Supporting Agricultural Transformation in Ethiopia: P4P contribution January 2013

Ethiopia’s Growth Transformation Plan envisions economic expansion driven by increases in smallholder productivity Ethiopia Growth Transformation Plan (GTP) 2010-2015 Excerpts … “Maintaining Agriculture as the major source of economic growth” “Ensure smallholder agriculture becomes the main source of agricultural growth by scaling up interventions …” “GTP targets, cereals productivity: increase from 1.7 tons per ha in 2010 to 2.2. tons per ha by 2015…” Ethiopian Agricultural Transformation Agency (ATA) Federal Agency created to lead problem solving and support implementation of transformative changes in agriculture ATA approach: holistic, collaborative and focused. Centered on systemic issues and value chains with large potential to deliver on GTP goals Source: ATA team analysis

ATA has identified 17 interventions across crop value chains that if addressed holistically can increase the productivity and income of smallholder farmers TECH. RESEARCH & PROMOTION INPUT PRODUCTION INPUT DISTRIBUTION & ACCESS ON-FARM PRODUCTION ACCESS TO POST-HARVEST TECH. MARKET LINKAGES DEMAND SINKS DEVELOPMENT Improved research system effectively linked to extension, generating and disseminating location specific technologies to SHFs Improved local production and/or international procurement of inputs Improved distribution of and physical & financial access to inputs by SHFs Increased SHF access to improved technologies & knowledge on sustainable product. practices Improved SHF access to post harvest handling technologies and practices Improved linkages between SHF production and major demand sources Increased value addition and improved market demand for SHF outputs Identification of the most appropriate varieties of the crops under production for specific agro-ecology Identification most appropriate agronomic and soil conservation practices for the specific crops under production in each target agro-ecology Identification of the most appropriate mechanization (on farm and post-harvest) for the agro-ecology and crop Soil mapping to identify the nutrient deficiency and the fertilizer formulate necessary for crops in each target agro-ecology Identification of an approach mix of crops by agro-ecology for soil health, markets, nutrition and overall food security 1 Production of sufficient quantity and quality of improved seed of the specific varieties needed for each target agro-ecology with efficient distribution channel links Availability of sufficient amount of the specific type/ formula of fertilizer for each crop in the target agro-ecologies (either through import or local blending) 6 Improve input demand estimation, contractual relations and logistics to make sure that input supply meets demand on timely basis Ensure that primary cooperatives and unions have the operating capacity to run efficient input distribution business including access to credit in order to source inputs in financial viable models Ensure farmers have access to financial services (i.e. credit, insurance, etc. ) in order to facilitate improved input adoption 8 Equip FTCs to act as effective resource centers to promote improved agronomic and on-farm and post harvest practices Train DAs with location specific information and tools to appropriately train local farmers Create public, private or other modalities that facilitate farmer access to on-farm and post-harvest technologies and mechanization 11 Equip coops with the storage capacity and the output financing to properly support farmers on aggregating in order to effectively compete with traders Create more efficient and direct link between coops and domestic and international markets Identification of specific and reliable markets (domestic/international) able to source production from smallholder farmers Develop domestic value addition and processing opportunities that enable smallholder farmers to access higher end market opportunities 14 2 9 12 15 3 7 16 4 13 10 17 5

