STAPLES VALUE CHAIN NAFAKA ACTIVITY

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1 STAPLES VALUE CHAIN NAFAKA ACTIVITY TASK ORDER NO. AID-621-TO Monitoring of NAFAKA Grant Agreement with Kilombero Rice Plantations - Sophie Walker ACDI/VOCA Marketing Specialist 20 June 2014 This publication was produced for review by the United States Agency for International Development. It was prepared by ACDI/VOCA in compliance with the terms and conditions of Task Order No. AID-621-TO

2 STAPLES VALUE CHAIN NAFAKA ACTIVITY TASK ORDER NO. AID-621-TO Monitoring of NAFAKA Grant Agreement with Kilombero Rice Plantations - Sophie Walker ACDI/VOCA Marketing Specialist DISCLAIMER The author s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

3 1. Executive Summary This report looks at the progress KPL has made in the first 5 months of grant implementation. Kilombero Plantations Limited (KPL), a private sector company running a large scale commercial rice plantation in Tanzania, has been working in collaboration with NAFAKA since 2012 training over 6,000 smallholder farmers in the areas surrounding the plantation prior to the new grant. In January 2014 NAFAKA transferred the agronomical activities it supported in the area over to KPL under a grant mechanism. KPL manages 10 field agronomists each who manage 10 demonstration plots with approximately 25 smallholder farmers working on each demonstration plot. The collaboration has introduced a new rice production technology called SRI to smallholder farmers which when applied has increased their yields over 240%. To maximize yields it is essential that smallholder farmers use good seed, fertilizer and top dressing. KPL in collaboration with Yara an international supplier of crop inputs have provided the smallholder farmers linked to the demonstration plots with a starter package of inputs sufficient to plant quarter of an acre. KPL is also testing zero tillage SRI which is applicable to farmers who have already prepared their land for SRI - it this is found to be an effective way of further reducing farmers costs as well as possibly increasing yields KPL want to disseminate the practice to previously trained farmers. While the small holder farmers though their gift of inputs for a quarter of an acre can afford to continue buying inputs for a quarter of an acre for the most part the cash required to purchase inputs for on average just under 2 acres planted by most smallholder farmers is still unachievable without access to credit. To help facilitate credit for the small holder farmers KPL is willing to guarantee prior to the farmers and the financial organization a minimum paddy price for the following harvest, KPL then collects the paddy from the smallholder farmers, and pays the financial organization cash for the paddy collected. Under the grant KPL has further expanded the reach of SRI program, this season 91 demonstration plots for SRI have been established and 11 Zero Tillage plots in 10 villages. 2,180 new farmers are participating in the SRI demo plots and around 295 farmers signed up to be shown zero tillage practices. The rains this season have been extraordinary and some demo plots were washed away - but the majority have continued to function and will be harvested over the next two months. Zero tillage yields appear from visual observation to be equal to normal SRI yields. Zero tillage has the potential to further increase farmer income as they reduce their planting costs by not having to plough and harrow the fields before planting. Monitoring of NAFAKA Grant Agreement to KPL 3

4 II. Specific Activities, Observations and Conclusions Introduction Kilombero Plantations Limited (KPL) KPL is the Tanzania operating subsidiary of Agrica Limited, a British farm development company that is majority owned by American shareholders, including the philanthropist Jeff Skoll, the first president of ebay. Agrica s second largest shareholder is Norfund, the Norwegian development bank. KPL began operations in September 2008, after completing the purchase of the defunct 5,818 ha Mngeta Farm from the Rufiji Basin Development Authority, a government agency. The farm had been a joint venture between the governments of Tanzania and North Korea in the late 1980s and early 1990s. After the departure of the North Koreans in 1992, the infrastructure deteriorated and the cleared land returned to bush. Since late 2008, with an investment of $40 million, KPL has: Re-cleared and leveled 5,000 ha Resettled 120 families to World Bank standards Rehabilitated roads, drains & buildings Imported a fleet of tractors, zero-till planters, boom sprayers and combine harvesters Constructed a 6,200 m2 warehouse and residential buildings Constructed a 3,000-ton automated drying facility Installed a 4-ton-hour industrial rice mill in 2010 and a 6-ton, the largest currently in operation in Tanzania, in 2013 Installed 215 ha of center-pivot irrigation and constructed a river pump station KPL has become the showcase project in the Southern Agricultural Growth Corridor of Tanzania. It has received grants and loans from AECF to help it with its smallholder program, and has worked with Technoserve to introduce an innovative SMS platform used to track loans and loan repayment to smallholder farmers. KPL Smallholder Program In December 2009, KPL commenced its smallholder program introducing the System for Rice Intensification (SRI), an agronomic system invented in the 1980s by a Jesuit priest/agronomist in Madagascar which has substantially increased smallholder yields in Madagascar and India. KPL brought an SRI expert from India who trained 15 local farmer families in SRI on rain-fed plots. The 15 farmers all achieved yields at least 3 times more than the traditional yields in the area. KPL began the expansion of the program and was joined by NAFAKA in 2012 and now encompasses 10 villages within the surrounding area with a total population of Monitoring of NAFAKA Grant Agreement to KPL 4

