VIABILITY OF AGRICULTURAL INPUT VOUCHERS

Assessment Report VIABILITY OF AGRICULTURAL INPUT VOUCHERS in Grey Zone Areas of Donetsk and Luhansk Regions of Eastern Ukraine People in Need (PIN) October 2016

CONTENTS EXECUTIVE SUMMARY... 3 INTRODUCTION... 4 METHODOLOGY... 4 FARMERS SURVEY... 4 Findings... 4 Household profile... 4 Crop cultivation and livestock-rearing... 5 Spending on agricultural inputs... 5 Priority agricultural inputs... 6 Location of retailers used: seeds and fertilizer... 6 Location of retailers used: animal feed... 6 Location of retailers used: agricultural equipment... 7 Homestead farmers awareness of local retailers... 7 Cost of travel to retailers... 8 Preferred aid modality: in-kind/voucher... 8 Spending preferences with a voucher worth 800... 8 Sale of crops... 8 Sale of meat, eggs and milk products... 8 AGRICULTURAL SHOPS SURVEY... 9 Findings... 9 Shop types... 9 Agricultural inputs sold by shops... 9 Non-agricultural items sold by shops... 9 Relative size of surveyed shops... 10 Daily customer numbers... 10 Daily turnover... 10 Voucher reimbursement/ pre-payment preferences... 10 CONCLUSIONS AND RECOMMENDATIONS... 11 CONTACTS: Mr. Roman Lunin, Head of PIN s Assessment, Monitoring and Evaluation Unit, roman.lunin@pinf.cz Mr. Makhniboroda Aleksey, PIN Livelihoods Program Deputy Manager, aleksey.makhniboroda@pinf.cz 2 P a g e

EXECUTIVE SUMMARY The assessment was conducted among 52 shops with agricultural inputs and 379 randomly selected households residing in the Ukraine Government controlled grey zone areas of Donetsk and Luhansk regions. Its purpose was to determine the appropriateness of vouchers-based provision of agricultural inputs, as opposed to in-kind assistance. The assessment focused both on farmers preferences and the shops capacity and willingness to engage in the voucher scheme. The assessment was part of a DFID-funded, People in Need-implemented project Multi-Sectorial Emergency Assistance to Vulnerable Conflict-Affected Populations in Eastern Ukraine that aims (amongst other) to support the livelihoods of close to 10,000 conflict-affected people. The assessment identified a preference among homestead farmers to receive agricultural input assistance via a more flexible voucher (71%) rather than an in-kind modality (29%). In addition to this finding, the assessment also provided the following data: 91 % of homestead farmers in the surveyed area grow crops, and 55% rear livestock. The average annual expenditure on agricultural inputs by farmers engaged only in rearing livestock is almost twice as high (3481 ) as that of farmers engaged only in crop cultivation (1874 ). Seeds, fertilizers and pesticides are all difficult to afford for more than half of exclusive crop-growing farmers, while over 1/3 of respondents struggle to afford irrigation equipment and agricultural tools, and over 1/5 struggle to pay for water and for equipment for greenhouses. More than 4/5 of farmers who rear livestock have difficulty affording animal feed. Farmers commonly travel to nearby s to buy seeds and fertilizer as well as agricultural equipment, rather than buying them in local villages. 73% travel to nearby s to buy seeds and fertilizer; the same percentage of respondents travel to nearby s to buy agricultural equipment. Over half of farmers buy seeds or fertilizer (51%) and agricultural equipment (58%) in established shops within or outside marketplaces in these s. Animal feed, by contrast, is typically not bought from established shops. 35% buy it from a market stall in either a local nearby, while 36% buy it from another source. Accordingly, it may be difficult to target livestock-rearing farmers with a voucher modality that focuses on established shops with agricultural inputs only. The most popular items to buy with an agricultural voucher worth 800 (intended amount of PIN s support) are seeds (51% of respondents), animal feed (45%), fertilizers (32%), irrigation equipment (30%), pesticides (29%) and agricultural tools (23%). Only 3% of crop-growers report selling crops, and only 10% of livestock rearers report selling their produce. This low figure may be influenced by some respondents being unwilling to speak openly due to tax concerns. All of the retailers included in the retailer map are willing to participate in an agricultural voucher scheme. However, only 44% are willing to be reimbursed for vouchers taken in after incurring expenses themselves; the majority (56%) require that they be pre-paid for vouchers by the funding organization in order to participate (this attitude might change once more personal meetings and clarifications take place). Only 18% of identified agricultural shops were specialized exclusively on agricultural inputs, with the majority being general stores also selling food, hygiene items, etc. Not all items that may be needed by a particular farmer can be found in a single shop. 77% of surveyed shops sold seeds, 75% sold fertilizers, 75% sold irrigation equipment, 73% sold agricultural tools, 62% sold equipment for greenhouses, and 52% sold animal feed. Accordingly, vouchers may need to be transferrable and divisible. Those shops that were selling only agricultural inputs (14 shops), on average reported 88 customers per day in the growing season. 3 P a g e

