Improving Marketing Strategies to Accelerate Technological change for the basic Cereal: The Niger Case. Tahirou Abdoulaye a and John H.

Transcription

1 Improving Marketing Strategie to Accelerate Technological change for the baic Cereal: The Niger Cae Tahirou Abdoulaye a and John H. Sander b a INRAN/DECOR, B.P. 429, Niamey, Niger, currently Reearch Aociate, Dept. of Agricultural Economic, Purdue Univerity, 1145 Krannert Bldg, #624, Wet Lafayette, IN USA. b Profeor, Dept. of Agricultural Economic, Purdue Univerity, 1145 Krannert Bldg., #609, Wet Lafayette, IN USA. Paper prepared for preentation at the American Agricultural Economic Aociation Annual Meeting, Montreal, Canada, July 2730, Copyright 2003 by Tahirou Abdoulaye and John Sander. All right reerved. Reader may make verbatim copie of thi document for noncommercial purpoe by any mean, provided that thi copyright notice appear on all uch copie. * Correponding author: Tel. (1) ; Fax: (1) ; JSANDER1@purdue.edu

2 Introduction Niger i characterized by low and erratic rainfall and low oil fertility. Increaed agricultural production will require increaed input ue becaue of low nutrient level in the oil and continuing nutrient depletion a the fallow ytem beak down with population preure. Depite the availability of new technologie developed by agricultural reearch, adoption rate have generally been low. In region where ubtantial adoption rate have been reported, farmer are reducing the quantitie of inorganic fertilizer ue becaue of decreae in the profitability due mainly to lower relative price of traditional cereal. Low cereal price have been identified a one of the principal caue of low intenification in Sahelian countrie (Sander et al., 1996). Invetment in food crop ha not been very profitable due to evere price variation (eaonal and between year), and governmental preoccupation with keeping food price low. At harvet due to increaed upply of grain, millet price are at their lowet point of the year, yet farmer have to ell at that time becaue of income requirement for houehold and farm expene. Moreover, in good rainfall year, the millet price collape, due to the higher upply and inelatic demand. Finally in bad rainfall eaon when upply i hort, millet price do not get to fully increae becaue government and NGO often intervene by elling grain on the market at lower price. Higher and more table price lead to increae in purchaed input ue a well a increaed production (Jayne et al., 1997, and Rohrbach, 1989, cited in Yangeen et al, 1997). Angé, 1997 (cited in Yangeen, 1997) noted that low output price i reducing the ue of fertilizer. Rather than rik or lack of liquidity, adoption of the new technologie i lowed by low expected price received by farmer due to eaonal price variation and price collape in good rainfall year. Another problem i that in advere rainfall year, the public ector and NGO provide food taple at ubidized price driving down the price received by farmer (or merchant) in thee year. Higher price can have hortrun, advere effect on both urban conumer and many farmer purchaing food upplie a well. Thi create preure on the government to enure low food price for urban conumer (Bate, 1981) and for producer who are temporary food buyer. Even in a normal cropping eaon, mall farmer often hift from 2

3 net food eller at harvet to net food buyer later in the year (Barrett, 1996). Neverthele, in the long run, increaed producer price are expected to lead to continuing increae in upply with falling perunit output cot and lower food price for the country. Many farmer will then till be able to make money due to decreaing cot. Thi eem to be a more appropriate objective than conitently dicouraging farmer from increaing productivity by depreing product price. The main objective in thi tudy i to analyze the effect of higher output price on adoption of improved Fertilizer Baed Technologie (FBT) by farmer in Niger. The tudy alo evaluate the income effect of variou agricultural policie aimed at increaing price received by farmer. We, (1) preent the millet price variation (2) dicu introduction of new technologie (3) preent the farm model ued in the analyi (4) analyze the potential effect of three price policie and combination of them and (5) draw ome policy implication in the concluion. Millet price variation Following a good rainfall eaon in the Sahel, millet production i high and price quickly collape. Sander et al, 1996 argued that the high price variability epecially the low price oberved in good year i a principal contraint to fertilizer application to millet and orghum in Sahelian countrie. Government in that region are doing little to help their farmer increae their profitability from the baic grain. Producer price are often kept from increaing becaue government are preoccupied with low food price due to concern of urban population (Angé, 1997, cited in Yangeen 1997). The ue of few oilfertility improvement in Niger appear to be a direct conequence of the low output price relative to input price; thee dicourage farmer from purchaing input neceary for increaed production (Evéquoz and Yadji, 1998). The potential for intenification of the production of millet i being reduced by the continued effort of the government to keep food price down. For example, in July 2001, the government put 10,000 metric ton of millet on the market at a price of 100 FCFA/kg while the market price wa 210 FCFA/kg in Niamey (Agence France Pree, 2001). 3

