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
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
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
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
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
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
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
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
Profitability of smallholders seed business 11/13/2014
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
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
Study area Ethiopi a East Oromia Region
RESEARCH METHODOLOGY Sampling Design: Purposive sampling followed by random sampling technique was employed
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
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
Methodology (Cont d)
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
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
Cost of Potato production (per ha) Cost Item Chiro Haramaya Potato seed Ware potato Potato seed Ware potato Input Cost Basic seed 14484 11053 25056 20511 Fertilizer 5607 3728 12722 11461 Chemicals 287 274 4653 4144 Fuel cost 2466 2017 12996 13504 Sub total 22844(32%) 17072(35%) 55428 (43%) 49620(43%) Labor cost Family labor 22499 16644 33015 31946 Haired labor 0 0 7104 6192 Oxen use 10,757 6808(14) 4854 2544 Sub total 33256(47%) 23452(47%) 44972 (35%) 40682(36%) Other Costs 14842(21%) 9017(18%) 29826(23%) 23853(21%) Total costs (VC+FC) 70942(100) 49542(100) 130227(100) 114155(100)
Profitability of potato production (per ha) Item Potato Seed Chiro Ware Potato Potato Seed Haramaya Ware Potato Gross income 148826 79657 295437 233013 Gross Cost Variable cost 63977 44191 113468 100895 Fixed Cost 6965 5351 16759 13260 Total Cost 70942 49542 130227 114155 Gross Margin 84849 35466 181968 132118 Net income 77883 30115 165040 118858 ROI 120% 72% 140% 116% ROC 207% 153% 204% 183% ROCC 384% 284% 291% 287%
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
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%
Profitability of Groundnut production Item Seed Grain Gross 26,686 15,904 income Gross Cost 600% 500% 400% 489% 502% Variable cost 12,793 9,953 300% 183% 133% Fixed Cost 2,229 2,185 200% 78% Total Cost 15,023 12,138 100% 31% Gross 13,893 5,951 Margin Net income 11,578 3,681 0% ROI ROC ROCC Seed Grain
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
Item Profitability of Wheat production Wheat Seed Chiro Wheat Grain Wheat Seed Kersa Wheat Grain Gross income 21095 16018 39,370 23692 Gross Cost Variable cost 13,105 11698 20,855 12990 Fixed Cost 2,140 2058 3,135 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%
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
Profitability seed value addition at SPC level Item Value add Seed None value added Value Seed produces 158000 9900 value Seed collected 1971854 460350 Total gross income 2129854 470250 Gross cost Variable cost 126336 7580 fixed cost 11926 755 Cost of good sold 1807532 434970 Total cost 1945794 443305 Gross profit 195986 27700 Net profit 184060 26945 Net profit per quintal 56 26 ROI 9.5 6
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 3585 1023 1000 140 362 200 1649 454 Unit price 750 550 700 550 800 625 743.55 553 Gross income 2688892 562650 700000 77000 289600 125000 1226164 254883 Gross cost 2366205 518150 630000 72820 270330 120000 1088845 236990 Gross profit 985927 102300 250000 14000 97740 19000 444556 45100 Net profit 322687 44500.5 70000 4180 19270 5000 137319 17894 Net profit/ 100kg 90 44 70 30 53 25 71 33 ROI 13.6 8.6 11.1 5.74 7.1 4.2 11 6
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
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
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
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
Challenges of Seed Business Basic seed 11% Seed processing 11% Seed production 2% Marketing 33% Finance 17% Land 26%
Financial and Operational Performance of SPCs
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
ROA % Return on assets (ROA) Performance of SPCs 100 90 80 70 60 50 40 30 20 10 0 2011 2012 2013 Average SD Max Min Raree Horaa 30 33 29 31 2.009 33 29 Bishan Babile 3 10 4 6 3.097 10 4 Abdi Jaalalaa 2 10 29 14 10.079 29 10 Hakan Gudina 89 77 33 66 22.952 77 33
ROE percentage Performance of SPCs Return on Equity (ROE) 300 250 200 150 100 50 0 Avera 2011 2012 2013 ge SD Max Min Raree Horaa 32 35 30 32 2.502 35 30 Bishan Babile 9 52 5 22 23.798 52 5 Abdi Jaalalaa 2 11 197 70 95.049 197 2 Hakan Gudina 261 278 151 230 64.127 278 151
TMP in % Total Management Performance (TMP) 300.00 250.00 200.00 150.00 100.00 50.00 0.00 Avera 2011 2012 2013 ge SD Max Min Raree Horaa 32.00 35.00 30.00 32.33 2.52 35.00 30.00 Bishan Babile 9.00 52.00 2.00 21.00 27.07 52.00 2.00 Abdi Jalala 7.00 11.00 197.00 71.67 108.56 197.00 7.00 Hakan Gudina 261.00 278.00 151.00 230.00 68.94 278.00 151.00
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
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
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
The End Thank You Open for discussion Reta Wegary ISSD Oromia East e-mail: retawegaryg@gmail.com tel. : +251-911-957585 Programme on Integrated Seed Sector Development in Ethiopia www.issdethiopia.org