Towards a Commercial Model: The Kenya Maize Farmers Perspective

Andrea Woolverton, Ph.D. Food and Agriculture Organization of the UN

Regional workshops Towards an Integrated Policy Approach to Smallholder Coordination Nairobi, Kenya June 6, 2012

Presentation Objectives
Project Background: Agricultural Transformation and Commercialization Discuss our preliminary research findings. The question of the day: How can these findings be used to create policy options that can be put into action incorporating linked issues?

Agricultural Transformation

Simple, yet so complicated.

The focus has largely been on production

Less on.

Fluctuations are found in maize availability and price during the year--- a boom and bust cycle.

 Small producers (<3 acres) produce the majority of Kenyas maize. If transitioning small maize producers into commercial production is the objective, then need to better understand farmers decision-making. We know that small maize farmers in Kenya have different levels of wealth and productivity (Kirimi et
al, 2011). We dont understand the differences across smallholder attitudes toward farming and commercialization.

The Project: Smallholders Perspective in Smallholder Transition

A Commercial Farming Model for Tomorrow: The Farmers Perspective of Maize as a Business
Surrounding agri-industry environment
Accessible price information Enabling, enforceable laws Responsive credit industry Quality and trading standards Agribusiness service providers Risk management instruments

Producer objective: As an agribusiness, my objective is to maximize my household income relative to my costs.

savings and loans, I invest in crop production
Using I incorporate
I

I make planting decisions by

because I think the return will be greater than the cost.

estimating expected returns and costs.

effective production practices into I manage for the highest output.

my crop management.

risk management strategies

I reduce price-risk through

by separating my food stocks from selling stocks.

plan for selling

according to market specifications.

manage my harvested maize quality

buyer who offers the best arrangement

for me.

I sell to the

I capture seasonal value

through storage.

I calculate my returns at the end of the season.

The cycle continues from season to season.

Source: Woolverton, 2012.

A Commercial Farming Model for Tomorrow: The Farmers Perspective of Maize as a Business
Surrounding agri-industry environment
Accessible price information Enabling, enforceable laws Responsive credit industry Quality and trading standards Agribusiness service providers Risk management instruments

Producer objective: As an agribusiness, my objective is to maximize my household income relative to my costs.

savings and loans, I invest in crop production
Using I incorporate
I

I make planting decisions by

because I think the return will be greater than the cost.

estimating expected returns and costs.

effective production practices into I manage for the highest output.

my crop management.

risk management strategies

I reduce price-risk through

by separating my food stocks from selling stocks.

plan for selling

according to market specifications.

manage my harvested maize quality

buyer who offers the best arrangement

for me.

I sell to the

I capture seasonal value

through storage.

I calculate my returns at the end of the season.

The cycle continues from season to season.

Source: Woolverton, 2012.

A Commercial Farming Model

Surrounding agri-industry environment
Accessible price information Enabling, enforceable laws Responsive credit industry Quality and trading standards Agribusiness service providers Risk management instruments

Producer objective: As an agribusiness, my objective is to maximize my household income relative to my costs.

savings and loans, I invest in crop production
Using I incorporate
I

I make planting decisions by

because I think the return will be greater than the cost.

estimating expected returns and costs.

effective production practices into I manage for the highest output.

my crop management.

risk management strategies

I reduce price-risk through

by separating my food stocks from selling stocks.

plan for selling

according to market specifications.

manage my harvested maize quality

buyer who offers the best arrangement

for me.

I sell to the

I capture seasonal value

through storage.

I calculate my returns at the end of the season.

The cycle continues from season to season.

Source: Woolverton, 2012.