4 FCFA/kg Oct 01 Nov 01 Dec 01 Jan Feb Mar Apr Ma y Jun Jul Aug Sep Oct Month Figure 1. Millet Price in SaeSaboua, Maradi Niger, Thi price collape from both good weather and public policy dicourage farmer from inveting in purchaed input (uch a inorganic fertilizer and quality eed) needed to increae their production. Intead, they continue to ue a low input production trategy becaue it correpond bet to their low output price environment. Hitorically with good rainfall condition, price of traditional cereal collape. In the hort run, thi i a eriou problem and can delay the intenification proce. Millet price often tart low at harvet then gradually they tart to climb until they reach their peak in the Soudure 1 period. Once the new harvet i anticipated price tart to fall to their low point in the harvet eaon (Figure 1). Another recent example of price collape ha been the ignificant fall in cereal price that occurred in Mali between 1998 and 2000 during three year of above normal cereal production. Millet price alo vary ubtantially between year depending on the type of year and upply availability. Figure 2 depict biweekly millet price oberved in Dakar Senegal during the pat three year. The interannual price variation i alo a concern becaue the wide variation in price reduce over time profitability of invetment in traditional crop. 1 Alo called the hungry eaon, it i the period when food reerve are almot gone and the new crop are not yet ready fro harvet. 4

5 Why do price collape in good rainfall year? People can eat only o much of their baic taple, o it i difficult to increae conumption rapidly for the baic food market or to find new market once the price ha collaped. For the crop experiencing rapid technological change in the Sahel, price collape ha not been a frequent. For cotton, paratatal have hitorically fixed the price. Rice ha had rapidly growing urban market. The niche crop of fruit, grain legume, other vegetable, and flower have been exported and a yet there ha no been market aturation. Moderating the price collape of the baic food taple by developing new market i expected to encourage a more rapid introduction of new technologie Price (FCFA/kg) /10 31/10 15/11 30/11 15/12 31/12 15/01 31/01 15/ 28/ 15/03 31/03 15/04 30/04 Time 15/05 31/05 15/06 30/06 15/07 31/07 15/08 31/08 15/09 30/09 Figure 2. Biweekly Millet price in Dakar, Senegal, / / /20 New technologie For oil fertility retoration (or improvement), inorganic fertilizer i critical. There are no alternative to provide N and P cheaper though there are alternative to complement the ue of inorganic fertilizer. Depite the unfavorable economic environment, ome farmer in the tudy region are uing mall quantitie. In the tudy ample, 61% were uing ome inorganic fertilizer generally combined with manure and 5

