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AGRICULTURAL VALUE CHAIN FINANCE. Kyaw Myint Ministry of Agriculture and Irrigation Myanma Agriculture Service (Myanmar). Agricultural value chain. Over three quarter of population in many developing countries live in rural areas.
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AGRICULTURAL VALUE CHAIN FINANCE Kyaw Myint Ministry of Agriculture and Irrigation Myanma Agriculture Service (Myanmar)
Agricultural value chain • Over three quarter of population in many developing countries live in rural areas. • Rural income mainly depends on agriculture and livestock farming. • From the agricultural value chain point of view, farmers in rural areas are important role to provide fresh produce and food supplies, quality and safety product demanded by traders, agro-processors, supermarkets and exporters.
Quality and safety product • Farmers in developing countries are challenged to compete in markets that are more demanding in terms of quality and food safety, more concentrated and integrated, and much more open to international competition.
Quality and safety product • In developed countries, traceability is achieved from the grower’s field to the supermarket shelf in order to have quality and safety product. • Traders, exporters and agri-business in developing countries need to upgrade their supply chain and endeavour necessary arrangement to be competitive.
Agricultural value chain • A value chain is a supply chain made up of a series of actors –from input suppliers to producer and processors to exporters and buyers-engaged in the full range of activities to bring a product from its conception to its end use. • The government need to support the private sector for their participation and investment. • In agricultural value chain, farmers, traders, agribusiness and input suppliers need to work together.
Agricultural value chain • For the development of agricultural value chain, consumer and market knowledge, added value, product differentiation, market potential, sustainable production system, generating rural income and increase employment for the rural people need to take into account .
Agricultural value chain • long-term strategic vision , • They need to recognize their interdependence and to work together , • To define common object, share risks and benefits and make the relation work, • Value chain is oriented by demand and not by supply, • All actors need to have commitment to control product quality and safety product, • The implementation is based on mutual trust , • Information exchange and • Based on the different circumstances, the supply chain needs to be well organized and competitive.
AGRICULTURAL VALUE CHAIN FINANCE • Finance providers feel that financing of small-and medium-scale farmers are often risky compared to traders. • Thus, commercial urban-based banks are reluctant to provide finance to resource poor farmers in rural area. • The reason is that most poor farmers have no collateral. In the case of Myanmar, land is owned by State and farmers have land use right. • From the commercial bank point of view, minimum risks, repayment and high loan recovery rates are the most important issue.
AGRICULTURAL VALUE CHAIN FINANCE • Traders, agro-processors, association of market traders and business organizations participate in moving the product from the farm to the final market . • In the case of Myanmar, all of business people use finance which rely on their own finance, bank loan and some rely on family and relatives finance.
AGRICULTURAL VALUE CHAIN FINANCE • Based on mutual trust, traders rely on deferred payment system in local markets. • Large companies rely on own finance, bank loan and invite shareholders and investors for their agricultural marketing. • Put another way, financing is important issue for all participants in the agricultural value chain.
AGRICULTURAL VALUE CHAIN FINANCE (Resource poor farmers) • Resource poor farmers have no collateral such as property, land or other assets in order to have loan from commercial bank. • Agricultural Development Bank provides season loan which is not adequate for resource poor farmers. • Most small-scale and medium-scale farmers have no choice to borrow money from local moneylenders who charge high interest rates. • They cannot use agro-input due to insufficient finance. As a result, level of yield is low.
AGRICULTURAL VALUE CHAIN • The financial service need to be provided to farmers, agribusiness and small and medium enterprises (S M Es)." • Unfortunately, financial services cannot cover all poor farmers in rural area in the country." • If there is no financing service access to farmers, the best possible thing is that "financing in agriculture need to look at supply chain finance". • Traders, input suppliers and agribusiness are important role in the financing of farmers.
Public-Private Partnership (PPP) • The government need to support the private sector for their participation and investment. • Public-private partnership (PPP) can support to all participants in agricultural value chain. • In the case of Myanmar, renovation and expansion of highway from Mandalay wholesale market to Muse Town located on Myanmar-China border was implemented by PPP .
Public-Private Partnership (PPP). • In the case of Myanmar, pulses, oilseeds and fresh produce of jujube, mango, water melon and muskmelon are delivered to Myanmar-China border for trading to Yunan province, China. • Fresh produce growers and traders can deliver to Myanmar-China border without time-consuming. • To cover the initial investment cost and maintenance cost , toll gate are established by private sector.
