The Living Income / Fair Price methodology

Transcription

1 The Living Income / Fair Price methodology Presentation to the Living Income Webinar on the calclation of fair prices Rd Bronkhorst Febrary 2017

2 Introdction Discssed before: what is a Living Income (LI) and how can it be measred The desirability to achieve a Fair Wage for laborers and a Living Income for farmers is something we all agree pon Now we will look at a way how to achieve sch a LI The LI/FP approach is a generally applicable method to calclate the prices a farmer shold receive in order to be able to obtain a sstainable Living Income This method has as yet not been applied in a large project, bt it has been developed on basis of data collected in the field and all ingredients for large scale application are there

3 Contents Why is discssing prices important What is a fair prodcer price How to calclate fair prices Case stdy Brkina Faso What the LI/FP (Living Income / Fair Price) methodology can be sed for Effects higher prodcer prices on consmer price Export prodcts Who can se the LI/FP method

4 Why is discssing prices important Most common interventions are intended to raise prodction, facilitate marketing and sell more, Too little attention is given to the price the prodcer receives for his prodcts Only when he receives a sfficient price for all his work, be it in the form of wages or of the price received for the prodct, will he/she be able to achieve a Living Income.

5 The income of the farmer is revene for his prodcts mins costs, pls additional income The revene he obtains throgh his sales price is determined by the market price This price is determined otside his inflence by demand and spply These market forces do not take into accont the needs of the prodcer, nor sstainability These market prices are generally accepted becase they are so-called eqilibrim prices where demand meets spply

6 What is the problem with market prices? Market prices are not eqilibrim prices since there is no perfect competition Examples: Monopolies Import and export restrictions / sbsidies Food aid Political interference Besides the demand side consists of effective demand which means that the demand of people with no or little financial resorces, is not taken into accont. So esp. for food prodcts it is important to realize that the demand of the poorest is not taken into accont in the eqilibrim price

7 What is a fair price to the prodcer A fair price for the prodcer is a price for a prodct that incldes all prodction costs and at least a Living Income for the farmer and all workers involved The payment shold be based on a complete working week spent on this prodction, and the prodct is a prodct that is sefl. This fair price is based on actal, real costs and actal, real needs.

8 How to calclate sch a fair price a. Choice of the target grop (area, size of plot, family size, mode of prodc8on) b. Calcla8on of Living Income of the target grop c. Calcla8on of prodc8on, marke8ng, storage and other costs for target crop d. Prodc8on in kg of target crop e. Calcla8on of price/kg (Fair Price) that will lead to a Living Income

9 Case stdy Grain Brkina Faso Prodction costs Prodction costs are different for each crop as well as for each prodction method Example: Maize Cost/ha (FCFA) tractor and fertilizer tractor, no fertilizer plogh and fertilizer plogh, no fertilizer 79750

10 Calclation fair price Becase prodction costs are different in each sitation, there is also a different fair price for each sitation The fair price is the total of living income and prodction costs divided by prodction in kg FP = (LI + prodction cost) / prodction Important assmption: The calclation of fair prices is based on the assmption of fll employment on the specific crop

11 This leads to the following fair prices for the same prodct (maize) Fair Price maize 4,4 ha in FCFA 40 Fair Price maize 4,4 ha in FCFA tractor and fertilizer tractor, no fertilizer plogh and fertilizer plogh, no fertilizer

12 Family size of which adlt earners 7,9 4,4 Working days/yr 275 LI/yr XOF LW/working day XOF430,81 Size of the farm in ha 4,40 ha LI/ha = LI / size of the farm XOF Needed to calclate costs per crop / ha (these costs may differ, depending on way of cltivation e.g. with/withot fertilizer and/or,improved seeds) a b a. maize: plogh no fertilizer Investments / repayments (interest and depreciation) b. maize: plogh and fertilizer Inpts Hired labor XOF XOF Field operation costs Harvest and post harvest costs Transformation costs Storage, Handling and Transport XOF XOF Fertilizing XOF Costs of the mbrellla organization Taxes Other Total prodction costs / ha XOF XOF Prodction in kg per ha. per crop for different ways of cltivation a b FP per kg = (costs/ha + LI/ha) /prodction/ha XOF 69,98 XOF 60,60 In case of Additional income a b Home grown food XOF XOF Labor (working for third parties) days LW/day*working day Remittances Sbsidies Other XOF XOF Total additional XOF XOF New LI/ha XOF XOF a b FP per kg = (costs/ha + LI/ha) /prodction/ha XOF 54,83 XOF 50,50