6 put in the eed pocket with the eed (Abdoulaye, 20). Scientit have developed other improved technologie with inorganic fertilizer to allow farmer to increae fertilizer ue efficiency and quantity applied. The new technologie were developed and teted by ICRISAT/IFDC in onfarm trial, conducted by farmer in the region from The improved fertilizer baed technologie (FBT), not preently being utilized by farmer, conit of higher quality fertilization (improved micro doe, 20 kg/ha of DAP) and improved moderate doe of inorganic fertilizer (50 kg/ha of SSP and 60 kg/ha of NPK) and a higher manure and crop reidue activity (2700 kg/ha of each). In the improved FBT (new technologie), fertilizer i applied uing a ide dreing method (applied to the plant uually after firt weeding), which i different from farmer current practice of mixing eed and inorganic fertilizer. Thi lead to an increaed labor requirement but i till more efficient than broadcating fertilizer becaue the fertilizer i applied more directly to the plant. Three ource of nutrient are ued with the new technologie: Diammonium phophate (DAP, 18460), uper imple phophate (SSP, 0180) and complex fertilizer (NPK, ). In addition to fertilizer and application method, improved millet varietie developed at INRAN and ICRISAT are alo included in the new technologie package. The new technologie are available in the modeling for ole crop millet activitie and millet/cowpea activitie with and without new cultivar in both cae. Farmer Objective and Modeling The tudy wa conducted in village urrounding the Fakara Plateau in the adminitrative region of Boboye and Kollo in wetern Niger 2. A ample of 100 farmer wa randomly drawn and interviewed in five village. Quetionnaire in each cover houehold reource availability, crop production and ale and other nonagricultural activitie. Farm interview indicate that when making planting deciion, farmer are not only concerned with having enough food for the family but alo with being able to meet their income requirement at harvet. 2 Information on the production ytem and agriculture in Niger can be found in Abdoulaye, 20. 6

7 A minimum income i needed at harvet to pay for many houehold expene including temporary migration, debt acquired before and during the crop eaon, ceremonie, educational expenditure, clothing and payment to labor (direct and indirect). At harvet crop production ale are the main ource of income for farmer. Coming off the rainy eaon, fodder i available along with crop by product for livetock feeding and farmer prefer to keep their livetock a a aving (or inurance) for later. Subitence farmer get their food from the crop they raie. In rural Niger mot meal are millet baed, the main cereal crop grown in the country. At harvet, grain i tored after harvet to be ued later (Abdoulaye and LowenbergDeBoer, 2000). There i a tradeoff between toring enough harvet to meet annual food requirement and elling ome at harvet to meet income requirement. In bad year when it i difficult to atify both objective, farmer in thi region chooe to atify their immediate (harvet time) income requirement and to rely on the market to provide their food requirement latter. Producing their own food intead of purchaing it from the market come with a cot to farmer. That cot i the opportunity cot (hadow value) of millet which indicate how farmer value having their own food tock. Thi cot will be determined uing the ubitence food contraint and the aociated millet purchae variable. Millet market price i premultiplying by a coefficient (λ, which i initially et equal to 1, then the model i calibrated to determine it final value), which repreent the premium farmer are willing to add to the market value in order to produce and tore their own food. In the farm model, thoe two goal (ubitence and harvet income) are accounted for a a mean of handling rik in the ytem. Thi i an alternative way of handling production rik baed on farmer actual production goal (Sidibé, 2000, Vitale, 2001). It ha the advantage of being imple and eaier to verify with farmer than the more abtract tradeoff between expected income and variance ued in the general framework of rik analyi. Both ubitence and harvet income contraint are atified uing crop output. Millet grain i ued both for harvet income goal and for ubitence food requirement. Rural houehold often have livetock and nonagricultural activitie, which are alo included in the farm model. Livetock and nonagricultural activitie repreent alternative invetment to cropping activitie. The model, then, maximize expected 7

8 income ubject to the two afety contraint, plu the reource availability contraint and other accounting contraint. The mathematical formulation of the farm model i a follow: Max EW = 5 = 1 θ w (1) ubject to P 1i q 1i I, (2 5), for all i ( crop) (2) C + B C, (2 5) (3) C i + q 1i + q 2i = Q i, for all and i (4) i Q w i = θ ( w i i aij xi + atj xt bj, for all j t = y x, for all i P 2i + ( i q i 2i + P 1i t q r 1i t i ) + p c c h i i λp c ) = Ψ 2i B (5) (6) (7) (8) Where: The ubcript are: for tate of nature, i for crop, t=other activitie, 1 and 2 for crop ale period (1=harvet and 2= price recovery period), j=reource. E i the expectation operator W i the value of after harvet ale plu net return to other activitie θ i the probability of tate with θ = 1. 8