5 approximately 25,000 households. 6 of the villages surround the plantation, 4 of the villages are further out (40km+ from the plantation). Review and evaluate KPL's progress to meeting grant deliverables Targets to date Establish 90 SRI demo plots Sign up 2,200 new smallholder farmers 25 per plot Establish 10 Zero tillage demo plots (1/village) Sign up 25 farmers per plot Procure and distribute 3.5 kg seed, 12.5 kg NPK, 12.5 kg Urea Reported Progress 91 plots prepared. Range from 5-14 per village 2,180 new smallholders Average 25 farmers per demo plot (range 13-36) 11 zero tillage plots established, 1 per village 275 in total avg 25 per village 80% farmers received seed and fertilizer, 76% farmers received urea. Reasons for inputs not being delivered to other farmers in other groups include - the late starting of the grant - which delayed group formation - this delayed the movement of inputs to the field Subsequent excessive flooding made many groups unreachable Other areas it made no sense to put inputs on the land since the flood water would wash it away KPL has successfully replaced the NAFAKA extension officers with their own and is now managing all agricultural productivity activities within the 10 villages that NAFAKA and KPL had been working in together. Smallholder farmer reached through the use of demonstration plots While 2,278 farmers were reported to have signed up to demonstration plots in reality only 2,180 of those farmers signed up turned up to demonstrations or were countable (see below). An additional 59 farmers joined up after the first registration and KPL is now making sure their records capture the full details of these farmers. At least two demonstration plots were swept away in the floods and the 42 farmers signed up to these plots did not attend. It is possible that this number will have to be re adjusted - the extension officer in Chisano is yet to send in his reports for 5 demo plots in Chisano. Chisano is the furthest village from KPL farm and much of it is still cut off with flood waters. These reports will be included in Milestone 3. At the moment it appears that KPL's total of new farmers reached with SRI technology season 2013/2014 is approximately 2,200 farmers Monitoring of NAFAKA Grant Agreement to KPL 5

6 One demonstration group called Mbasa Primary school which had 26 signed up 'farmers' is actually 4 teachers and 22 primary school children - aged between 9 and 10. These school children have now been removed from the total farmers reached (and have been already removed when looking at the number 2,180 above). In previous years KPL has trained at school plots so that the farmers of the future have also been exposed to new technology but this does not meet NAFAKA's definition of smallholder farmers and therefore cannot be counted here. Demonstration plots 91 demonstration SRI plots were established, at least two were washed away in Chita and KPL is working to check the status of the other plots in Chisano. 11 zero tillage plots were established. One of the two Zero demonstration plots in Merera was washed away - however farmers had seen the land preparation which is different in zero tillage compared to Farmers and extension officer at one of the Chita SRI normal SRI management. As expected the farmers turned up to the initial demo plots demonstration for zero tillage - but since they had already been trained in SRI management many of them did not come back for trainings they had already received later in the season. Both the SRI and zero tillage demonstration plots are close to harvesting. The paddy is formed, and is drying and SRI and Zero tillage look equally good. KPL will verify the yield on the SRI plots compared to the Zero till plots and then compare that with the cost of production to determine whether or not zero tillage provides an increase in income to the smallholder farmers. Based on this information the decision will be made whether or not to train SRI farmers in the methods of zero tillage next season. Monitoring of NAFAKA Grant Agreement to KPL 6

