Experimental Approaches to Understanding Market Segmentation Strategies for New Agricultural Technologies

Transcription

1 Experimental Approaches to Understanding Market Segmentation Strategies for New Agricultural Technologies Q & A Transcript April 25, 2012 Presenters David Spielman, IFPRI Nicholas Magnan, IFPRI Moderator Saharah Moon Chapotin, USAID Facilitator Zachary Baquet, USAID Bureau for Food Security Sponsor United States Agency for International Development Page 1 of 11

2 Z. Baquet: Thank you Nick and David. Now we're going to open it up for questionand-answer. We're going to trade off back and forth between our inperson and online audiences, so please feel free to ask questions right now. Oh yes, and state your name and organization prior to asking questions. I'm John Lamb from Abt Associates. It seems to me that the biggest single private gain, if I understood the presentation correct, is the boost in the yield, which has obviously a value either in kind or in cash. When you speak about a private partnership, it puzzles me that the provider of the services treated simply as an entity that provides a service, earns a profit on that, but not a full partner in the sense of benefiting from the bump in yield. So did you consider is it possible to consider an arrangement whereby a provider would in fact participate in that yield increase in benefit from the yield increase in terms of some percentage of the value of that? Did you consider that at all? I ask that because when I was at the World Bank, I was involved in the agroinvestment initiative for responsible agroinvestment, and the principal factor that was incentivizing investment in large-scale in places like Africa was yield arbitrage; it was a perception that introduction of modern agriculture would cause an increase and that was why they were doing it. So that's where the big money may in fact come from and where a bigger scale, more impactful kind of a service could come in, not just as a direct deliverer of the service but someone who participates in the benefits from the service. So just to clarify, I think the biggest savings is going to come from water use reduction, compared to yield increases. because 200 to 300 dollars per hectare. Oh that's net revenue, so that includes the savings from water; it's not just from the boost in yield. Uh-huh. So a lot of that is from water. And diesel. Yeah, from diesel because they pay to get the water out of the ground. You know, I think the idea of having the service providers benefit from the increased yield is very interesting. In practice, I think it would be quite difficult just because these farmers are so dispersed and the service provider comes in for the season and then leaves. So then they would need to come in again to somehow monitor and collect, which I think would be very difficult unless the farmers were, you know, very organized, which is a whole 'nother issue. Yeah. But, you know, Page 2 of 11

3 hopefully if the farmers, after experiencing and seeing this technology work, they're going to see there's an increase in yield and will increase their demand and the benefits of increased yield will pass through the service provider that way. So in cash terms, how much, incrementally do they make on average from what you can tell from your data? From the crop itself, not from the savings in cost. We don't have the yield data, 'cause they're still harvesting right now. I just have a - Michelle from USAID - I just want to comment that I think this was really great. I think it really gets some things I've heard about with we need to have more focus on results and kind of outcomes over outputs and really thinking about who are the people who will benefit our who will adopt this technology so I think from that standpoint alone, this was really great. Great. And I also had a question regarding your calculation of costs and benefits. So this was just for one year, right, looking at the costs and benefits for one year, 'cause you would assume that there may be longer-term benefits from adopting this kind of technology, both in terms of if many farmers adopted it from a watershed standpoint Absolutely. - and also I don't know; are their carryover benefits to the next year of having your land leveled one year? Yep. So then it's it may be more level the next, for the next harvest and the next harvest or would you have to keep re-leveling? So, it's a great question and something we're trying to measure as part of this study. There are obvious private benefits to leveling and they last four to seven years. Oh, sorry. I turned off my mic. They last four to seven years. Depending on the intensity with which you cultivate you know, how much irrigation you do; if it's especially rice tends to unlevel your field more quickly than other crops because of the, you know, the paddy, the flood irrigation. So the private benefits, you know, exist for a fairly long duration. Public benefits that you mentioned sort of at the watershed level are also interesting to quantify and we really do want to wrap our mind around that. Which is one reason which is one reason why we look Page 3 of 11

