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A. Sikpa
Managing Director, Agrotrade Limited
Abstract
Financing agricultural trade: the Agrotrade approach
The work of Agrotrade Ltd in pre-financing cotton farmers in Ghana is described. The company sets up outgrower schemes and provides land preparation, storage and supply of inputs together with technical and marketing advice to farmers.
Agrotrade guarantees to buy the farmer's crop at the current producer price. The farmer repays the prefinancing when his produce is sold to the company.
As an additional incentive, at least one food crop is also financed.
Résumé
Financement du commerce agricole: la méthode Agrotrade
Description des activités d'Agrotrade Ltd pour pré-financer les cultivateurs qui produisent du coton au Ghana. La société établit des plans de cultures détachées et fournit une préparation du terrain, le stockage et les intrants, ainsi que des conseils techniques et de commercialisation aux producteurs.
Agrotrade garantit d'acheter les récoltes au prix au producteur courant. Le cultivateur rembourse le prefinancement lorsque sa production est vendue a la société.
A titre d'encouragement additionnel, au moins une culture vivrière est également financée.
BACKGROUND
Bounded on the east by the Republic of Togo, by Côte d'lvoire on the west, on the north by Burkina Faso and by the Atlantic Ocean to the south (Figure 1), Ghana occupies an area of about 239,460 square kilometres, and has a population of about sixteen million.
Two-thirds of the country's land area is suitable for cultivation and nearly 70% of the adult population are involved in farming. In the plains of the Northern Region cereal crops like millet and corn, sorghum, yams, cowpeas and peanuts are produced. The more humid valleys of the north support rice, sweet potatoes, tomatoes, and eggplant.
The coastal plains, which are often arid, are generally given over to the cultivation of drought-resistant strains of corn and cassava (manioc). With irrigation, the dry but fertile soil of these regions would be capable of sustaining many other types of crops. The forest regions sustain cash crops such as kola, palm, cocoa and coffee. Some of these crops have been cultivated since the 1800s and formed the basis of a North-South trade, and later, trade with Europeans. Sugar cane, tobacco and cotton have been grown in commercial quantities when markets are available.
Though cocoa has been a principal export and source of foreign exchange, in recent years the government has attached a great deal of importance to other types of agricultural produce. These contribute to the reduction of the food import bill and also represent a potential source of foreign exchange. For example, corn production has increased from 173,000 tonnes in 1975 to 715,000 tonnes in 1989. Also in 1989 one farmer exported a record-breaking 2,187 tonnes of pineapple which represented 27.3% of Ghana's export tonnage of pineapple. Similar encouraging performances have been recorded in banana, cotton seed, rubber tree sap, ginger, and palm oil production.
FlNANCE
Most of the achievements recorded above could not have been realized without support, both financial and technical, to the Ghanaian farmer. A great deal of financial support was received from the World Bank for cocoa farmers through the Ghana Cocoa Board, from the European Economic Community to the Horticulturist Association, (which includes the pineapple farmers) and other groups such as the Sasakawa Global 2000 to maize growers.
Most other crops which are cultivated by peasant farmers have been without financial support. The commercial banks have helped in the past and some farmers have failed to honour their obligations, but of late high interest rates have prevented most farmers from applying to the commercial banks for loans to support their operations.
Figure 1 Map of Ghana, showing national and regional borders
THE AGROTRADE APPROACH TO FINANCING AGRICULTURAL TRADE
Agrotrade Ltd is a wholly Ghanaian-owned company which began trading in 1990. It is engaged in the import and export of agricultural produce and products. Since its inception rice, soyameal, fishmeal and yellow maize for the poultry industry have been imported. Palm kernel cake, cotton seeds, sheanuts and coffee have been exported and, in the near future, cocoa and cashew nuts. In order to secure a regular supply of export commodities to satisfy increasing demand, the company had to engage in some form of prefinancing. This included pre-financing some farmers cropping cotton in order to obtain a regular supply of cotton seed, with the additional incentive to the farmer of prefinancing at least one food crop. With this additional help the farmer was assured of some of his food needs, and left him enough time to undertake cotton cropping.