7 Input distribution KPL believes that farmers need to practice what is demonstrated on the demonstration plots on their own plots at the same time to reinforce the training. Therefore KPL with the support or Yara provide farmers the necessary inputs free of charge for the equivalent of 1/4 acre of land per SRI demo farmer who attended the training sessions. Farmers who fail to attend the majority of the land preparation trainings are not given inputs. Each farmer is provided kgs of seed, and 13 kgs of NPK fertilizer and 13 kgs of urea. KPL's records showed that they issued 9,776 kgs of seed, 24,388 kgs of NPK fertilizer and 23,088 kgs of urea to the field. 5 of the villages which are further away have shipping containers, the inputs are shipped to the containers and distributed from there. The closer villages receive their inputs directly from the SRI store which KPL improved at the beginning of this year (see picture right). Of the total potential signed up farmers of 2,239, the records which have been currently collected shows 1,743 farmers received seeds (80%), 1,739 farmers received NPK (80%) and 1,665 farmers received urea (76%). 6 demonstration plots (~150 farmers) reports have yet to be received (mostly from Chisano). In three demo plots in Merera 87 farmers were inaccessible at input distribution due to the flooding and an additional 32 farmers were cut off at the time of urea distribution. At least two demo plots were washed away and so the farmers were not able to follow demonstration plots. Due to the late start up of this activity (the grant was not signed until January) some farmers who joined late established demo plots had already planted all their land using traditional methods so inputs were not distributed to them. KPL will complete a final reconciliation of input distribution in July when it will be possible to collect all the remaining inputs from the containers in the more distant villages and reconcile what was issued to extension officers, with what was issued by the extension officers to smallholder farmers and what remains. At the same time KPL will create a list of farmers who attended demonstration plot trainings but did not receive inputs and intends to distribute the fertilizer and urea to them at the beginning of next season. The seed will be past its expiry date and the farmers will have received sufficient seed from the demo plots to plant more than 1/4 acre in the upcoming year. The floods have been extraordinary this year - the largest amount of water received in at least 60 years with areas receiving between 1.3 and 1.6 meters of water. The farm itself has been cut off from regular transport from the end of March until last week when the first semi trailer was able to arrive at the store to collect rice to transport back to Dar es Salaam. The new combine had to be driven in for the last 80 km, it took two weeks and was accompanied by two tractors and a bulldozer. Monitoring of NAFAKA Grant Agreement to KPL 7

8 Considering these circumstances (late start of the activity and significant flooding) the distribution achieved appears to be reasonable. SRI store construction. The concrete base of the SRI store has been completed, and some of the metal support posts installed (picture to the right). Others metal supports are in store at the farm, but the bulk of the metal cladding could not be transported to the farm due to the flooding and therefore had not been ordered from Dar es Salaam at the time of this visit. Even now that the road is open, the area where the store is located is where all the farm paddy is collected. It is unwise to carry out welding with creates sparks while dry paddy is being moved around (and petrol fueled vehicles). KPL is ordering the remaining metal cladding now, and intends to have the store completed by the beginning of August. Record Keeping and its significant in terms of meeting deliverables KPL does need to improve on its record keeping and its reconciliation of records collected. Due to a confusion about which forms needing to be filled in when - some of the DFC forms have not been completed. However each group with a demonstration plot is issued a ledger book where the secretary of the group records who attends what activities. For the most part these records are well kept and it will be possible to complete the DCF 4 which covers demonstration plot training. I spent some time with the manager and the deputy manager of the SRI program going over the importance of record keeping. At the same time NAFAKA M&E staff came down and trained all the extension officers on how to complete the forms and when to complete them (and adapted some of the forms to match KPL's activities). The SRI manager and deputy manager need to get into the habit of calling each extension officer each week to check what activities have been completed and what problems may have been experienced rather than relying on visiting them in the field which is impossible when the roads are flooded. Once again it has been emphasized that to meet payment requirements KPL must meet the deliverables and provide evidence that it has met each deliverable. Previously under NAFAKA they did not have to 'prove' what they had done since NAFAKA staff worked alongside them. The SRI management team understand this, and will endeavour to perform. Other points; Beneth Kilenzi NAFAKA's association trainer in the KPL area of influence has also been checking on grant activities. He has visited every extension officer and has visited a large number of demonstration plots and reports that activities are being carried out as reported. He personally oversaw some of the distribution of inputs. Monitoring of NAFAKA Grant Agreement to KPL 8