9 P 2i and q 2i are price and quantity old repectively for crop i in tate in price recovery period (6 month after harvet). r j i the return to the jth livetock or nonagricultural activity. c i and h i are the input cot per hectare and number of hectare of the ith crop activity in tate, repectively. λ i the premium farmer are prepared to pay for avoiding market dependence in obtaining their baic grain upply, initially et equal to 1. P 1i i the price in tate for crop i at harvet. q 1i i the quantity old in tate of nature for crop i at harvet. I i the minimum income required at harvet C i the required quantity of millet for houehold ubitence C i the quantity of millet produced for home conumption in tate B i the quantity of millet purchaed for home conumption in tate Q i i the total production of crop i in tate x i i the hectare of land of each cropping activity y i i the yield per hectare of activity I in tate of nature p c i the price for millet produced and conumed by the houehold Ψ i the expected total houehold income a ij are the technical coefficient x t i unit of other activitie (livetock and nonagricultural) in tate. b j i availability of reource j. The objective function (equation 1) i the probability of the tate of nature multiplied by the after harvet income (equation 7). The minimum harvet income goal i defined by equation 2. Equation 3 repreent the ubitence food contraint. Equation 4 i an identity, which define total crop output. Equation 5 determine the reource availability for all activitie. Equation 6 i an identity that define total crop output (area multiply by yield). Equation 7 define the after harvet income to be maximized. Equation 8 i another identity ued to recover annual houehold income. 9

10 Validation Once new technologie (before policy) are introduced in the model, all crop area i fertilized (Table 1) becaue of the potential higher yield from the new technologie with fertilizer i ubtantial. Thi i an important reult for thi region. Soil are poor and continuou cropping without nutrient replacement can further degrade the oil. Table 1. Model reult with and without new technologie. Current Sytem (No New Technologie) 1. Current practice (ha) No fertilizer 2.68 Introduction of New Technologie Small doe of fertilizer 2. New technologie (ha) Micro doe Moderate doe Expected Income Income increae from previou ytem Source: Model reult FCFA FCFA 30% Introduction of new technologie without change in the current policy take place and increae farm income (Table 1). The income increae i 30%, which come from the higher yield potential of the improved FBT compared to traditional practice. Farmer hift toward a combination of ole crop millet with higher quality fertilization (improved micro doe with DAP) and adoption of new cultivar with the improved moderate doe of millet/cowpea technology. New varietie tend to repond better than traditional varietie to higher fertilization, a traditional varietie are elected over time for yield tability under low input rather than for yield repone under higher input level. Thee model reult are conitent with urvey reult and previou tudy in the region indicating inorganic fertilizer ue by farmer (Mokwunye and Hammond, 1992). Improving price i expected to increae diffuion and farm income. 10

11 Potential effect of policie The current low relative price of millet i not favorable for continued intenification of millet baed production ytem. In abence of the new technologie, the gain from the policie are expected to be minimal. The gain from the price policy i higher when new technologie are already preent becaue they allow farmer to have acce to more productive option. Model imulation are ued to evaluate the potential impact on new technology adoption and farm income of moderating the eaonal millet price collape, revering the current low food price public policy, the implementation of an inventory credit ytem (warrantage) and combination of thee policie. Moderating the price collape Millet price collape can be moderated by expanding the product market. Currently millet i mainly ued in local dihe. There exit many potential new ue for millet in the Sahel. Reearch ha developed everal millet proceed product that are on the market. Packaged coucou and a erie of other millet product are increaingly available acro the Sahel epecially in Dakar and Bamako. In Dakar, there are 11 local firm producing proceed millet product including, TchakriYogurt, Arraw, Dégué, flour and Infant food (ROCAFREMI, 20). Moreover, ome of thoe mall cale food proceor are even exporting to Wet African in Europe and the US. A with rice the new millet product can be taken out of the package and boiled. Big gain in demand for cereal can come with the hifting dietary pattern for animal product, epecially poultry. Developing the improved market for proceed human food and anticipating thi rapid growth in feed grain demand can be a combined trategy for expanding dometic market. The potential for the orghum and millet producer to capture the demand in thee emerging feed market will depend upon their ability to compete with other grain, uch a maize. Millet, however, i a good animal feed and locally produced millet can benefit from reduced tranportation cot a compared to imported maize. The initial impact of the evolution of new product market for traditional crop uch a millet i expected to be the moderation or elimination of harvet time price 11