Input suppliers • Private sector participates as agro-input and seed suppliers in the supply chain. • On the supply side, the private companies need to recovery of sale revenue and do not prefer to sell farmers with deferred payment. • In the case of Myanmar, agro-input retailers supply to farmers in main surplus-producing areas with deferred payment however sale price is added by the opportunity cost of interest. • Thus, farmers use agro-input with a little bit high price due to inadequate finance.
Input suppliers • Agro-input retailers need more finance for their buying and selling activities. Put another way, financing is essential for agro-input suppliers as well as farmers. • Extension workers need to organize to farmers to purchase agro-input by farmer groups in stead of individual farmer. The main reason is that if quantities purchased by farmers are large, they can make negotiation with input suppliers and transporters for purchasing price and transport charge. Put another way, marketing cost can reduce to farmers.
Input suppliers and traders(In the case of Myanmar) • Highland fresh produce wholesalers in Yangon wholesale market work together with farmers in main-surplus producing areas located in highland area. • Yangon large-scale wholesalers contact input suppliers to obtain cabbage seeds and fertilizer and provide to farmers for their cabbage growing. • Farmer groups receive agro-input from wholesaler and supply highland cabbage to Yangon wholesalers.
Local companies and Farmers • Local export companies endeavour in order to have variety and ensured quality from farmers in main-surplus producing areas. • Fertilizer and seed are supplied to farmers who need to sell their crop with market price. • Some constraints such as marketing arrangement, farmers' sale volume being low compared to quantity demanded by company are faced by local companies.
Local companies and Farmers • Although constraints occurred in contract farming, farmers and local Companies endeavour to solve and collaborate for the success of supply chain. • As for farmers, this type of business is supported to obtain finance supply and ensured market. • Mutual trust between small farmers and companies is critical issue to succeed.
Value-added product • Private business need to play in the higher value market chain. • Technology, standardization, quality control, market knowledge and financingare required. • Private business find out their investment opportunity. • In order to have value –added product , private business invest to compete with other suppliers. • Value-added product such as bean split with skin and without skin are received better price for local exporters.
FINANCIAL INSTITUTION • In the case of Myanmar, Agricultural Development Bank (MADB), Livestock and Fishery Development Bank (LFDB), licensed pawnshops, saving and loan cooperatives, national NGOs and international NGOs are main source of finance farmers and poor people in rural area. • MADB distributes seasonal crop loan or short-term loan for 2-4 years and long-term loan for 5 years and above. • Interest rate of MADB is currently determined by the prescription of the Central Bank.
FINANCIAL INSTITUTION • Lending rate is currently 17percent, while the saving rate is 12 per annum. • The same interestrate of lending and borrowing is applied by Commercial banks. In the case of Myanmar, Agricultural Development Bank provides seasonal loan, perennial crop plantation such as oil palm, tea, and coffee etc. • Due to a sharp increase of fertilizer and fuel price, seasonal crop loan provided by Agricultural Development Bank had become small compared to farmers’ requirement to be purchased agro-input and paid hired labour cost.
FINANCIAL INSTITUTION • Amount of seasonal loan cannot be covered farmers’ requirement due to limitation of financial source . • Put another way, seasonal loan do not reflect current market price of agro-inputs. • Generally speaking, resource poor farmers do not interest to deposit their cash in the bank. • The public sector endeavour farmers to save their cash in Agricultural Development Bank
FINANCIAL INSTITUTION • Farmers who save in Agricultural Development Bank receive loan to purchase agricultural machineries such as water pumping engine, small tractor and thresher etc. depending on their saving amount. • Financing projects are required. • National NGOs and international Non-Governmental Organization (I NGOs) involve in micro-finance projects implemented in rural areas.
FINANCIAL INSTITUTION • Rural development projects support micro credit to, self-help groups (SGH), landless people and small poor farmers’ family to generate income to reduce poverty situation • Access to microfinance services enables poor and economically active people to invest in new business activities, thereby increasing levels of employment and income.
FINANCIAL INSTITUTION • Micro-finance is required to develop the agricultural-value chain and micro-finance projects need to extend in rural areas. • Due to limitation of finance, public sector's financing cannot fulfill to requirement of resource poor farmers and poor people. • Traders, input suppliers and agribusiness need to provide finance to farmers in agricultural value chain in order to have quality and safety product, and ensured supplies.
FINANCIAL INSTITUTION • Financing is important issue for the development agricultural value chain. In the agricultural value chain, input suppliers, traders, agro-processors and agri-business are important role of financing to farmers and need to work together. • Government need to support to promote financing for resource poor farmers and private sector.