ORGANIZATION
Agrotrade operates with farmers in the Upper West Region. This is because of easy access to land suitable for cotton cultivation, and to a ready supply of farmers who already possess some knowledge of cotton cultivation. During 1992/1993 774 peasant farmers/families cultivating nearly 450 hectares of cotton and 200 hectares of cowpeas in 21 villages in the Upper West Region were involved.
The field operation is headed by a project manager, a qualified agriculturist with a background in cotton cultivation. He is resident in Wa, the capital of the Upper West Region. He has a team of field assistants who are trained extension officers working with him who are indigenous to the areas under their control. They are backed by tractor operators, drivers and secretarial staff. In all, a staff of ten who deal directly with the farmers is employed. This will increase as the project expands.
A year's operation begins by the identification and registration of prospective farmers in a particular village or location. Agrotrade surveys and maps out a target tract of land which is demarcated into units of 1.25 acres or 0.5 hectare. Each registered farmer or family takes over and clears a unit manually. Agrotrade then ploughs the whole land either by tractor or by bullocks.
The identification and registration is done by personal visits from Agrotrade's staff. The farmers in each village are encouraged to form a society with an elected chairman and a secretary. These leaders not only act as spokesmen in dealing with Agrotrade, but also exert group pressure on the members to ensure compliance with the rules and objectives of the society and the exercise. Last year, for example, there were twenty-one societies with a membership varying from 5 to 175.
The societies are then zoned on the basis of location, and a technical officer who lives in the zone is attached to each zone. This is to ensure better communication and interaction with the individual farmers, and also to cut down on operational expenses to the company. It also eliminates absenteeism on the part of the technical officers.
The company provides the technical assistant with the necessary logistics to make him easily accessible to the various farmers in his zone. A bonus scheme for the technical staff has been instituted based on yield per unit. This encourages them to discharge their duties efficiently and effectively.
Agrotrade takes care that the technical officers are not allocated so many farmers that they are ineffective in providing technical advice to the farmers. Each technical officer operates within a 15 kilometre radius, and does not supervise more than 250 units.
With the land cleared, the farmer registered and a technical officer in place, Agrotrade procures seeds, fertilizer and agro-chemicals and makes these available to the farmers through the technical officer. The technical officer then ensures that the right sowing distances are kept, and fertilizer and agrochemicals are applied at the right time and in the right quantities.
Although Agrotrade provides the farmer with tractor services for ploughing, seeds, fertilizers and agro-chemicals, the unit does not belong to Agrotrade: it is the property of the farmer. Agrotrade only provides the necessary prefinancing by way of inputs and technical advice, and more importantly, a ready market for the produce. This is what is referred to as the out-growers scheme.
THE ROLE OF AGROTRADE LTD
Agrotrade provides pre-financing to the farmers as follows:
Storage and supply of essential inputs Improved and tested seeds, appropriate compound fertilizer and insecticide, and spraying machines are procured, stored and supplied to the farmers' doorstep at no extra cost.
Technical advice
Technical know-how and current techniques are made available to farmers, as well as assistance in land demarcation, selection of good seeds and fertilizer and agrochemicals application.
Technical services
Agrotrade provides a complete tractor service, using either its own tractors, hired tractors or bullocks. Ploughs and accessories are provided in areas where bullocks are used, as well as transport for distributing inputs to the various societies using Agrotrade's vehicles and tractors.
Marketing services
Post-harvest storage, handling, trucking to marketing centres and actual marketing of produce can be expensive for most cash crop farmers in Ghana who produce, for example, tomato, cassava, plantain, cotton and coffee. Agrotrade provides the farmer with marketing inputs such as weighing scales for the marketing of the crop, and buys all the produce from affiliated farmers at the current producer price which is reviewed annually; post-harvest losses and storage expenses are therefore reduced, if not eliminated.