INTRODUCTION This assessment was conducted by People in Need (PIN) Ukraine s Assessment, Monitoring and Evaluation Unit in August 2016, in order to determine whether the provision of vouchers for agricultural inputs is an appropriate implementation modality, and if so to provide aid agencies with the required data, contacts and recommendations for providing voucher-based agricultural assistance in the Ukrainian government-controlled areas (GCA) of conflict-affected villages of Donetsk and Luhansk regions. The assessment was part of a DFID-funded, People in Need-implemented project Multi-Sectorial Emergency Assistance to Vulnerable Conflict-Affected Populations in Eastern Ukraine that aims (amongst other) to support the livelihoods of close to 10,000 conflict-affected people. The key sellers-related data were made available in an on-line retailer map. METHODOLOGY The assessment comprised of two components: a survey of residents of the grey zone engaged in homestead food production; and a survey of retailers of agricultural inputs such as seeds, fertilizers animal feed and agricultural tools in or near the same grey zone areas. The sample for the homestead farmers survey was drawn from beneficiaries of PIN s food aid in the target area, with a proportional number of interviewees selected randomly from each location, relative to the overall beneficiary numbers in each. 379 households were interviewed in total, achieving a survey confidence level of 95 % and margin of error of 5%. Interviews were conducted via telephone using the structured questionnaire (available upon request). 82% of respondents were living in Donetsk region, while 18% were from Luhansk region. In the second component of the assessment, 52 retailers identified via the homestead farmer survey were interviewed in person at their shops using a structured questionnaire (available upon request). FARMERS SURVEY Findings Household profile 55% of of surveyed households were working-age people, 22% were aged 60 years or over, and 23% were children. 57% were females and 43% were males. The average number of household was 3.07. HOUSEHOLD COMPOSITION 23% 33% 3% 8% 6% 1% 1% 3% 9% 9% 3% 2% 0-4 5-17 18-59 60-69 70-79 80+ 0-4 5-17 18-59 60-69 70-79 80+ 4 P a g e

NUMBER OF MEMBERS IN THE HOUSEHOLD 30% 15% 21% 17% 9% 5% 2% 1% HH with 1 member HH with 2 HH with 3 HH with 4 HH with 5 HH with 6 HH with 7 HH with 8 6% of surveyed households included persons with functional disabilities related to movement, sight, hearing, etc. Crop cultivation and livestock-rearing 45% of respondents were exclusively engaged in growing crops, 9% were exclusively engaged in breeding livestock. 46% were engaged in both activities. Spending on agricultural inputs Homestead farmers spend on average 3,239 on agricultural inputs per year. If the highest spending category (over 5,000 ) is excluded, the average amount spent on agricultural inputs would be 1,847. Respondents engaged only in crop cultivation reported spending on average 1,874, while those engaged only in livestock rearing reported spending on average 3,481 per year. No significant differentiation was observed between respondents from Donetsk and Luhansk regions. AMOUNT SPENT ON ALL AGRI INPUTS PER YEAR 25% 2% 8% 12% 16% 8% 15% 9% 4% 0 1-499 500-999 1000-1499 1500-1999 2000-2999 3000-3999 4000-4999 More than 5000 5 P a g e

Priority agricultural inputs Of those who only grew crops and did not rear livestock (45%), 60% of respondents had difficulty affording seeds. 52% struggled to buy fertilizers, 52% had difficulty buying pesticides, 48% had difficulty buying irrigation equipment, 38% had difficulty buying agricultural tools, 23% had difficulty buying water and 22% had difficulty buying equipment for greenhouses. Of those who both reared livestock and grew crops (46%), 80% had difficulty affording animal feed. 33% struggled to buy seeds, 26% had difficulty buying pesticides, 25% had difficulty buying fertilizers and 20% had difficulty buying irrigation equipment. Location of retailers used: seeds and fertilizer Of those who grew crops (91%), seeds and fertilizers were bought by 90% (312 respondents). Of these, 73% travel to nearby s to purchase seeds and fertilizers rather than purchasing them in their own or s. 31% buy these inputs in their villages or in villages nearby. PLACE TO BUY SEEDS, FERTILIZERS 34% 18% 8% 4% 22% 17% 11% At a stall at the market in At a shop inside the market in In a shop (not within the market) in At a stall in the nearby larger At a shop in the nearby At a shop (not inside market) in a larger nearby Location of retailers used: animal feed Of those who reared livestock (55%), animal feed was bought by 91% (189 respondents). Of these, 55% travel to nearby s to purchase animal feed. 33% buy it in their villages or in villages nearby. PLACE TO BUY ANIMAL FEED 19% 7% 8% 19% 26% 10% 36% At a stall at the market in At a shop inside the market in In a shop (not within the market) in At a stall in the nearby larger At a shop in the nearby At a shop (not inside market) in a larger nearby 6 P a g e