Maize Producers in Transition

Who is the maize farmer? Does producers WANT to stay in agriculture? Commercialization Benchmarking Attitudes and Objectives Planning: Estimating Costs and Returns Planning: Selling vs. Keeping Maize Quality Management Marketing: Choosing a Buyer Marketing: Temporal Arbitrage (seasonal)

Method: 500 producer survey in Bungoma and Meru (June-August 2011)--supplemented by producer focus groups

Sample
Bungoma (n=273) Age Education Gender Married Land size Dist to mkt/ext office Household members Diversification Wealth Index Own cell phone MARKETING Maize Harvested Sales/Purchases Avg Prices/KG 1264 KG (14 bags) Sold 36%/Purchased 11% Sold 28 Ksh/Purchased 46 Ksh 1127 KG (12 bags) Sold 51%/Purchased 15% Sold 26 Ksh/Purchased 27 Ksh 46 9 years 48%F/52%M 86% 3.4 acres (2.2 maize) 7 km mkt/6.5 km ext 7.6 members 5.5 crops 1.18 77 % yes/ 23% no Meru (n=227) 45 7 years 38%F/62%M 71% 2.1 acres (1.8 maize) 20 km mkt/13 km ext 5.4 members 4 crops 0.66 60% yes/40% no

Who is the maize farmer?

Who makes these decisions? Crop mix for the season When to plant and harvest When to use fertilizer and qty To sell or store harvest Who to sell to and price Female Decision-makers 90% self/10% otherwise 95% self/5% otherwise 80 % self/20% otherwise 72 % self/28% otherwise 52% self/48% otherwise Male Decision-makers 90% self/10% otherwise 88% self/10% otherwise 92% self/8% otherwise 83% self/17% otherwise 80% self/20% otherwise

The farmer is a partnership---communication is key for commercialization.

Part 1: Outlook for Agriculture

Bungoma 5 year plan? Meru 88% across sample would like to be more engaged in agriculture. Hybrid maize (30%), beans, kale, tomatoes

Crop to provide opportunity for youth?

Grant of 50K What would you invest in?

82% Agriculture

86% Agriculture

Rent land for maize (42%), rent land for other crops (14%), Purchase tools (9%), Hire labor (8%), Buy seed/fert (7%), Invest in agriculture training (2%), other (18%) Business

Aside from agriculture?

Objectives and Attitudes

Bungoma (n=273) Why do you grow maize? Do you prefer to grow or buy maize for your household consumption? Is the maize available for purchase higher, lower or same quality? Meru (n=227) Mean Food (90%), Immediately for cash and school fees (10%) Yes 96%/ NO 4% Lower (93%), Same 6%, Higher (1%)

Most small maize farmers do not see maize as an income generator--the food incentive appears to outweigh the income incentive at this stage.

Objectives and Attitudes

Bungoma (n=273) Farming is a real business.* I view myself as a commercial maize farmer.* If I sell all my maize at harvest, there will be enough to purchase later. Storing my maize for 2 months after harvest would allow me to sell my maize at a higher price. The security of working for someone else outweighs running my own business. 97% 21% 17.2% Meru (n=227) 95% 22% 16.8% Mean (Strongly agree/agree)

91%

95%

3.7%

7%

*The more farmers agree, the more likely they are to have higher wealth and income.

Planning: Costs and Returns/Selling vs. Keeping

Bungoma At planting, I expect to receive a certain price upon selling. I check prices in town before selling at farm gate. I know the current price in the Chwele/Meru Town market?

Meru 50 % Yes/50% NO 89% Yes/11% NO 46% Yes/54% NO

51% Yes/ 49% NO 91% Yes/9% NO 34% Yes/66% NO

At harvest, I plan for how much to sell and how much to keep to eat: 57% Of those that are planning, 50% keep some 22% no surplus 26% keep what is left after cash requirements 2% keeps per household member 34% NO/ 66% Yes----(Why not? Consumed more than expected; had to sell for cash)

Did the amount of food kept for food last from long rains until short rains?

Planning: Costs and Returns/Selling vs. Keeping

Maize as a business (namely: planning) is a new concept
We dont think about next season Plant and fertilize what they can afford Often sell at farm-gate without checking prices Some trying to plan for familys maize needs

Maize Quality Management

We asked farmers if they believe maize quality management could impact price received: color, broken kernels, foreign material, moisture. Most farmers say yes regarding price impact, but managing moisture was the most common activity actually engaged in. There was a wide range in the acceptable levels. (40%) Between 10-20%, (22%) 3%, (15%) Dont know.