The farmer is paid at the agreed price, which takes into account the cost of pre-financing. Thus the farmer repays the pre-financing when his produce is sold to the company.
Agrotrade has an incentive scheme for higher yields per unit, and the farmer is therefore encouraged to practice better farm husbandry. The company receives a better return on its investment.
BENEFITS DERIVED BY THE FARMER FROM PRE-FINANCING
The farmer is assured of financing for inputs without the need to borrow money in the open market at current high rates of interest; the need to provide collateral in the form of properties is removed.
The problems associated with the procurement of inputs such as sourcing, arranging payment and transportation are removed from the farmer, thus giving him time to take care of his farm and other needs. He receives the necessary inputs at no extra cost and is assured of a timely delivery to his doorstep. Post-harvest problems of handling, cleaning, storage and trucking to market centres, and the sourcing of markets for the produce are undertaken by
Agrotrade Ltd. A ready cash payment for the produce is guaranteed. Perhaps this is the biggest attraction of the system to the farmer.
The group farming or out-grower system approach facilitates the sharing of common services such as tractors, bullocks, ploughs, spraying machines, technical advice and other services which would otherwise be too expensive for most peasant farmers to procure. Additionally, it helps reduce or eliminate fraud, as group pressure is brought to bear on members.
This approach makes it easier for Agrotrade Ltd to identify groups for any special assistance such as provision of potable water, schools, etc.
It also allows technology transfer. The farmers acquire new knowledge of crop cultivation through extension provided by the technical assistants.
The farmer's lot is improved, as he is able to acquire, for example, bicycles, or cement for construction, which can be procured for him by Agrotrade Ltd and sold to him at cost price.
APPLICABILITY OF ESSENTIAL INPUTS FINANCING TO GRAINS
Agrotrade has effectively applied the essential inputs financing method in soyabean and cowpea production in the Upper West Region of Ghana; from this experience it is believed that the approach can be applied to a major grain crop such as maize, if certain facilities are in place, and its use is restricted.
RESTRICTION AND ADAPTATION
Application of this method will need to be limited to areas where maize is grown more as a cash crop than as a staple food, in order to avoid fraud, or an effective produce-sharing method will need to be devised in order to guarantee the farmer a share of the produce for food, with the rest going to the financing company to offset the cost of prefinancing. It is possible for this to happen in the middle corn belt of Ghana where maize production is far in excess of the food needs of the local maize producers.
LAND
Land will need to be made readily available to farmers interested in taking part in such a scheme, otherwise land acquisition problems could affect the success of the project. In the Upper West Region of Ghana, land does not have to be purchased before it is used for growing cotton, but this may not be the case in the corn belt where maize is grown.
FARMER IDENTIFICATION
The authorities should assist the would-be investor in identifying reliable and trustworthy farmers with the requisite knowledge of the cultivation of the crop.
DRYING
Drying is essential in bulk grain handling to ensure longer storage life. It has been suggested that drying facilities should be provided near all large maize-producing areas, just as there are ginneries near all major cotton-growing areas. This could be provided by the input financiers, as in the case of cotton, or by individual companies or agencies and owners of warehouses.
STORAGE AND WAREHOUSE FACILITIES
Warehousing may be grouped into two areas:
pre-harvest warehousing; and
post-harvest warehousing.
Pre-harvest warehousing is required to store all major inputs such as seed maize, fertilizer, insecticides and machinery, etc. Such a warehouse could be owned by the input financier. This warehousing need not be large and should be sited near the farmers' farms.
Post-harvest warehousing is required to store the dried maize. This could be owned by the input financier, or by a warehousing company, or jointly. It is important to site it in a major marketing town within the maize production area where there are good road networks to facilitate bulk transport, often by articulated trucks, to consumption centres.
With these conditions prevailing, together with government allowing some tax relief to companies involved in the input inventory financing for the first few years, and with a liberalized market, many companies, including Agrotrade would be encouraged to participate in such a venture.
CONCLUSION
Agrotrade's experience in financing agricultural trade and how this approach can be applied to grains such as maize has been outlined with the hope it will be adaptable to various individual situations.
