USAID Module 2: Rice Case Scene Setter
Download as DOCX, PDF0 likes712 views
Niana is a major producer, consumer, and importer of rice. The domestic rice market consists of a price-conscious segment consuming mainly local rice, and a quality-conscious segment consuming mostly imported long-grain white rice. Local production and milling is unable to meet demand due to low and inconsistent yields from smallholder farmers. Relationships between actors in the domestic value chain are characterized by mistrust, opportunism, and a lack of cooperation or knowledge sharing. In contrast, importers and distributors cooperate through established credit terms and information sharing to reliably supply the quality market segment. Overall, the rice sector suffers from low productivity, weak farmer organizations, and a value chain where actors primarily view each other with suspicion rather
USAID Module 2: Rice Case Scene Setter
- 1. The Rice Case of Niana Scene Setter 1. Introduction to Niana’s Rice Value Chain:Niana is the continent’s leading consumer of rice. It is simultaneously one of the largest producers and one of the largest importers of rice in the continent. Rice is consumed regularly in Niana’s urban and rural areas and is an important crop for the nation’s food security. The country consumes 5.5 million metric tons (MT) of rice per annum. Two (2) million MT are produced and consumed by rural farm households with some tradable surplus. The rice trade serves two markets: the price-conscious urban market, which consumes annually1 million MT of mainly domestically (60%) produced rice; and the quality-conscious urban market, which consumes annually 2.5 million MT of mainly imported long-grain white rice. Trends point to more rice consumption nationwide as Niana’s population grows and becomes increasingly urbanized. 2.Structure and Functioning of the Rice Market:(see Annex A below for the rice value chain map): The quality-conscious rice market segment is served by importers of white rice, and they dominate the market with a few local large-scale rice mills running a distant second. The price-conscious market segment is mainly served by local white rice traders, medium-scale rice millers and more recently by importers, as local mills cannot keep up with growing demand. These medium-scale rice mills have a capacity of up to 20,000 MT of rice per annum, but the actual quantities they mill and sell are much smaller (averaging 8,000 MT/annum) due toa shortage of supply from farmers. Many mills have set up outgrower schemes and provide farmers with inputs and cash with the expectation that they will increase yields to as much as 2.2MT/ha. Yet the outgrowers yield remains at about 1.5MT/ha on average—just enough to pay off their debt. There are between 20 and 30 mills in this category, and they produce only 10,000-20,000 MT per annum,a small percent of local demand. Importers see this market segment as an opportunity and have started to bring in a wider range of quality imported rice at lower prices to serve these price-conscious consumers. There are only two large local rice mills with the capacity, in theory, to satisfy the demand of the qualityconscious urban consumer of long-grain white rice. But these mills have trouble sourcing enough quality paddy—even with their own outgrower schemes—to keep their machinesrunning at acceptable levels of capacity. As a result, domestic producerscan provide only 80,000 to 100,000 MT/year of white rice, or a small percent supplied by importers for the largest and fastest-growing market segment. Imported white rice satisfies this market segment through importerswho bring in 200,000 MT or more per annum on a regular basis. This rice is most often packed in durable, branded bags in the country of origin (high-producing nations in other parts of the world).This segment is undergoing further segmentation into a series of different levels of quality and price in their respective product categories. These major distributors have well-developed systems for selling to wholesalers, though most of the sales take place inNiana’s large cities. 3. Inter-firm Relationships in the Rice Value Chain: The rice industry’svertical chain of relationships are not resulting in substantial upgrading even though there has been some investment by some largescale rice millersinto their smallholder outgrower schemes with commercial and small-scale emerging commercial paddy farmers. However, these investments are not organized around effective management strategies that build trust. For example, few upfront discussions are held on pricing, quality, farming practices or productivity benchmarks. There is almost no investment in or incentives for outgrowers to upgrade. Instead, when investments are made, they are relatively hands-off, such as providing inputs on credit as a means to pre-pay for the crop. The effectiveness of this strategy is defined by the consistently low level of additional paddy sold into these schemes. These schemes represent a small percentage of local production (less than6%). The majority of production moves through a series of highly contentious negotiations, where tactics revolve around taking advantage of any weakness of the other negotiator. For example, typical tactics by local paddy traders include providing credit for social reasons (when the farmer is desperate) to lock in crop. While this is a useful service for small-scale paddy farmers without access to transparent financing Module 2 Session 2: Rice Case Scene Setter 1