Marketing: Buyer Choice

Do you sell to the buyer you prefer?
Anywhere from 30%-80% are selling to buyers they prefer.
Selling outlet Farm gate trader Local rural assembler/broker Large local trader (lorry) Large distant trader (100%) NCPB (least % preferred) Small (posho) miller Nearby town market Direct consumer School Cereal bank Large miller Agro dealer Western Female Male 11.5 9.9 19.7 19.8 9.8 6.6 0.0 2.2 0.0 1.1 3.3 3.3 9.8 13.2 31.1 24.2 14.8 18.7 0.0 0.0 0.0 1.1 Eastern Female Male 4.3 2.8 32.6 39.8 15.2 8.3 2.2 0.0 6.5 0.9 0.0 0.9 28.3 33.3 6.5 6.5 0.0 1.9 4.3 3.7 1.9 0.0

Marketing: Buyer Choice

Why do you trust this buyer ?
Price is not the only reason. Accurate measurement and prompt payments are competing issues.
Reason for trusting the outlet Can negotiate prices Measures my maize accurately Offers me a good market price I can contact this buyer after harvest Pays me promptly Does not disappear with money Buy in large quantities Knows him personally Picks at the farm gate Offers me credit Western Female Male 13.7 8.9 16.2 21.1 16.2 24.0 9.1 7.7 26.9 20.7 10.2 6.5 2.0 5.3 2.0 1.2 3.6 3.7 0.0 0.8 Eastern Male Female 5.6 6.1 19.9 19.0 24.8 24.0 8.7 10.3 29.2 29.3 6.8 6.1 2.5 3.4 1.9 1.5 0.6 0.4

Marketing: Seasonal Arbitrage

Storage Options
76% store at home
Why? 30% Not enough maize for storage requirements 24% Lack of information about storage 18% Fear of theft 10% No facility 10% Fees are too expensive 3% Too far away

Marketing: Seasonal Arbitrage Constraints

Factor preventing longer storage My storage is susceptible to pest infestation My storage is susceptible to theft My storage is susceptible to mould or aflatoxin I have to pay school fees I have to pay immediate cash needs Did not harvest enough to store Consumed all stored maize 1 14.3 0.0 3.6 17.9 53.6 10.7 0.0 Percents within Length of storage (months) 2 3 4 5 6 7 8 9 8.6 12.4 18.4 31.6 45.8 25 50 0 0.0 0.0 2.6 0.0 0.0 0 0 0 0.0 11.4 5.3 5.3 4.2 0 0 0 19.0 11.4 15.8 15.8 20.8 0 25 100 43.1 44.8 42.1 36.8 29.2 25 25 0 22.4 14.3 10.5 10.5 0.0 25 0 0 6.9 5.7 5.3 0.0 0.0 25 0 0 10 0 0 0 50 50 0 0

Majority believe storing for 3-4 months post-harvest would bring better price, yet we find that few are doing able to do this.

Challenges to commercialization: Farmers Perceived Constraints (vs. ?)

Access to Fertilizer/chemical inputs Access to high quality seeds Access to credit for agricultural inputs Access to credit for school fees Access to land for agricultural production Access to water/irrigation Access to transportation Ability to store maize Access to hired labor Access to production training Access to family labor Access to marketing training Access to child care

Western 1.36 1.63 2.07 2.15 2.15 2.18 2.21 2.21 2.24 2.31 2.49 2.49 2.57

Eastern 1.18 1.31 2.07 2.09 1.94 1.41 1.75 2.09 2.16 2.33 2.38 2.47 2.63

Scale: 1=Serious Challenge..3=Not a challenge; Note: 50% had never heard of AFC

Breaking the poverty cycle Historically, farmers have not transitioned alone in any part of the world.

Policy recommendations for an Enabling Market Environment Extension Inputs Training are not new and they remain critical to build a strong private maize sector, including smallholders. Yet, they are often general and difficult to implement.

In the next few days, how can you design recommendations that can be implemented? Which area is the most important focus right now?

Thank you. Feel free to contact at andrea.woolverton@fao.org