C. R. Watson and P. R. Watson
Igrox Limited
Abstract
Privatization of post-harvest pest control in developing countries
Privatization can affect standards of post-harvest pest control. Liberalization together with technical training is not sufficient to protect the producer and consumer from shoddy work.
The amount of capital and level of expertise needed to set up and run a pest control company are not high. Technical and business training is necessary, but most important is government legislation to regulate the industry.
Examples of fumigations in the UK and Mozambique are used to indicate the problems that can occur in the absence of proper legislation.
Résumé
Privatisation de la lutte contre les ennemis post-recolte dans les pays en développement
La privatisation peut affecter les normes de lutte contre les ennemis post-récolte. La libéralisation, jointe a une formation technique, ne suffit pas pour protéger le producteur et le consommateur d'un travail saboté.
Le montant des capitaux et le niveau des expertises nécessaires pour instituer et gérer une société de lutte contre les ennemis ne vent pas très élevés. La formation technique et commerciale est nécessaire mats, ce qui est le plus important, c'est la législation du gouvernement pour réguler l'industrie.
Des exemples de fumigations au Royaume Uni et au Mozambique servent 3 indiquer les problèmes qui peuvent se poser en l'absence d'une législation adéquate.
BACKGROUND
As part of the continuing effort to draw back the boundaries of the state in the developing world, marketing boards and state co-operatives no longer monopolize the grain market and supporting services. This process has begun to affect the market for agricultural services such as pest control and fumigation. In this paper, how privatization can affect the standards of post-harvest pest control will be discussed. It is postulated that liberalization of the market in conjunction with technical training is not sufficient to safeguard standards (and may cause them to decline) and so the producer and consumer will fail to be protected from losses caused by infestation.
Post-harvest pest control is concerned with the protection of harvested food along all stages of the food chain. Initially, the objective is to prevent losses in the quality and quantity of the food during transport and storage, while at the later stages it is to ensure that the processing and distribution are both safe and hygienic. The other, perhaps even more vital area of post-harvest pest control is the elimination of quarantine pests. These objectives cannot be assured by technical training alone. The dictates of the market mean that a high standard of work will be carried out only when the consumer demands it, not because it is a desirable goal in itself.
The development of pest control services in the UK provides an illustration of this. During the 1950s pest control in the UK was primitive. Most of the work was carried out by the public sector. The private sector was small and the level of technical ability and customer awareness was low. By the 1970s the awareness and demands of the UK food producers and consumers had increased; therefore the private sector expanded. The standard of service was highly variable, because the choice of operator was governed only by price, not value for money. As a result, many of the treatments were only partially effective at best. The introduction of legal minimum standards, such as those contained in the Food and Environmental Protection Act 1985 (FEPA) and the Food Safety Act 1990, have changed this situation. The clink of spurs is no longer a common sound in the pest control business of the UK. Food producers have to protect themselves from legislation by reaching minimum standards and they have also had to respond to the increased demands and sensitivities of their customers. Thus, the standard of service from the private sector has both risen and become more uniform. The now mature market is driven much more by value for money than by price.
It would appear, in the case of the UK, that the customer has been unable to dictate the quality of service provided by pest control and fumigation companies. Increased competition did not lead to an improvement in service, because it is difficult for the customer to measure the extent to which he is getting value for money. In such circumstances the customer is forced to fall back on contractor selection based solely on price. The nature of the work being carried out means that unless the customer is well informed he has no other choice. Examples of this customer weakness can be seen by looking at cases from the UK and Mozambique.
CUSTOMER WEAKNESS AND THE NATURE OF FUMIGATION
Increased levels of food aid have been flowing into Mozambique, leading to an expansion of the warehousing of maize and other foodstuffs. As a result, the need for post-harvest pest control in cereal stores and warehousing has rapidly increased. Fumigation with methyl bromide (CH3Br) and phosphine (PH3), has become 'big business'. In 1992 there was only one company using methyl bromide in Mozambique. The charge for the fumigation of stacks of maize and other foodstuffs in warehouses was about 80 cents (US)/tonne. The standard of treatments was low because of the lack of training; additionally neither the fumigation company nor the storekeepers had the means or knowledge to measure the effectiveness of the treatment.
