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
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
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)
11/13/2014
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: [email protected]
tel. : +251-911-957585
Thank You The End
Open for discussion