4 at this sort of public-private partnership, because the public benefits are greater than the private benefits, which, you know, makes the case for public intervention, right? So apart from reducing groundwater off-take, there are all sorts of other sort of, you know, climate change associated benefits to this and, you know, we can maybe back of the envelope build those into our calculations but they are an important aspect of conservation agriculture and laser land leveling, specifically. Z. Baquet: We have a question from online. Female: This is a question from Elizabeth Dunn from Impact, LLC in the US. Did you consider segmenting the farmers according to the crops they produce and/or the markets they sell in or was it reasonable to assume that they were all growing the same crops and selling them into the same value chains? I think that's a reasonable assumption. Yeah, you know, even if they weren't selling into the same market, they were selling into the same types of market, so we didn't stratify based on that. Now we are going to we're surveying them right now about where they're selling their crop to. So we can definitely do our results segmented on those variables now. I think, just to add I can turn it on. Just to add to that, in Eastern UP, our study area, it is predominantly a rice/wheat system. There is some substitution between rice and sugar cane and that's been influenced particularly by the Indian government's minimum support price that has changed over the years, you know, moving farmers out of rice and sugar cane and now back into rice things like that. But by and large, the farmers we're dealing with are cultivating rice and wheat; rice in the rainy season, the summer, hadif, and wheat in the rubi or winter season. And they are all generally selling into a very thin market that's characterized by small traders, basically selling into the public procurement system, which then goes out into the public distribution system. So, you know, and they're all responding to the same sort of minimum support price signals that they receive at the beginning of the season from the government of India. Saharah Moon, USAID. Can you tell us a little bit about how CSISA plans, the project, plans to use the results of your study, given that CSISA is actively trying to both promote the technology and trying to develop new partnership models and then how you intend to work with the state governments in the region to, you know, use and implement the results of the study? It's a very good question because taking research results like this and translating them into action is an incredible challenge. It's something that Page 4 of 11

5 IFPRI, you know, grapples with all the time. At the project level, I think what we're recognizing is that there needs to be a lot more nuanced understanding in our promotional activities when it comes to technologies like laser land leveling. Our successes of sort of CSISA's precursor projects in Punjab and Haryana where farmers are slightly more wealthy, landholdings are much larger, really aggregated that sort of that mid-size farmer, if you will, and large farmers, who adopted zero-tillage wheat and laser land leveling and all sorts of other practices and technologies. So I think with CSISA, now that we're dealing in the northeast and in the east with much smaller farmers in poorer farmers, we have to be a lot more nuanced. It is very easy for say, one of our field managers to deploy a laser land level and, you know, cover those acres by finding the largest landholders he can. And in some cases this is exactly what happens because, you know, whether it's FTF indicators they're trying to meet or whether it's just, you know, management expectations that trying to meet, you know, they want to be able to say, "Hey, we've leveled this many acres." Right? Or, "We've promoted zero till wheat in this many acres." But getting field operations to understand or field managers to understand the trade-off between farmers and acres and getting USAID to understand that trade-off and FTF indicators to understand that trade-off, I think, is really important and that's one way we can sort of influence how CSISA steers itself in the future by really getting them to focus in on the tradeoffs and may be investing more in no small farmers with much less coverage in terms of acreage. Now, the question of dealing with state governments, because, you know, in India as many of you know, one state is equal to maybe an entire sub- Saharan African country in terms of population and productivity or production, so working with state governments is difficult; it is a real challenge. There are obviously political reasons for why they use or apply subsidies on equipment such as those and those are often not consistent with economic incentives are economic programs and strategies. So I guess the idea is to, again, provide policymakers with some understanding of the nuances of what they do. Saying that, "Look, you know, you can subsidize equipment as you're doing for combine harvesters, laser land travelers, rotovators, seed drillers and all of those things, but you can also think of alternative ways of doing it and in the health and education sector in India, there's been a lot of experimentation, which USAID, I think, has been involved in in some areas of targeting, you know, public services and subsidies in a pro-poor manner. So why not in agriculture and with respect to agricultural equipment?" Influencing policymakers at the state level should be, you know, one of our biggest priorities. It's tough, because of the political nature of, you know, a democracy like India or the United States for that matter, but it's certainly an area where we want to have more feedback into. Page 5 of 11

6 Hi, thank you. It's on? Okay. Charles Uphaus USAID. Couple of questions. Very interesting presentation and I appreciate it. But one has to do with land tenure and presumably, you're dealing with owner/operators here or is there a differentiation between owners and farmers? Appreciate some clarification on that. Two is a question about in areas like Punjab and Haryana, how much competition do you see in service providers and what has been the effect on price of provision of the service over time? Do you see, you know, costs coming down as a result? You want to take that? Oh, and to throw in a third thing; you're assuming kind of homogeneity of soil, of quality, across this whole sample area, right? Even though I mean, did you check soil quality? You sampled this before you went in with your okay. Absolutely. You want to take a shot at that, first? Sure, I'll take one and three. So leave you for two. For in terms of land tenure, 80 percent of our sample were owner/operators and being an owner/operator increases your demand for the technology, as compared to being a leaser or a renter and that makes a lot of sense because it's a fourto seven-year technology. In terms of homogeneity, it's something that we ask for the different kinds of local soils and we controlled for in a different analysis that we didn't present here but we haven't broken up these demand curves by soil type. But that's certainly something we could do and that might be especially useful if the soil type of our heterogeneous even within the same district. So thank you for those ideas. That's good. Very good. So I'll take the second question, which was with respect to the original market in Punjab and Haryana. It's been wildly successful in those two areas to the extent that there are even manufacturers now of the, you know, the bucket scraper and only the laser comes from, I think, California. Now there's a Chinese model but all of the rest of the equipment is locally made. And the number of units that have been purchased and used in these areas is in the thousands. Many farmers actually have the capacity to purchase them outright and then side-sell once they've completed leveling of their own land, you know, to neighbors and others. Cooperative societies have also gotten into the game, as well as private service providers. The price has been steadily increasing. In real terms, given India's inflation rate, I'd say it's a small but steady increase, probably because demand is certainly increasing as people become more aware of the technology and that's looking at it over maybe the last eight years or so. So, like I said, it's been wildly successful there. Page 6 of 11