- 2. The Rice Case of Niana Scene Setter 1 services, their buyers (traders and millers) use this service to take exorbitant “rents,” or extra crop as payment equal to interest rates of around 100% or more. Another known trader tactic is to target farmers who are short of cashand take advantage of this weak position by offering farmers cash up front but at very low prices for their paddy.Traders and some millers compete for paddy and will pay higher prices to farmers already contracted and pre-financed by others. When they do cooperate it tends to be in the form of collusion to set prices in a given market. Small paddy farmers are known to put foreign matter at the bottom of the bag—ostensibly to cheat aggregators.Farmers are pushed by government and donors to form farmer based organizations(FBO) as a means to shift the power balance to the farmer. Typically, the main incentive driving FBOs is to serve as a conduit to receive subsidized services (including finance, fertilizer and seeds)or resources (governmentpurchased agriculture equipment, new or used and typically not suited to the needs of paddy farmers) as opposed to an organization run by the farmers to conduct commercial activities and generate revenues. Group cohesion tends to be weak,as farmers see the group as a convenient vehicle to receive subsidies individually rather than as a collective investment of their labor, resources, and management to grow their farms. As a result, mistrust between FBO members and their leaders is common, and most members prefer to buy their inputs or sell their produce individually. FBOs tend not cooperate on commercial activities like purchasing inputs or organizing joint sale of crop because this type of commercial cooperation is seen as inappropriate. Farmer groups established by buyers tend to operate differently because they are driven by commercial incentives. They are formed through group leaders(i.e. lead farmers) who are paid a commission by the paddy trader or rice miller to organize farmers and deliver paddy to selected mills. These groups do achieve economies of scale and their yields have tended to increase, but this is rare as traders and/or rice millers in general do not see the value in investing in organizing farmers. A similar type of cooperation comes from traditional labor-sharing networks where loosely related farmers share labor. These groups tend to improve the utilization of labor especially for land preparation, but they rarely move past this function. Niana rice suffers from very low rates of farmer upgrading. Learning from and trying to emulate the practices of better performing market actors is a hallmark of a well-functioning system, but better farmers are typically isolated in their community as opposed to being seen as a resource for other farmers to upgrade. As a result, adoption of new farming practices remains limited and is very slow. Small farmer investments in upgrading are also very limited even though spraying and tillage services do exist in most agricultural regions of Niana. It is not unusual for farmers to adopt a new practice when donor programs are active only to revert back to traditional practices when donor funds cease. Even in these cases competitive pressure seems not to affect sustainable adoption of improved farming practices. Small-scale paddy farmerstypically purchase agriculture inputs directly from paddy traders. As a result, traders will sell what they have available,which includes out of date or inappropriate products. Somelarge input supply firms have retail trading networks,but they offer very little in the way of services or knowledge with their product offerings. Large input supply firms use aggressive negotiation techniques, which are typical of inter-firms relationships up and down the rice value chain.All these relationshipsare short-term and opportunistic,characteristic of win-lose negotiation tactics. This reinforces a high degree of mistrust between value chain actors. The little information on agriculture in newspaper and on radio tends to focus on these traditional laments of mistrust. By contrast,relationships among actors in the rice import channel are characterized by a reasonably high level of trust and compliance. Importers distribute rice to wholesalers, often with minimum purchase quantities set by importers, creating incentives for wholesalers to expand their distribution networks. There is a continuous flow of information on changing prices and volumes required by the market. The level of trust among importers, distributors and retailers is strong,as indicated by the fact that 95% of 1 Bank finance for paddy farmers is rare. Module 2 Session 2: Rice Case Scene Setter 2
- 3. The Rice Case of Niana Scene Setter transactions among these actors are based on credit. Importers also have regular promotional activities and incentives (e.g., provision of delivery trucks) for their distributors. Competing importers acknowledge each other and exhibit some cooperation by working jointly to reduce or limit import duties, but otherwise they do not cooperate. They are competitors and operate independently from each other, but competitive pressure does not lead to substantial upgrades or innovation. Module 2 Session 2: Rice Case Scene Setter 3
- 4. The Rice Case of Niana Scene Setter Module 2 Session 2: Rice Case Scene Setter 4