12 collape in good rainfall year. Thi cenario wa imulated auming that the in good and very good tate of nature, millet price will reach their normal year level. An increaed millet price in good rainfall year will not only reduce price variability but alo increae the expected profit from millet production. The total houehold income increae i 35% when elimination of good harvet price collape (A) i combined with new technologie adoption (Table 2). Revering the low food price public policy The current low food price policy tem mainly from government preoccupation to protect both urban conumer and ome farmer, who are net food buyer. However, by depreing food price they are hindering intenification effort becaue with low price farmer make minimal to no profit and are dicouraged from making the neceary invetment to increae production. The depreing effect on invetment intenifying millet production i not only coming from the government but alo from development project and NGO involved in food aid and other aitance program. The unintended effect of thoe program that bring in ubtituting product uch a maize or wheat i to keep millet price low. However, farmer need ufficiently higher output price to jutify the invetment needed to increae production. Expected millet price alo increae with a revering of the current low food price policy. In the model, the imulation on revering the current low food price policy aume a conervative increae of 40% in millet in advere and very advere year. Unlike the previou cae, increae in millet price for advere year will increae the expected price, but increae price variability and increae profitability of purchaed input ue. Model reult indicate that revering the current low food price policy (B) will lead to a 48% income increae after new technologie are introduced (Table 1). The higher price of millet allow for harvet income requirement to be achieved with le grain, leaving a high portion of millet to be old later in the year when price have further recovered. 12

13 Implementing the warrantage The inventory credit ytem alo called warrantage i a program currently being implemented in ome region of Niger and other Wet African countrie by development project. The warrantage program i an inventory credit ytem where farmer borrow againt their tock of cereal. The program help farmer to have contact with financing agencie, which lend money to farmer through their coop at harvet. Loan repayment i guaranteed by the farmer leaving a tock of hi cereal in a warehoue under the uperviion of a coordinating agency. The cereal tock i old 56 month 3 later allowing farmer to repay their loan and profit from the price recovery. Farmer have been able to realize a profit even with the high interet rate of 21% for 5 month (République du Niger, 2000). The warrantage program thu allow farmer to take advantage of the price recovery later in the year. Farmer are able to achieve their harvet income goal without being forced to ell their cereal at the annual low point of cereal price. So, the warrantage program eliminate the need for early ale thu allowing farmer to take advantage of the higher price later in the year. There are two expected effect from the warrantage program. Firt becaue farmer ell crop latter in the year, they receive higher price. Second, by providing farmer with cah at harvet, it eliminate the need for harvet time ale. Without government intervention to drive the price of millet down with import and, the relative price of millet i expected to increae by 30% from it current value 4. Thi increae correpond to an increae in the price of millet from 113 FCFA to 147 FCFA in a normal year. Thi level of increae i not unuual in Niger where price increae of 50% between harvet and the next planting eaon are common (République du Niger, 2000). The overall expected price for millet i increaed, thu the price of millet i higher both at harvet and alo at the price recovery period. 3 The actual ale date i et by the coop after a majority of farmer agree that price are high enough. 4 The current expected relative price of millet to inorganic fertilizer (millet price/npk price) i It varie from 0.94 in very bad tate to 0.19 in very good tate. 13