7 Now as we move to Eastern UP in Bihar and other places like that, you know, we get to that question well will the same thing happened here? What public subsidies, for instance, need to be withdrawn or could they be withdrawn after a five-year experience, maybe, a three-year experience, a ten year experience with laser land levelers? Which is why we're interested in quantifying the sort of network effects of, you know, farmers learning from others are learning by doing, things like that, which will give us, I think, the magnitude of how fast the technology picks up. And one of the interesting things about our study is that, you know, we conducted these options about a year ago; about 14 months ago. We've conducted a second round of options with the same sample just last month. So we can actually, once the data come in, we can actually look at these demand curves and see if they've shifted out for all segments of the market, based on exposure and then we can also, you know, determine what kind of exposure caused those demand curves to, or related to demand curves shifting out because we have all of those data. And that's what makes this study so interesting; intertemporal demand curves, if you will. Z. Baquet: Question from online. Female: A couple of quick questions from Ben Jacques of Poverty Action Lab, USA. When exactly during the cropping cycle does LLL have to happen, and are there any credit constraints associated with its adoption? So it has to happen within the window between the wheat harvest and the rice planting, because that's the longer time and that is about a 90 day window in the study area but it would be shorter for any one farmer. So that's been a tricky part of the study but we've been pretty good about getting the levelers there when they need to be there. The question on credit constraints is really good. You know, we broke up the sample well, we asked about credit constraints and so the farmers reported how constrained they were and, you know, it's a very difficult thing to measure. But based on that measure, we do find that those with credit constraints have lower demand for the technology but we don't know if that is because of the credit constraint or because credit is correlated with so many other wealth and land variables, so it's tricky. But one thing that we were thinking about doing was in the next round of this study to randomize in a credit treatment but it's just too difficult and not going to happen, but it's certainly something that we want to consider in future technology adoption studies because it's so important. Thanks. Emily from Abt Associates. In a way, some of the previous questions were getting at this more general point but you started at the top by talking about the need for new business models and then to Page 7 of 11

8 study design was clearly focused more on looking at willingness to pay and price as a barrier to adoption so I was wondering and you started to address this in a way whether you had thought about expanding the study, perhaps, or whether there'd be a need for expanding the study to look at non-price barriers and how you could affect adoption by, you know, with true interventions that aim to lower those, the non-price barriers? What kind of non-price barriers would we lower? Land size. Information and credit. Yeah, information and credit would basically be those. So you know, our treatment in this was, you know, was partly an information dose for everybody, so that's what we did try to provide. And you know, through demonstration effects, learning by doing and things like that, you know, you start overcoming those information asymmetries as the technology is used more and more. So that's one way of approaching it. And credit constraints, you know, as Nick said, you know we're looking at ways to overcome that but it's challenging. Nick, what do you want to add to that? Well, I'll add that although we didn't get to use a real credit treatment as we might've hoped, in the second survey after completing the auction, and the questions on willingness to pay that would be binding, we asked a question about suppose that you could get this loan from this bank under these concrete terms we did some research into what kind of loan they could get then how much would you be willing to pay? So it's not binding, so that's problematic but at the same time, it's an improvement and so we could hopefully lift that credit constraint in the head and see what it would do to their willingness to pay for the technology after the real auction is over. And just to follow up on what David was talking about, the information constraint, we are working with a private producer now to level more fields and the private provider's going to be very, very involved in taking the lead on this but we've chosen villages around our sample villages and randomly. So you could think of our sample villages from this study, our treatment, we gave them information in this information session and we gave them a year of experience where their friends and neighbors are using the technology pants now will be able to compare those villages to villages where the providers going to come in with this brand-new technology so in a way, we will be able to test how much lifting the information constraint increases demand. Z. Baquet: We have a question from online. Page 8 of 11