13 Family size 7,9 of which adlt earners 4,4 Working days/yr 275 LI/yr 873,37 LW/working day 3,18 Size of the farm in ha 4,40 ha LI/ha = LI / size of the farm 198,49 Needed to calclate costs per crop / ha (these costs may differ, depending on way of cltiv e.g. with/withot fertilizer and/or improved seeds) a b a. maize: plogh no fertilizer Investments / repayments (interest and depreciationb. maize: plogh and fertilizer Inpts Hired labor 102,90 102,90 Field operation costs Harvest and post harvest costs Transformation costs Storage, Ha 18,68 30,11 Fertilizing 84,23 Costs of the mbrellla organization Taxes Other Total prodct 121,58 217,24 Prodction in kg per ha. per crop for different ways of cltivation a b FP per kg = (costs/ha 0,11 0,09 In case of Additional in a b Home grown food 10,67 10,67 Labor (working for 9,85 9,85 15 days LW/day*working days Remittances Sbsidies Other 304,87 304,87 Total additional 325,39 325,39 New LI/ha 124,54 124,54 a b FP per kg = (costs/ha 0,082 0,076

14 What the LI/FP method can be sed for It is a generally applicable approach to determine the minimm price to be paid to the prodcer A bying company that wants to pay a fair price to prodcers, cold pay that fair price that is in accordance with the technology applied by the great majority of smallholders in that region As an identification, monitoring and evalation tool What is the inflence of export taxes and import sbsidies on prices and ths the life of the rral poplation Will other interventions achieve the goal of a Living Income if prices do not change as well What changes shold take place in the spply chain in order to achieve a Fair Price and ths a Living Income to the farmer

15 Effects of raising prodcers share on consmer prices

16 Initial wages of 20 Dobling of wages, Dobling of wages, other cost increases other costs in % in fixed amonts Description % % contry of origin Labor Material Rent Other costs Total prodction costs Transport 8 15% 11 15% 8 Sbtotal Shipping and Handling 12 20% 16 20% 12 Sbtotal contry of destination Transport and handling costs 3 5% 5 5% 3 Storage 3 5% 5 5% 3 Sbtotal Profit importer 15 20% 21 20% 15 Sbtotal Costs and profit retailer 27 30% 38 30% 27 Sbtotal Taxes 10% 12 10% 17 10% 14 Consmer price

17 Export prodcts No world prices and no premims, bt prices based on real, actal costs Fair prices are different from region to region Where this leads to too high prices for byer, consltations with government and stakeholders abot obstacles in the chain When these problems cannot be solved, reflections whether farmer shold not change to other crops / sorce of income

18 For individal byer difficlt to pay higher price than others So consenss in the chain is necessary with all stakeholders that Living Income can and mst, be inclded in prodcer price Local government has to agree Local government and NGO s can stimlate and organise these stakeholders meetings

19 Who can se the LI/FP method The methodology can be sed by all who want small farmers to earn a LI Policy makers Companies Ngo s Farmers cooperatives Consltants

20 Frther information Gide How To Calclate Fair Prices _Gide_How_To_Calclate_Fair_Prices Towards an integrated approach for project analysis for small farmers: the Living Income / Fair Price method _Towards_an_integrated_approach_for_project_ana lysis_for_small_farmers_the_living_income_fair_price_metho d

21 Thanks for yor attention Rd Bronkhorst / rbronkh@planet.nl