Programme on Integrated Seed Sector Development in Ethiopia

Profitability Analysis of Smallholder Farmers’ Seed

business

Reta Wegary Agribusiness Innovator East Oromia Unit ISSD Ethiopia 7 November 2014, Haramaya

• Introduction

• Concept of ISSD program

• Profitability of smallholders’ seed business

• Seed value addition and seasonality in seed

production

• Performance of SPCs

• Conclusions and Recommendations

Outline of the presentation

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 Sector Component

ISSD Ethiopia Components

Enabling and evolving policies

Seed companies

Private seed producers

LSB Consolidation

LSB Scaling up

Support Service Components

Research and studies

Partnerships and innovation

Sharing experiences and

lessons learnt

Capacity development

•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

ISSD PROGRAM

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Profitability of smallholders’ seed business

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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

Ethiopi

a

East Oromia

Region

Study area

• Sampling Design: Purposive sampling followed by random sampling technique was employed

RESEARCH METHODOLOGY

Sampling Procedures

Seed Producers Cooperative (SPCs)

Wheat producers (SPCs)

Groundnut producers (SPCs)

Potato producers (SPCs)

F

SPCs in L1 (E-1)

SPCs in L2 (W-1)

SPCs in L1 (E-1)

SPCs in L2 (W-1)

SPCs in L1 (E-1)

SPCs in L2 (W-0)

M

F

M

F

M F

M

F

M F

M

X+Y+Z+T+W+S (150)

Z W S X T Y

Pu

rpo

sive and

Ran

do

m Sam

plin

g Pro

ced

ure

random sampling

probability proportional

to size

Sex based strata

Location based Strata & simple random

Purposive

Crop based Stratify

Methodology (Cont’d)

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Sources and methods of data collection and Analysis

• The data was collected from primary and secondary sources

• Descriptive statistics and inferential statistics were used to analysis the data

Methodology (Cont’d)

Econometric model

CostVaraiableincomeGrossinMGross arg

Investment

turnROI

Re

CI

RROC

TCC

RROCC

Net Income = TR – (TVC + TFC)

•A combination of profitability analysis tools such as GMA, ROI, ROC, ROCC were used

• 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

Result and Discussion

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

Chiro Haramaya

Potato

Seed

Ware

Potato

Potato

Seed

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%

• 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

Profitability of potato production

Proportion of production costs for groundnut

Input cost 18%

Labor cost 62%

Fixed and

other costs 20%

Groundnut grain

Input 26%

Labor cost 56%

Fixed

and

other

costs

18%

Groundnut seed

Profitability of Groundnut production

Item Seed Grain

Gross

income 26,686 15,904

Gross Cost

Variable cost 12,793 9,953

Fixed Cost 2,229 2,185

Total Cost 15,023 12,138

Gross

Margin 13,893 5,951

Net income 11,578 3,681

78%

183%

489%

31%

133%

502%

0%

100%

200%

300%

400%

500%

600%

ROI ROC ROCC

Seed Grain

Cost build-up in Wheat production

67% 68.5% 64.0% 53.0%

18% 14.4% 20.0% 29.0%

15.0% 17.1% 16.0% 18.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

Wheat seed Wheat grain Wheat seed Wheat grain

Chiro Kersa

Labor cost Input cost Othar costs

Profitability of Wheat production

Item

Chiro Kersa

Wheat

Seed

Wheat

Grain

Wheat

Seed

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%

• 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

Wheat and groundnut profitability

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

Seasonality analysis

9%

13%

18%

34%

4%

8%

14%

27%

0%

5%

10%

15%

20%

25%

30%

35%

40%

At harvest SPCs status Average price peak period

Ret

urn

on

In

ves

tmen

t

Seasonal variation

Potato Seed Tuber Seasonality Analysis

Value added seed Row seed

Seasonality analysis

14%

17%

43% 46%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

At harves SPC profit statuce At verage price peak off-period

Ret

urn

on

inve

stm

en

t

Groundnut Seed profit Seasonality Analysis

ROI of value addeed seed ROI of row seecd

Seasonality analysis

0%

5%

10%

15%

20%

25%

30%

35%

At harvest Average price SPCs status pick off-period

Ret

urn

on

In

ves

tmen

t

Wheat Seed Seasonality Analysis

Value addeed seed Row seecd

• 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

Seasonality analysis

Challenges of Seed Business

Seed production 2%

Marketing

33%

Land

26%

Finance

17%

Basic seed

11%

Seed processing

11%

Financial and Operational Performance of SPCs

Methodology •TMP, ROA, ROE and NPM were used to analysis the financial and optional performance of SPC

WorthNet

ofitNetTMP

Pr

assettotalAverage

IncomeNetROA

EquitysstocholderAverage

IncomeNetROE

saleNet

tGrossprofiNPM

Performance of SPCs Return on assets (ROA)

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

0

10

20

30

40

50

60

70

80

90

100

RO

A %

Performance of SPCs Return on Equity (ROE)

2011 2012 2013Avera

geSD 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

0

50

100

150

200

250

300R

OE

per

cen

tag

e

• Total Management Performance (TMP)

2011 2012 2013Avera

geSD 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

0.00

50.00

100.00

150.00

200.00

250.00

300.00

TM

P

in %

• 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

Performance of SPCs

• 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

Summary, conclusion and Recommendation

Programme on Integrated Seed Sector Development in Ethiopia

www.issdethiopia.org

Reta Wegary

ISSD Oromia East

e-mail: retawegaryg@gmail.com

tel. : +251-911-957585

Thank You The End

Open for discussion