Location of retailers used: agricultural equipment Of those who bought agricultural equipment (43%, 162 individuals) 74% of respondents preferred to travel to nearby s to purchase agricultural equipment. 31% preferred to buy it in their villages or villages nearby. PLACE TO BUY AGRICULTURAL EQUIPMENT 30% 28% 6% 14% 10% 15% 4% At a stall at the market in At a shop inside the market in In a shop (not within the market) in At a stall in the nearby larger At a shop in the nearby At a shop (not inside market) in a larger nearby Homestead farmers awareness of local retailers Homestead farmers tend to buy agricultural inputs from shops in nearby s, not in their own or s. 89% of respondents were able to name at least one agricultural shop in their area. Of these, 36% mentioned a shop within a nearby, 20% mentioned a shop not within the nearby, and 16% mentioned a market stall in a nearby. 9% mentioned a market stall in their village or in a, 9% mentioned a shop outside market in their village or in a and 8% mentioned a market shop in their village or in a. FARMERS AWARENESS OF LOCAL RETAILERS 36% 9% 8% 9% 16% 20% 1% Stall at the market in Shop inside the market in Shop (not within the market) in Stall in the nearby larger Shop in the nearby Shop (not inside market) in a larger nearby 7 P a g e

Cost of travel to retailers Homestead farmers spend on average 73 on travel to and from the retailers they use for agricultural inputs. Preferred aid modality: in-kind/voucher 71% of homestead farmers would prefer to receive aid in the form of a voucher. 29% would prefer to receive agricultural inputs in-kind. Respondents over 60 years of age indicated a higher rate of interest in in-kind aid, but the majority (64%, 47 individuals) in this age group still preferred to receive a voucher rather than in-kind aid. Spending preferences with a voucher worth 800 51% of respondents indicated that they would spend an agricultural voucher worth 800 (approx. 30 USD) on seeds. 45% indicated that they would spend it on animal feed, 32% would spend it on fertilizers, 30% on irrigation equipment, 29% would spend it on pesticides, 23% would spend it on agricultural tools (spades etc.) and 14% would spend it on plastic for greenhouses. SPENDING PREFERENCES WITH A VOUCHER WORTH 800 51% 45% 32% 29% 23% 30% 14% 7% Seeds Animal feed Fertilizers Pesticides Agriculture tools Irrigation equipment Equipment for greenhouses Sale of crops Of those respondents who grow crops, only 3% (10 individuals) reported selling any of them. Some respondents may have been unwilling to speak openly about selling crops due to tax concerns. Those who did sell crops sold them at a market stall in a nearby (50%, 5 individuals). 20% (2 individuals) sold them at a market shop in a nearby, 20% (2 individuals) sold them at home to their neighbors and 1 person sold them at a market stall in own village or in a village nearby. Sale of meat, eggs and milk products Of those rearing livestock, only 10% (20 individuals) reported selling meat, eggs or milk products. Those who did sell these items sold them at home to their neighbors (40%, 8 individuals). 30% (6 individuals) sold them at a market stall in a nearby, 25% (5 individuals) sold them at a market stall in their village or in a village nearby and 1 person sold them to resellers. Some respondents may have been unwilling to speak openly about selling meat, eggs or milk products due to tax concerns. 8 P a g e

AGRICULTURAL SHOPS SURVEY Findings Shop types Of the shops identified during the famers survey and included in the shops survey, 75% of enterprises (39 retailers) were shops outside a market, 15% were shops within a market, 2% (1 retailer) was a stall at the market and 8% (4 retailers) were enterprises of other types. Agricultural inputs sold by shops 77% of surveyed shops sold seeds, 75% sold fertilizers, 75% sold irrigation equipment, 73% sold agricultural tools, 62% sold equipment for greenhouses, and 52% sold animal feed. AGRICULTURAL INPUTS SOLD IN THE SHOPS 77% 75% 52% 73% 75% 62% Seeds Fertilizers Animal feed Agriculture tools Irrigation equipment Equipment for greenhouses 13% Non-agricultural items sold by shops As for non-agricultural inputs, 23% were selling household items, 16% were selling hygiene products, 14% were selling food, 5% were selling alcohol. 25% were selling other inputs (mostly building materials) and 18% were not selling any non-agricultural inputs. NON-AGRICULTURAL INPUTS SOLD IN THE SHOP 14% 16% 23% 25% 18% 5% Food Alcohol Hygiene products Household items None 9 P a g e