9 Loan training Dr Milinga of YOSEFO accompanied us to the farm and meet with Carter, the SRI management team and myself several times to discuss the loan program for the upcoming season. In the 2012 / 13 season Yosefo made over 450 loans where KPL promised to buy the paddy at a guaranteed price at harvest. Yosefo has had some significant difficulties in collecting the loan particularly in one village where the villages were encouraged to claim it was against their human rights to pay back loans when their crops had suffered problems (flood, insect damage). In the YOSEFO model one farmer is guaranteed by 4 other farmers, who are in turn guaranteed by a larger group of 20+. In the end YOSEFO went to court and got an order which allowed the larger group to go and seize property of the defaulters. The larger group sold the property, collected a 10% handling fee and paid the balance to YOSEFO. YOSEFO deducted the loan costs, penalties and other costs and return any balance to the defaulter. They have now achieved 100% repayment. This season only 50 farmers have taken up the paddy guaranteed load (while 700 have taken up YOSEFO's Bishara product). Dr Milinga explains that this is for a number of reasons; A number of farmers have moved from the paddy loan to the bishara product which allows for a larger loan but requires a credit history and savings at the MFI At the time the farmers needed the loan - December 2013, there was confusion in the market and a large number of farmers thought there was going to be a loan product guaranteed by their association which would be cheaper and so did not apply for the YOSEFO loan (there was no such loan product offered) There was some confusion around the process YOSEFO was having to go through to ensure the loan defaulters were made to pay, and there were rumours in the market that YOSEFO would 'take' a farmers home if the farmer took a loan The guaranteed paddy repayment price had been re calculated to reflect the harvest price reality - which was closer to Tsh 3,500 per debe. Farmers did not like this price, firstly it was less than they expected, secondly they are tied into delivering paddy even if the paddy prices was more. While KPL is offering an extra payment to farmers in December if the paddy price increases - there was not really time to explain this mechanism to farmers so they understood it Farmers felt the twice a month payment of Tsh 13,500 each was onerous and hard to achieve YOSEFO continues to invest in the area around the farm - it has entered into a long term lease for half of the building that the SRI team is based and is currently renovating it - with the intention of opening a bank and credit facility there. They are willing to offer two main loan products this season - their bishara loan which requires the farmer to deposit 12.5% of the loan amount in at least three deposits prior to a loan request and the paddy guarantee loan where the farmers have to save 10% of the loan amount (Tsh400,000) in the three months prior to taking the loan out. They are very interested in carrying out a loan training. They believe it would be possible to train 600 farmers in a 6 week period with 40 farmers per session attending a week long training session at a local school. Loan training would have to finish by the end of Monitoring of NAFAKA Grant Agreement to KPL 9

10 August to give the farmers enough time to save either % of the loan amount required prior to receiving a loan. This year YOSEFO is willing to allow the paddy guarantee loan farmers to repay either in cash or in paddy at harvest. The problem with the YOSEFO loan products is that they are based on the micro finance model for small MSMEs - where the business creates small revenues each week which allow the business to make small repayments each month. YOSEFO has modified this slightly for loans to farmers and only requires two payments per month but it is clear from the farmers that this is challenging. Farmers with other business interests report how they funnel money from their other business into repaying their farm loan, farmers without off farm income talk about how they have to put 50% of the cash they receive aside so they can manage the monthly payments. The requirement to have to put 50% of the cash received aside obstructs the purpose of the loan to provide cash flow for agricultural activities and living requirements during the period farmers have no income as they wait for the paddy to grow. One farmer talked about how she would not take the loan product this coming year, and instead would pre-sell a proportion of her harvest since this was easier to manage. In view of the limitations of the YOSEFO loan product and the popularity of the NMB loan, KPL has approached NMB with two potential loan ideas. First the production loan - backed with KPL's guarantee to buy the paddy at a minimum harvest price - where farmers may repay in cash or paddy. NMB is interested in this product but insists if they come in that KPL should only back one product. KPL's view on this request is they will back with their paddy guarantee the institution offering the best loan product for the farmers. NMB would also support training farmers ( before December), targeting the initial training at those farmers who get the better yields. NMB also uses the mutual guarantee process - though is keener to use the village level associations as a leverage point. The second loan product which both institutions are looking at is a collateral finance product - based on paddy being delivered to KPL's SRI store at the farmer, KPL issuing a warehouse receipt, the warehouse receipt being deposited at the financial institution, providing the financial institution control over the asset. At the time of sale the buyer will either deposit the money with the financial institution officer of NMB suggested that they could do a mobile phone transaction direct into the relevant bank account then the paddy would be released to them. YOSEFO is talking about a 2% arrangement fee and a 3% per month interest cost (36% pa) NMB is talking about an around 2% arrangement fee and then 17% per annum interest cost. KPL will continue negotiations with both YOSEFO and NMB over the next two week with the aim to determine whether or not the loan training should go ahead this season and which financial institution will best serve the smallholder farmers. In the KPL grant there was budget for a loan officer who would help follow up on the farmers with loans to ensure they were well aware of the payment requirements etc.. Both financial institutions have stated they would prefer KPL not to play this role as it could be confusing to the farmers. KPL has offered to fuel and service their person's motorbike, and assist with accommodation as Monitoring of NAFAKA Grant Agreement to KPL 10

