk from collateral based lending • Reduced cost of mechaniza)on adop)on for par)cipa)ng farmer groups • Circumven)ng credit restric)on related to asset poor farmers • Provides roadmap for long-‐term asset accumula)on and market development through lease buy back op)on
• Can accommodate growth into more innova)ve systems (e.g. custom farming)
Cons • More complex than tradi)onal extension model • Requires upfront donor capital for structuring • Significant coordina)on and stakeholder “buy-‐in” needed • Financial due diligence process is in-‐depth and sensi)ve to data input
• All program structures come with trade-‐offs, op)mizing these tradeoffs, for the benefit of the marginalized female farmer, is cri)cal
Key Considera)ons
Target Progressive Farmers in Coopera)ve A farmer that is respected within the group – leveraging social capital to build group
confidence in new technology
Ensure this farmer is trained on the proper use of the machine and any other
complimentary technologies Provide farmer with workable revenue
model for machine
Thoroughly Vet Interven)ons
Fully understand and appreciate delicate local farm systems and social fabrics Pilot technology before large scale roll out Maintain feedback loop with individual
farmers and coopera)ves
Iden)fy Appropriate Partnerships MFI’s with branch networks in rural areas experiencing labor displacement and
escala)ng labor costs
Coopera)ves with appropriate infrastructure for a given technological
interven)on (e.g. irriga)on, roadways, etc.)
Machine manufacturers with servicing capabili)es who also value equity
ownership and long term commitment
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Appendix
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Appendix A: Report Impact through MFI Framework • Researchers who develop a technology are too close to the idea and can suffer
from “inventors bias”, therefore they shouldn’t be tasked with assessing impact • Assessing impact must be unbiased and on-‐going system, not one off reports • Top )er MFIs have strong Social Performance Management systems (SPM) in
place that could capture unbiased impact data for mechaniza)on scheme, this data would only need to be monitored and analyzed by CSISA M&E specialists:
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Informa)on Collec)on
Informa)on Consolida)on
Informa)on Analysis Repor)ng
Decision Making
Pilot Tes)ng Delega)on
Communica)on
Implementa)on
Appendix A: What is SPM? • Social performance management is an ins)tu)onalized process that has
evolved within the microfinance industry and involves: – Sevng clear social objec)ves – Monitoring and assessing progress towards achieving social objec)ves vis-‐à-‐vis
thorough data collec)on – Using this informa)on to improve interven)on and communicate with
stakeholders and donors • A social performance assessment enables a project to measure its social
performance rela)ve to its social mission and objec)ves in an on-‐going way • Social performance looks at the en)re process by which impact is created,
including: – Impact data related to mechaniza)on scheme (income, efficiency, yields) – Analysis of ins)tu)onal objec)ves – Effec)veness of scheme in mee)ng these objec)ves
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As a global economic development consultant, Jehiel brings a unique blend of skills acquired from his over 10 years of professional experience working in both the private and public financial sectors. Jehiel currently focuses on the agriculture, micro, small and medium enterprise industries on a variety of projects including program reviews, financial due diligence and transac)on structuring / execu)on for socially responsible investors. As owner of a bou)que consultancy, Jehiel’s clients include USAID, ShoreBank, UN FAO and Calvert Founda)on. He has work experience in over ten countries, including areas in conflict. In addi)on to his du)es at Aya, Jehiel serves on the board of H4H, Inc., a $250 million dollar impact investment fund focused on mortgage reinsurance for South African communi)es affected by HIV/AIDS. Jehiel also sits on the board of Shared Interest, serving as treasurer and execu)ve commiDee member. Shared Interest is a loan guarantee fund that has benefited over 2 million marginalized persons to date through its work in the microfinance and agricultural sectors of South Africa and Mozambique. Prior to working in interna)onal development, Jehiel served as an analyst and associate with Key Banc Capital Markets. Within this organiza)on he worked within the Ins)tu)onal Capital, Private Equity, Debt Syndica)ons and Upper Middle Market business divisions.
Jehiel Oliver Owner Aya Consul)ng +1(404) 861-‐6617 [email protected] Skype: jehiel.oliver ayaconsult.com
Appendix B: Biography