Relative size of surveyed shops 46% of interviewed retailers indicated that their shops are the same size as other agricultural shops in the area. 40% indicated that they are larger than other shops in the area and 13% indicated that they are smaller than other shops in the area. Daily customer numbers Interviewed retailers had on average 112 customers per day in the growing season. However, for many shops this figure will include customers not buying agricultural inputs. Those shops that were selling only agricultural inputs (14 shops) had on average 88 customers per day in the growing season. 16 retailers were unable or unwilling to answer this question. Daily turnover The average daily turnover of interviewed retailers was 3,078 per day in the growing season. However, for many shops this figure will include not only agricultural items. Voucher reimbursement/ pre-payment preferences 78% of retailers identified via the farmer survey were willing to participate in the survey. All of those who agreed to participate in the survey also stated that they would be willing to participate in an agricultural voucher scheme and allowed their contact details to be shared. Of these, 44% (23 individuals) indicated that they are ready to participate in the project by being reimbursed after vouchers are sold. The remaining 56% (29 individuals) were all willing to participate in the scheme if vouchers were pre-paid by the donor organization. The key sellers-related data are available in an on-on-line retailer map created by PIN s AME Unit. 10 P a g e

CONCLUSIONS AND RECOMMENDATIONS The strong preference for agricultural vouchers among homestead farmers (including elderly people), coupled with the willingness and capacity of shops to participate, suggest that the vouchers-based provision of agricultural inputs is a viable and appropriate modality. The respondents answers showed that vouchers main advantage giving people the freedom to choose the goods they need clearly outweighs their disadvantages, such as the effort and costs of travelling to the local shops. In order to ensure that a sufficient number of shops will be willing to participate even without pre-financing, the implementing agencies will need to strengthen the shop managers trust in the system and their organization. This might require providing the shop managers with contacts for other shops where PIN already operates a successful voucher scheme, offering the shops references on PIN s trustworthiness provided by the local authorities (with whom PIN cooperates), explaining the contract conditions specifying PIN s responsibilities towards the shops, and other trust-building measures. As most of the farmers are used to traveling to nearby s to buy agricultural inputs in specialized shops, it is recommended to focus the intervention on these shops. Shops located in urban area demonstrate higher capacity and level of service as well as a wide selection of goods. At the same time, it would cost more for beneficiaries to travel there. Some retailers in small village shops would like beneficiaries to request the goods in advance, so they can fill the stock in time. The surveyed shops claimed to be serving about 100 customers per day which is considerably more than the number of people receiving PIN s vouchers (it is expected that on average one shop will serve some 100-300 voucher holders per month). At the same time, the average amount that the customers of the shops reportedly spend is much lower than the value of PIN s vouchers. The shops will therefore need to be well informed about the volume of the potential sales and be ready and able to increase their stocks. PIN should provide beneficiaries with the phone numbers of the local shops and encourage them to call them in advance, before visiting the shop, to verify whether the desired goods are available and if not, to order the goods by phone (this is important especially in the case of less commonly sold goods). Furthermore, in order to enable people to purchase goods that need to be ordered in advance, the validity of the vouchers should be no less than one month. Since many shops with seeds, tools, fertilizers and other crops-production inputs do not sell animal fodder, PIN needs to ensure that a sufficient number of animal fodder sellers are included in the scheme (even if they do not have official shops and sell the fodder from their homes or at the market stalls). It is recommended to provide a higher number of vouchers of smaller denomination (e.g. 100 each), so that the vouchers can be spent in different places and at different times, enabling the beneficiaries to select the inputs according to their current need and the availability of goods. Providing vouchers in a total value of 800 will cover the costs of nearly half of the agricultural inputs required by farmers growing crops in their gardens. Given the presented data and the homestead farmers needs, wherever possible, PIN should advocate other aid agencies to provide agricultural inputs via vouchers as opposed to less preferred in-kind modality. The agencies will be able to take advantage of PIN s existing experience (voucher scheme will be implemented from 10/2016 till 02/2017), an on-line map of retailers including essential information about each of the shop, detailed step-by-step methodology, and valuable field-based lessons. 11 P a g e