This situation can pertain because of the way in which fumigation works. The effect of the gas on the insect is a direct result of the average concentration of gas that is retained in the stack for the period of the fumigation; the temperature, which dictates the respiration rate of the insect, also has to be taken into account. Therefore, the amount of fumigant used in relation to the volume or weight of the foodstuff, while providing a guide to what can affect a proper fumigation, is not in itself important as a measure of effectiveness. The important criterion is the level of fumigation retained during the fumigation; monitoring of this allows the average concentration, or Concentration x Time Product (CTP) to be calculated. The CTP figures needed for total eradication are well documented for all insects at different temperatures.
Unfortunately, the method most often used to check the effectiveness of a fumigation is to check that there are no visible live insects in the stack after fumigation. The adult, visible, insects will be killed with a low CTP, while the invisible eggs will only be killed with a much higher CTP. Thus, on many occasions the fumigation is accepted as being successful when only the adults have been killed; the eggs are left to re-infest the stack within days or weeks.
The increased competition in the fumigation market in Mozambique led to a fall in prices and standards because contractors were able to use these facts to their advantage. Prices fell from 80 cents (US)/tonne to 40-50 cents/tonne; costs were cut to the bone with less gas and labour being used, therefore lower application rates were used and poorer sealing of stacks occurred. However, the customers did not complain because they still found no live adult insects in the stacks. The companies were still in business because they could kill all visible adults with a reduced CTP. Indeed the need to re-fumigate every few weeks when surviving eggs hatched increased the volume of business for the fumigation companies. It is not simply the failure to control the insects, the cost of the repeated fumigations, or the loss of foodstuffs that can cause difficulties. The ancillary costs can increase greatly, with interrupted distribution, rejection of consignments, and failure to meet contractual commitments, let alone the incalculable costs that can arise from the introduction of quarantine pests into a country or region that is free from that pest.
It has been argued that the use of fumigation in temperate zones is an expensive luxury that amounts to overkill. Certainly, in comparison with problems in the tropics, infestations in temperate areas are small. Despite this, they can still be significant. Many of the grain storage facilities in the UK, especially those on farms, are not of a high standard; thus while the insects do not often reduce grain to dust, they are able rapidly to have a devastating effect on quality. The demand for insect-free commodities and insect-free production systems, as well as low-residue pest control often makes fumigation the preferred option.
For example, in a UK scenario, if a shipment of cocoa is infested with flour beetle and moth larvae, methyl bromide fumigation will be ordered at an application rate of 32 g/m³ (32 oz./1000 cu. ft). Other work in the warehouse will be terminated for 2-3 days while the process is being carried out. The cost depends on various factors, but for a consignment of 2000 tonnes the cost of fumigation and warehousing, etc. would be about £4000. There are no live insects found after fumigation, but insects start appearing again 4-6 weeks later. An investigation is carried out but it proves impossible to discover where the insects have come from. Has cross-contamination occurred between stocks within the warehouse, or have some eggs survived the fumigation? In most of these cases re-infestation occurs because total eradication was not achieved the first time. However, this is extremely difficult to prove. If the gas concentration were measured correctly during the fumigation extra gas could have been added, if required, to reach the required CTP. This would have cost possibly £100-£1000 more, so the huge cost of complete refumigation and the deterioration of the product could have been avoided.
This does not occur so much in the UK these days, because of legislation. A person ordering fumigation may have to prove that if reinfestation occurs he has been 'duly diligent' in preventing it. Thus, if a fumigator has been appointed on an incorrect technical basis and/ or procedures were not instigated to ensure the work was carried out properly, the storekeeper is held responsible for the resulting infestation, since the wrong fumigation contractor was employed.