14 The increae in expected farm income i more ignificant when it i compared to the expected farm income from the current ytem. The combined effect of introduction of new technologie and change in the policy would be a 49% increae in farm expected income compared to the current ytem. Thi i an important reult, which ha implication for policy maker and donor agencie. Activitie geared toward accelerating the introduction of new technologie have a ignificant impact on farm expected income. Table 2: Land allocation and Income effect of elected price policie, model reult New technologie + No price collape in good year 1. Current practice (ha) No fertilizer (A) New technologie + No government intervention in bad year (B) New technologie + Warrantage (C) Small doe of fertilizer 2. New technologie (ha) Micro doe Moderate doe Houehold Income (FCFA) Percent change Source: Model reult 35% 48% 49% Combining price trategie Following the previou analyi where each price policy wa conidered alone, thi ection i concerned with combined effect of policie. The combination are conidered after new technologie introduction to analyze how their preence can enhance houehold income. The three policie analyzed in thi paper are not mutually excluive. Intead they can be combined to produce lager effect. Millet price could be increaed in both bad and good rainfall year a explained above (A+B). Another imulation included here conider a revere in the current low food price policy while implementing the inventory credit (warrantage) ytem (B+C). We could alo conider a 14

15 cenario with no millet price collape in good year i combined with the warrantage (A+C). Thee price increaing policie can then be coupled with warrantage to eliminate harvet ale and allow farmer to take advantage of the price recovery latter in the year (A+B+C). Table 3: Potential income effect of elected price policie, model reult New technologie + No new policy A+B B+C A+C A+B+C Houehold Income (FCFA) Percent change 18% 23% 30% 40% Source: Model reult B = New technologie + No price collape in good year, C = New technologie + No government intervention in bad year and D = New technologie + Warrantage A expected combining the different price policie yield higher impact on houehold income. Without the millet price collape in good rainfall year and with the millet price allowed to increae in bad cropping eaon, houehold income i increaed by 18% compared to the cenario with new technologie alone (Table 3). The model take advantage of thee price increae to atify harvet income and ubitence food contraint uing a maller portion of total production leaving more grain to be old latter in the year when price are higher. The larget impact of 40% compared to new technologie alone (Table 3), i achieved when the three policie are combined. In thi cenario, elimination of harvet income contraint with the warrantage lead to a higher available marketable urplu when price recover. With better millet price now (no price collape and government intervention), ale in all tate of nature increae leading to a higher houehold income. Between the above two other combination alo lead to increae in houehold income. Concluion In order to increae agricultural production and reduce the current trend of continuou oil mining without nutrient replacement, agricultural policy in Niger need to 15

16 focu on making ure that the economic environment i uch that farmer can continue to profitably invet in input. Alo for the intenification proce to accelerate, farmer need to make higher profit on the invetment they make. Eliminating the effect of price collape would reult in farmer uing higher quality fertilizer technologie, which i neceary to revere the current trend of oil mining. Millet price collape in good rainfall year due to inelatic demand and the higher upply from the increaed production. Evolution of new market for millet will moderate thi price collape. There are emerging market for traditional cereal for both human food and feed. Good quality control in both production and proceing of millet will determine the future of thee emerging proceed millet food indutrie. The intitutional change for farmer to produce a highvalue, quality controlled millet that can be reliably delivered to a food proceor or a feed mixer will require ubtantial organizational effort on the part of millet farmer. It i imperative that government top the policy of artificially maintaining price of cereal low by driving down the millet price with ubidized import.. There are other intrument for addreing poverty iue beide food price. Food price need to give ignal to farmer to increae current capital expenditure becaue intenification will be profitable for them. In the long term technological change enable falling per unit output cot o price can fall moderately with both farmer and conumer till benefiting. Mot cereal producer feel trong preure to ell their product at the pot harvet price low. Then trategie uch a warrantage will allow them to take better advantage of the increaed marketable urplu from new technologie and increae their income. The higher income will enure that farmer can continue to afford inveting in the new technologie. A critical factor for adoption of new technologie i improvement in rural infratructure a they will allow farmer to have higher output price and lower input price with the reduction in tranportation and torage cot. Government can alo facilitate the evolution of input/output market. Specifically developed input market can enure timely availability of inorganic fertilizer and improved eed at the village level. 16

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