Why is the Development of Agricultural Input Markets Sluggish in Mozambique?

1. Why is the Development of Agricultural Input Markets Sluggish in Mozambique? Input Voucher Regional Workshop Lusaka - Zambia Emílio Tostão

2. The Problem • Over 40% of children are malnourished • Over two thirds of Mozambicans live below the poverty line • Most of the poor live in rural areas rely on agriculture for work and income • Ag. sector employs 80% of active population • Contributes to 30% of the GDP

3. The Problem Cont... • Sustained agricultural growth is needed for reducing poverty and food insecurity • farmer’s access to and use of improved seeds needs to improve. Why? • Seeds are very important: they determine the biological yield frontier and the productivity of land, labor, and capital

4. The Problem Cont... • drought and disease-resistant seeds can still help raise agricultural yields • But Mozambique has under-invested in its national seed system • lose about $77 millionannually (Rusike et al. 1997) • Lack of improved seeds means low yields, hunger and poverty across generations.

5. Context & Objectives • MDGs, • Maputo Declaration of 2003 • Abuja Declaration on Fertilizer of 2006 • Mozambique domestic PRS (PARPA’s I and II) • suggest a twin commitment to poverty alleviation and input market development.

6. Context & Objectives • The question is how to achieve the dual objective • Input vouchers have been used to market agricultural inputs in Mozambique • In the last six years, over 100,000 producers got seed worth about US950,000 via seed vouchers. • Previous work suggest that vouchers have offered little incentive to the formal seed sector

7. Context & Objectives • Several possible theoretical explanations for sluggish development of the formal seed sector • Empirical evidence using actual data on seed and sound statistical analytical methods is lacking. • The objective of this study is to estimate smallholders’ probability of purchasing maize seed where there are both emergency and commercial seed.

8. Data & Procedures • Used 2003 HH-level data from national agricultural survey (TIA) • Desk literature review • Used a binary logit model to model smallholders’s decision of whether or not to buy seed • Probability of buying see and marginal effects in each of 10 provinces of Mozambique

9. Results

10. 0.21 0.06 0.12 0.22 0.38 -0.04 -0.08 0.19 -0.13 0.24 -0.05 0.38 -0.19 Probability of buying seed 0.58 0.57 -0.03 -0.21 Marginal effect of emergency seed 0.58 -0.22

11. Key Conclusions • Producer probability of buying maize seed is small • Relatively bigger in south Mozambique. • Space matters: size and sign of coeficients vary • Smallholders who receive emergency seed are less likely to buy marketed seed. • Emergency seed programs might be preventing development of commercial seed markets.

12. Policy Options • A clear definition of “emergency,” the objective of emergency intervention, and a clear definition of the target population. • production of maize surplus and subsequent participation in maize output markets do not seem related to the use of commercial seed. • Lack of enforcement lead to disappointment: when the promised quality is not attained, then demand for commercial seed is likely to remain low.

13. Policy Options • Successful strategies must target younger producers, and create incentives for private investment in market development. • Long run: need to investment on roads, simplify regulation, and enforce quality standards • short run: consider incentives such as income tax breaks and/or gasoline allowances for business in rural areas where transportation costs are high.

14. Policy Options • short run: consider incentives such as income tax breaks and/or gasoline allowances for agricultural companies, small business in rural areas where transportation costs are high. • Space matters: carefully consider constraints that define regions’ absolute advantages. • The usual “one size fits all” policy approach might not work in Mozambique

15. THANK YOU