If these problems are examined in the context of quarantine pests the problem becomes even more serious. No longer do only losses of profit, hygiene, and foodstuffs have to be taken into account, but the spread of alien pests into an environment has to be taken into account. In such a situation effective control is not only highly desirable, but crucial. Mozambique is a good example of this, as it is under threat from the Larger Grain Borer (LOB) (Prostephanus truncatus). Indeed, a number of countries in Southern Africa are threatened by the importation of LGB through the Mozambican ports. When fumigation is carried out in this situation it is absolutely vital that there is total eradication of the insects. Therefore, an effective fumigation service, and a plant quarantine service with the power to oversee it, is essential. How can the quarantine service achieve the necessary level of expertise and efficiency? It must have the backing of legislation and the requisite technical skills. The service could be contracted out, but this would not necessarily be good for the development of local skills. A possible solution may be that used by one rapidly developing country. Their plant quarantine services have been run by a multi-national company, but are returning to government control as the system becomes firmly established. Such a system puts in place a structure that is efficient, but keeps skills in the country. In Australia, the market for private fumigators is very competitive, but the level of expertise required to carry out quarantine fumigation is very high. This is simply the result of a strong quarantine system, which by inspection and enforcement, allows the private fumigation market to operate to a very efficient standard. However it is done, the service must have the skills needed to implement the legislation and safeguard the quality of pest control services.
POST-HARVEST PEST CONTROL WITHOUT FUMIGATION
The privatization of fumigation, which provides the most dramatic examples of the problems involved has been discussed, but all other procedures suffer from the fact that the customer cannot easily measure the value of the service he receives. Fumigation is just one part of a strategy to protect products along the entire food chain. Once complete eradication of pests from the product has been achieved by correct fumigation, the programme must concentrate on the prevention of re-infestation during processing, and distribution to the consumer. The objective should be to have well-trained staff using the minimum of pesticide. As with fumigation, there is a danger that the choice of contractor will be price driven. Therefore the customer may be sent technicians who are poorly trained, and only spend half the time they should on site visits. This again leads to fierce price competition, and a reduction of costs by the contractor. In the UK this has been stopped by a combination of factors, such as customer demand for clean foodstuffs, but legislation which sets enforceable minimum requirements for contractors and food processors has been the main reason.
INTRODUCTION OF PRIVATIZATION
Therefore, because of the nature of the business, fumigation privatization will not be straightforward. Legislation will be required that sets minimum standards. For example, the plant quarantine department should have the power to check fumigation treatments and order refumigation, at the fumigation company's expense, if minimum CTP figures are not reached. The customer must be educated to make him aware of what he should demand from the fumigation and pest control contractor. In the UK, even when the buyer is fully conversant with the problem, and knows that a higher quotation will give better protection of the product, it is still difficult for him to recommend paying more because of budgetary constraints. If, however, he can accept the higher bid, because it is the only one likely to reach the minimum legal standard, and thus prevent his company from being prosecuted for not showing 'due diligence', then it is a much easier decision to justify. This is how the Food Safety Act operates in the UK. It has made food handlers and processors aware of their minimum responsibilities so that they have insisted that the pest control companies they employ meet these standards.
NEW COMPANIES
How will private pest control companies be formed? Who will be capable of operating these companies? If there is a market and it is seen that there is profit to be made, there will be no lack of private companies. The amount of capital required to establish a pest control business is small. Also, as has been indicated, a low level of expertise can be 'got away with'. The market will not maintain a high standard of expertise without help. In addition to legislation on minimum standards, technical and perhaps business training should be provided. Therefore the new companies will have the opportunity to acquire the knowledge to operate well, but above all the market must be controlled by effective legislation.
CONCLUSION
It is well established that in technical terms post-harvest pest control needs to consist of an integrated strategy of technology to achieve pest prevention, with the minimum use of pesticides and fumigation. It is however, equally important to understand that privatizing the industry must also be linked to the strategic use of enforceable legislation. This will ensure that technical aid and assistance are utilized in the market place.
