Profitability Analysis of Smallholder Farmers Seed business

Transcription

1 Profitability Analysis of Smallholder Farmers Seed business Reta Wegary Agribusiness Innovator East Oromia Unit ISSD Ethiopia 7 November 2014, Haramaya Programme on Integrated Seed Sector Development in Ethiopia

2 Outline of the presentation Introduction Concept of ISSD program Profitability of smallholders seed business Seed value addition and seasonality in seed production Performance of SPCs Conclusions and Recommendations

3 Introduction Seed acts as an important component for food security and is an important driver for economic growth Limited access to quality seed Both formal and informal seed systems operating in Ethiopia are inefficient Vibrant seed system essential to continued economic growth and food security of Ethiopia 11/13/2014

4 Concept of ISSD Link and well integration between the formal and informal seed system Pluralistic approach Informal Intermediate (LSB/SPC Formal Multiple marketing channels Enabling and evolving policy, law and regulation

5 Why ISSD is important for Ethiopia? Diverse agro-ecology & hence farming system Public focuses on staple food crops Private focuses on profitable seeds (e.g. Hybrids) There are unfilled gaps (i.e. niche market), giving opportunity for development of LSB Small and medium seed enterprises

6 ISSD Ethiopia vision Through a vibrant and pluralistic seed sector quality seed of superior varieties becomes available and affordable to a larger number of farmers, thereby contributing to agriculture for food security and economic development in Ethiopia

7 ISSD Ethiopia programme ISSD Ethiopia Components ISSD Sector Component Seed companies LSB Consolidation Private seed producers LSB Scaling up Partnerships and innovation Enabling and evolving policies Research and studies Support Service Components Sharing experiences and lessons learnt Capacity development

8 ISSD PROGRAM More than 260 SPCs have been established in four regions by the ISSD program Led to added seed contributing more than 5% of the total seed demand in Ethiopia Very little is known about the cost of production and profitability of seed business at individual members and performance of SPCs 11/13/2014

9 Profitability of smallholders seed business 11/13/2014

10 Rationale of the study In a market based economy, profitability is the measure to look at for sustainability An enterprise that is not profitable cannot survive in market-oriented production Higher profits result in increasing income Farmers are risk averters because of limited resource Profitability influences value chain actors decision to participate in seed value chain and strengthen their role

11 Rationale of the study Objectives of the study The overall objective of this study was to determine the profitability of seed business of smallholder farmers and the financial and operational performance of SPCs

12 Study area Ethiopi a East Oromia Region

13 RESEARCH METHODOLOGY Sampling Design: Purposive sampling followed by random sampling technique was employed

14 Sampling Procedures Purposive and Random Sampling Procedure SPCs in L1 (E-1) M X Potato producers (SPCs) F M SPCs in L2 (W-1) Y F Seed Producers Cooperative (SPCs) SPCs in L1 (E-1) M Wheat producers (SPCs) F SPCs in L2 (W-1) M X+Y+Z+T+W+S (150) F SPCs in L1 (E-1) M Groundnut producers (SPCs) F SPCs in L2 (W-0) Z W T S M F Purposive Crop based Stratify Location based Strata & simple random Sex based strata probability proportional to size random sampling

15 Sources and methods of data collection and Analysis Methodology (Cont d) The data was collected from primary and secondary sources Descriptive statistics and inferential statistics were used to analysis the data 11/13/2014

16 Methodology (Cont d)

17 Econometric model A combination of profitability analysis tools such as GMA, ROI, ROC, ROCC were used Gross M arg in Gross income Varaiable Cost Net Income = TR (TVC + TFC) ROI ROC ROCC Re turn Inv estment R CI R TCC

18 Result and Discussion This report is a preliminary result of profitability study conducted in 4 districts, 4SPCs and three crops All production, marketing and material costs, and profit were calculated on per hectare basis

19 Cost of Potato production (per ha) Cost Item Chiro Haramaya Potato seed Ware potato Potato seed Ware potato Input Cost Basic seed Fertilizer Chemicals Fuel cost Sub total 22844(32%) 17072(35%) (43%) 49620(43%) Labor cost Family labor Haired labor Oxen use 10, (14) Sub total 33256(47%) 23452(47%) (35%) 40682(36%) Other Costs 14842(21%) 9017(18%) 29826(23%) 23853(21%) Total costs (VC+FC) 70942(100) 49542(100) (100) (100)

20 Profitability of potato production (per ha) Item Potato Seed Chiro Ware Potato Potato Seed Haramaya Ware Potato Gross income Gross Cost Variable cost Fixed Cost Total Cost Gross Margin Net income ROI 120% 72% 140% 116% ROC 207% 153% 204% 183% ROCC 384% 284% 291% 287%

21 Profitability of potato production The major share the total costs of potato seed farming were input and labor cost In all economic measurements potato seed tuber is more profitable than ware potato enterprise This shows that the seed business for potato is more lucrative business than ware potato enterprise The seed business is more profitable in Haramaya than Chiro district

22 Proportion of production costs for groundnut Fixed and other costs 18% Groundnut seed Labor cost 56% Input 26% Fixed and other costs 20% Groundnut grain Input cost 18% Labor cost 62%