11 needed. KPL is considering whether to re align the rest of the budget related to this activity to the warehouse activity as discussed below. SRI warehouse and collateral financing KPL is building a 3,000 mt warehouse beside the farm but outside of the main farm compound to allow easier access to farmers and traders. The warehouse's purpose is to store the smallholder loan paddy, and to purchase saro 5 rice planted by the farmers at harvest. This year there have only been 50 paddy guaranteed loans which means there will only be about 50 mt to store. Furthermore currently KPL does not foresee having the cash flow which would allow it to make large purchases of harvest paddy. The means a high quality warehouse would sit basically empty. Working together KPL and NAFAKA worked out a model which would allow KPL to open up the warehouse for deposits by smallholder farmers under the Tanzanian warehouse receipt act. Both YOSEFO and NMB have expressed interest in providing loan facilities for collateral deposited in the store (see above). KPL and NAFAKA looked at the costs of opening up the warehouse to outside deposits initially modeling the warehouse costs on 66% capacity utilization with a full time store manager working at the SRI store 50% of the time during the 3 months where deposits are likely and 50% of time when with drawls are likely and checking the store daily as part of their routine. Based on a approximately 130 kg bag the costs would work out at around Tsh1,700 / bag per period of storage. This compares with the cost of the same service offered by traders in Chita who charge around Tsh2,000 per bag (see picture opposite) which is in line with what the associations plan to charge their members this season. However KPL is adamant that they will only store in 50 kg bags - firstly as a large prominent employer in the SAGCOT region they feel it is wrong to go against ILO rules related to labourers not picking up bags of more than 50 kg and the EAC standard which also stipulate 50 kgs bags. Secondly it is more efficient to store paddy in 50 kg bags - it stacks better and stacks are more secure and less likely to collapse onto a worker. However this adds a significant cost to the process - the additional bag costs mean the one off payment for storage would be Tsh3,350. However while the Tsh1,130 cost relates to the actual bag costs the farmer will need to buy at the warehouse to re bag their paddy into - the farmer would retain the 130 kg bag purchased at around Ths1,000 which they would take home with them for next season. The advantage to the farmer to use KPL's store is that since it is secure and well managed they will also be able to get financing (60-70% of harvest value) when they deposit. KPL would like to try a small pilot of the system this year, once the SRI warehouse is finished estimated early August. Very small volumes would be expected this year and anything over 100 mt would be surprising. However it works, KPL would like to Monitoring of NAFAKA Grant Agreement to KPL 11

12 encourage more farmers to use this service the following year. Farmers would be able to bring their saro paddy, get a collateral loan which would help finance their inputs required in December. Then sell their paddy between December - March which would provide them the cash flow they require to survive until the following harvest. KPL and NAFAKA will continue to discuss this option over the following weeks. Conclusions KPL established 91 SRI demonstration plots and signed up over 2200 farmers however subsequently some plots have been washed away and the farmers did not attend demonstration training. Actual numbers should be determined in milestone 3 reports KPL established 12 Zero Tillage demonstration plots and signed up 295 farmers, however one demo plot was washed away. This was not significant since the new activities were around land preparation which happened before the flooding Inputs were distributed to over 79% of signed up farmers - the actual number will be determined in milestone 3 reports Flooding has also delayed activities such as the completion of the SRI store which is now expected to be completed in August Record keeping was not as well managed as it should have been. NAFAKA has provided additional training in record keeping which will streamline records and allow for easier reconciliation in the future. KPL is also putting in more systems to ensure record keeping for SRI activities are in one location and easily accessed. YOSEFO only managed to issue 50 paddy guarantee loans (and over 700 bishara loans) so paddy collections this season will be limited to 3 villages and be small volumes. Monitoring of NAFAKA Grant Agreement to KPL 12

13 U.S. Agency for International Development 1300 Pennsylvania Avenue, NW Washington, DC Tel: (202) Fax: (202) Monitoring of NAFAKA Grant Agreement to KPL 13