9 Female: This is a question from Kristin O'Planick from USAID who's usually in DC but today is actually joining us from the field in Liberia. She asks, did the laser land leveling providers group the work conducted under the pilot so that plots closest to each other were done in sequence to reduce the cost of travel and set up? I would imagine strategic sequencing of this work and make a difference in the profit margins. Mm-hm, mm-hm. So that's a good point. They did in that of the farmers that they were allowed to level IV, they would do it in the cheapest order. But in these villages, they were only allowed to level for a small portion of randomly chosen farmers who probably lived, in some instances quite far apart from each other. So and we talked about this yesterday, but I failed to mention today when you see the size of the red bubbles, they would probably get smaller if the provider was operating under more of a real situation because what happens a lot of times is built code into a village and the level for somebody who's ordered it, who's called in to get the service, and then the neighbor will see it and say, "I want it, too," right? And so that lowers the transport costs. And again, with this project that were started with the service provider, we'll have a much better idea of the cost under real circumstances because the farmer condition'll be in the same village we'll be able to level for everybody that they want. Larry Paulsen, ex-usaid, retired a year and a half ago. I was the Ag Officer in India from 2003 to '07 so a couple of comments and then a question. One is in the early 2000 when Semet was introducing this laser technology, I think even eight years ago there were probably only a halfdozen units in country, says to hear that there's now thousands sounds like a terrifically successful technology adoption in its own right. Semet was introducing this sort of as a sideshow to the main conservation tillage focus, especially on no till technologies, of which land leveling was an augment that helped adoption. So before the question, one other comment. You know, they say that the green revolution itself, now 40 odd years on, is still a work in progress in the area you're investigating in the eastern UP and as you go further east. Some of that has to do with landholding patterns as well as the nature of the monsoon and where the water is so that adoption rates, you know, you might want to look at decade-long patterns, rather than year to year patterns. So the question would be can you or have you looked at land leveling as one of a package of technologies that were a part of the program and whether there's a significant advantage to leveling for other conservation practices are being handled or does it simply stand on its own as an independently successful technology? Page 9 of 11

10 It's a great question. Sure, so a lot of the work we did here obviously was advised by and to a certain extent, in partnership with, Samet and Ikar. And it is based on, you know, their excellent work under the Rice-Wheat Consortium and now CSISA. I guess we were looking at laser land leveling as an example of how you would segment a market to reach small farmers or small farmers with specific characteristics, as opposed to, you know, large numbers of acres, maybe. And that was the purpose of this study. So, you know, we had a very narrow focus and, to a certain extent, were treating the topic from a methodological standpoint and saying, "You know, you can look at the laser land leveler or you can look at direct seeded rice, or you can look at zero tillage wheat, or you can look at abiotic stress tolerance and rice, wheat, or maize with roughly the same research questions and roughly the same methods together." And that's really what our aim is here, is to set out something of a prototype of a research approach to understanding market segmentation strategies, both from the public sector and from the private sector and the combination of the two. So in answer to your question, you know, we narrowly focused on laser land leveling for methodological reasons. But you know, if you look at Semet's literature on this or Ikar's literature on this, certainly, you know, they look at laser land leveling as a quote unquote "precursor technology" to zero tillage wheat and even direct seeded rice because obviously these technologies, you know, the drill seeders or the tie-in seeders and things like that operate much more effectively on leveled land and the water savings are obviously quite substantial and they attract farmers potentially into, you know, new experiments with equipment, machinery, and cultivation or crop management practices. So that's certainly there and in fact, you know, Nick and I have been talking extensively about looking at direct seeded race and looking at abiotic stress tolerance and rice; two separate studies that are much more complex than the laser land leveler, right? Because DSR, if any of you have seen it, is not a win-win situation. By and large, laser land levelers are, but DSR, I mean, there's a lot that can go wrong with that; you know, weeds and irrigation timing and all sorts of really bad stuff. Abiotic stress tolerance is a little different because especially if you're working with transgenics there are no examples in the field with which to ask farmers about but we can still do some very rigorous choice experiments around that, which were planning to do, and it need not be an investigation of transgenics per se. We could be looking at the dichotomy between openly pollinated varieties versus hybrids of rice which are, you know, coming online quite quickly and conventionally bred abiotic stress tolerance as well. But you know, were going to get into those questions, Page 10 of 11

11 certainly, and this gives us sort of a way to think about market segmentation and the respective roles of the public and private sector. Z. Baquet: Well, with that, I'm going to bring it to a close and think our speakers, Dave and Nick, for their presentation. [Applause] [End of Audio] Just so everyone remembers, the presentation, the screencast, will be available up on Agrilinks. You can also download the PowerPoints there. You can also continue the conversation there; we have a comments section, and for those online and in person, please take a moment to fill out your evaluations. We take those seriously and try to improve on Ag Sector Council. And remember the next event we'll bring you is May 10, the Feed the Future stakeholders meeting on the Horn of Africa readout. All right, thank you very much, have a good day. Page 11 of 11