23 Profitability of Groundnut production Item Seed Grain Gross 26,686 15,904 income Gross Cost 600% 500% 400% 489% 502% Variable cost 12,793 9, % 183% 133% Fixed Cost 2,229 2, % 78% Total Cost 15,023 12, % 31% Gross 13,893 5,951 Margin Net income 11,578 3,681 0% ROI ROC ROCC Seed Grain

24 120.0% Cost build-up in Wheat production 100.0% 15.0% 17.1% 16.0% 18.0% 80.0% 60.0% 18% 14.4% 20.0% 29.0% 40.0% 20.0% 67% 68.5% 64.0% 53.0% 0.0% Wheat seed Wheat grain Wheat seed Wheat grain Chiro Kersa Labor cost Input cost Othar costs

25 Item Profitability of Wheat production Wheat Seed Chiro Wheat Grain Wheat Seed Kersa Wheat Grain Gross income , Gross Cost Variable cost 13, , Fixed Cost 2, ,135 2,742 Total Cost 15,245 13,756 23,990 15,732 Gross Margin 7,990 4,319 18,515 10,577 Net income 5,850 2,261 15,380 7,960 ROI 38% 16% 64% 51% ROC 156% 84% 338% 211% ROCC 624% 602% 574% 386%

26 Wheat and groundnut profitability The result generally showed that groundnut and wheat seed business incur more costs than grain enterprise Groundnut and wheat seed business is more lucrative than grain in all districts In the case of groundnut, the result of ROCC was higher for grain enterprise than seed business, which implies grain groundnut enterprise is more lucrative, if cash is the limiting factor The profitability of wheat seed business is more attractive in Kersa than Chiro

27 Profitability seed value addition at SPC level Item Value add Seed None value added Value Seed produces value Seed collected Total gross income Gross cost Variable cost fixed cost Cost of good sold Total cost Gross profit Net profit Net profit per quintal ROI 9.5 6

28 Discretion Raare Horaa Hakan Gudina Abdi Jalala Average Value add seed Row seed Value added Row seed Value add seed Row seed Value add Seed Row seed Amount of seed Unit price Gross income Gross cost Gross profit Net profit Net profit/ 100kg ROI

29 Return on Investment Seasonality analysis 40% 35% Potato Seed Tuber Seasonality Analysis Value added seed Row seed 34% 30% 25% 27% 20% 18% 15% 10% 9% 13% 14% 5% 0% 8% 4% At harvest SPCs status Average price peak period Seasonal variation

30 Return on investment Seasonality analysis 50% 45% 40% 35% 30% 25% Groundnut Seed profit Seasonality Analysis 43% 46% 20% 15% 10% 5% 14% 17% 0% At harves SPC profit statuce At verage price peak off-period ROI of value addeed seed ROI of row seecd

31 Return on Investment Seasonality analysis 35% Wheat Seed Seasonality Analysis 30% 25% 20% 15% 10% 5% 0% At harvest Average price SPCs status pick off-period Value addeed seed Row seecd

32 Seasonality analysis The price of value added and row seeds were highly vary between peak harvest period and the off-peak periods The SPC are more profitable on value added seeds at peak off-season The SPC more profitable when they sell row seed at peak off-season than selling value added seed at peak harvest period The SPCs should have appropriate storage and adequate finance to consolidate products

33 Challenges of Seed Business Basic seed 11% Seed processing 11% Seed production 2% Marketing 33% Finance 17% Land 26%

34 Financial and Operational Performance of SPCs

35 Methodology TMP, ROA, ROE and NPM were used to analysis the financial and optional performance of SPC TMP Net Net Profit Worth ROA ROE Net Income Averagetotal asset Net Income Average stocholders Equity NPM Grossprofi t Net sale

36 ROA % Return on assets (ROA) Performance of SPCs Average SD Max Min Raree Horaa Bishan Babile Abdi Jaalalaa Hakan Gudina

37 ROE percentage Performance of SPCs Return on Equity (ROE) Avera ge SD Max Min Raree Horaa Bishan Babile Abdi Jaalalaa Hakan Gudina

38 TMP in % Total Management Performance (TMP) Avera ge SD Max Min Raree Horaa Bishan Babile Abdi Jalala Hakan Gudina

39 Performance of SPCs The ROA, ROE and TPM of Abdi Jalala and Hakan Gudina SPCs varied considerably over the three year period The ROA, ROE and TPM of Raare Horaa and Bishan Babile was relatively stable Haqan Gudina SPCs achieved better ROA, ROE TMP than the remain three SPCs

40 Summary, conclusion and Recommendation The major share of the total cost for seed business labor cost and input costs Seed business leads to a higher economic return There is a great variations in profitability Seed Value addition has not been taken up widely However, value addition is profitable Thus, SPCs should explore value-adding avenues

41 Summary, conclusion and Recommendation Marketing, land and finance, respectively are ranking highest as the most serious challenging faced by Farmers Therefore, market linkage, enhancing farmers access to finance and increasing the productivity of land

42 The End Thank You Open for discussion Reta Wegary ISSD Oromia East tel. : Programme on Integrated Seed Sector Development in Ethiopia