Agricultural Finance

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Agricultural Finance

• Reaching Smallholders, Raising Production

Timothy Prewitt Managing Director, USAID MARKETS
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Agricultural Finance
African Agricultural Finance Market
Fundamentals Raising Smallholder Yields Nigerian
Rice Identifying Bankable Opportunities
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The World Food Price Crisis
Source IFPRI, based on FAO data.
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Increasing Complexity of Contributing Factors
Commodity Prices

• 1996 1998 2000 2002
  2004 2006 2007 2008

Strong growth in demand, based on
Increasing population Rapid economic
growth Rising per capita meat consumption
Slowing growth in agricultural production
Declining stocks of food commodities
Escalating crude oil price
Rapid expansion biofuels production
Dollar devaluation
Large foreign exchange reserves
Rising farm production costs
Demand factors in brown
Adverse weather
Supply factors in green
Aggressive purchases by importers
Source Ronald Trostle, ERS-USDA, WRS-0801, July
2008
Exporter policies
Importer policies
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Source USDA Agricultural Baseline Projections to
2017
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Grain Yields Around the World
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Urban consumers prefer long grain, polished and
destoned imported rice over local varieties.
Nigeria consumes more than 5 million tons of rice
annually, at least 2 million imported. How can
Nigeria produce import-quality rice?
MARKETS Rice Strategy
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Our Partner, Olam Nigeria Limited, operates this
36,000 MT rice processing mill in Benue State.
But to produce high quality rice, the mill needs
high quality paddy.
If traditionally grown rice paddy is fed into
this mill, the quality will not meet import
standards
Resources Leveraged
Olam Nigeria Limited mill upgrades 5.0
million Commercial Credit for Smallholders 4.2
million
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To produce quality paddy, farmers need good seed
and fertilizer plus training. This MARKETS
demonstration and training site is one of 20 in
Benue State.
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Partners Rice Processing in Benue
Farmer Cooperatives First Bank of
Nigeria Nigerian Agricultural Insurance
Corporation ADP / Benue State Government Olam
Nigeria Limited
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Case Study Rice Processing in Benue
Olams Mamas Pride is the first rice grown in
Nigeria to effectively compete with imported rice
on both price and quality.
When farmers are linked to a commercial buyer
like Olam, and they use improved farming
techniques, yields increase.
See the Data
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Nigeria
Benue MARKETS
Average of Other ECOWAS
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Increasing Raw Material Supply
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Building a Competitive Cassava IndustryMarket
Map Cassava

• While there are many uses for commercially
  processed cassava, the majority of processors
  want fresh cassava. Chips appear an attractive
  solution to transport challenges, but the market
  size and price penalty relative to fresh make it
  currently unattractive on a large scale

Producers
Processors
Buyers
On Farm / Rural Processing to Chips
Ethanol Production
Animal Feed
Ruminants, Poultry, Aquaculture
Flour Milling
Fresh Cassava
Commercial FB(Baking, Brewing, Pharma)
Glucose
Starch Production
Industrial(Textiles, Oil Gas)
Focus of MARKETS Cassava investment promotion
research
Existing Commercial Scale Activities
Fresh Food Processing
Traditional Food(Gari / Fufu / etc.)
Traditional Cottage Industries
Potential New Opportunities to Explore
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Building a Competitive Cassava IndustryProduction
Cost to Produce Fresh Cassava

• Access to finance is a critical factor in
  supporting farmers ability to engage in improved
  activities.

Labor
Inputs
Average Yield / Hectare 10 20 30
Production Cost / Ton N 5,506 N 5,500 N 3,023
Farmer Income / Hectare N 65,000 N 130,000 N 195,000
Farmer Profit / Ha N 9,938 N 20,000 N 104,295
NOTE Ongoing stem costs should drop to zero
unless a different varietal is selected.
Harvesting is labor only for LIT and HIT
production and are calculated based on yield per
hectare Estate harvesting is combination tractor
and labor and is calculated on area only.
Assumes selling price of N6,500 / MT. SOURCE
Producer and processor interviews MARKETS
production cost model
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Building a Competitive Cassava Value
ChainProcessing Consistency of High Volume
Supply is Critical

• Processors in general are carrying very high
  fixed costs. Therefore, volume is critical as
  the more product that is produced, the less those
  fixed costs impact the final unit price.

Commercial processors of Cassava need consistent
volumes to be profitable. Losses incurred due
to limited supply must be recovered when cassava
is available. Supply variability limits
commercial buyers ability to pay higher prices
Generating Profits
At 6,500 Naira / Ton, This processor would need
almost 900 Tons / month to break even
Operating at a Loss
NOTE This data represents a hypothetical
cassava processing company (CassProCo). The
factory has a value of 750MM Naira, of which
150MM is bank financed at 16 interest over a 7
year term. The remaining 600MM is from investors
who expect a 5 annual return. The assets of the
factory are depreciating over a 10 year period.
The plant carries 875K Naira / month in fixed
labor costs and 139K Naira / month in fixed
energy costs. The plant operates in 8 hour
shifts and can process 30 Tons of Cassava per
shift. The plant only operates when it has the
required volume of cassava to run for a full
shift. The plant can operate up to 2 shifts per
day, 20 days per month. Variable costs per shift
to process the cassava are 36K Naira per shift
for manual labor, fuel, and specialized inputs.
The finished output of the plant is 20 of
cassava input (by weight) and sells for 110K
Naira / MT. This model assumes complete market
uptake of finished product at all volumes
produced. SOURCE Processor interviews MARKETS
Cassava Production Model
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