ATA’s Maize value chain program focuses on 10 interventions, of which four are done in partnership with WFP - P4P ATA WFP – P4P TECH. RESEARCH & PROMOTION INPUT PRODUCTION INPUT DISTRIBUTION & ACCESS ON-FARM PRODUCTION ACCESS TO POST-HARVEST TECH. MARKET LINKAGES DEMAND SINKS DEVELOPMENT Improved research system effectively linked to extension, generating and disseminating location specific technologies to SHFs Improved local production and/or international procurement of inputs Improved distribution of and physical & financial access to inputs by SHFs Increased SHF access to improved technologies & knowledge on sustainable product. practices Improved SHF access to post harvest handling technologies and practices Improved linkages between SHF production and major demand sources Increased value addition and improved market demand for SHF outputs Identification of the most appropriate varieties of the crops under production for specific agro-ecology Identification most appropriate agronomic and soil conservation practices for the specific crops under production in each target agro-ecology Identification of the most appropriate mechanization (on farm and post-harvest) for the agro-ecology and crop Soil mapping to identify the nutrient deficiency and the fertilizer formulate necessary for crops in each target agro-ecology Identification of an approach mix of crops by agro-ecology for soil health, markets, nutrition and overall food security 1 Production of sufficient quantity and quality of improved seed of the specific varieties needed for each target agro-ecology with efficient distribution channel links Availability of sufficient amount of the specific type/ formula of fertilizer for each crop in the target agro-ecologies (either through import or local blending) 6 Improve input demand estimation, contractual relations and logistics to make sure that input supply meets demand on timely basis Ensure that primary cooperatives and unions have the operating capacity to run efficient input distribution business including access to credit in order to source inputs in financial viable models Ensure farmers have access to financial services (i.e. credit, insurance, etc. ) in order to facilitate improved input adoption 8 Equip FTCs to act as effective resource centers to promote improved agronomic and on-farm and post harvest practices Train DAs with location specific information and tools to appropriately train local farmers Create public, private or other modalities that facilitate farmer access to on-farm and post-harvest technologies and mechanization 11 Equip coops with the storage capacity and the output financing to properly support farmers on aggregating in order to effectively compete with traders Create more efficient and direct link between coops and domestic and international markets Identification of specific and reliable markets (domestic/international) able to source production from smallholder farmers Develop domestic value addition and processing opportunities that enable smallholder farmers to access higher end market opportunities 14 2 9 12 15 3 7 16 4 13 10 17 5

Maize sheller maintenance ATA and WFP are partnering with Sasakawa Global 2000 to improve access to agro-processing and post-harvesting technology at cooperative union farmer organizations Maize sheller maintenance Grain cleaner repair Engine maintenance Maize unions received the following sheller support: basic maintenance, concave part replacement, and modification of threshing drum spikes and inlets. This maintenance activity was done in workshops, where technicians received on-the-job training on how to maintain the shellers going forward. Grain cleaners have been maintained at the Sidama Elito cooperative union, through collaboration between Saskawa technicians and the Selam Awassa Business Group. Activities undertaken include: repair of oscillating links, replacement of bearings and washers, and threading of shaft Engines for maize shellers and cleaners were serviced and repaired, with attention paid to major components: spark plugs, ignition coils, fuel lines and tanks, and ignition coils. Additionally, on-the-job refresher trainings has been provided to engine operators

The P4P program supports agricultural transformation by providing a large and structured demand sink, and by building aggregation capacity of farmer organizations Farmers Large buyers Efficient aggregators ~ 100,000 maize farmers 16 unions receiving management support WFP Forward contracts for 30,000 MT maize for local WFP use 2012 > 500,000 maize farmers Aggregation by ~ 50 unions; majority efficient and sustainable Forward contracts for up to 300,000 MT cereals for local and regional WFP use By 2015 Source: ATA team analysis

Both domestic and international partners are working together to ensure 30,000 MT of maize is successfully delivered – one of the largest quantity ever sourced from farmer organizations by P4P Institution Regional Cooperative Promotion Agencies Audits Monitoring, Learning & Evaluation Commercial Bank of Ethiopia Output financing TechnoServe and ACDI/VOCA Management support Sasakawa Global 2000 Post-harvest handling training Ethiopian Agricultural Transformation Agency Primary Government liaison Linkages between unions and other partners Forward delivery contracts Technical assistance P4P/WFP Source: ATA team analysis

For example, multiple parties convened to provide forward contracts and enable local banks to provide financing without arduous collateral requirements Forward Delivery Contract Defined quantity, minimum price and delivery period Provides confidence to banks that the unions have a secure market CBE Tripartite agreement Bank, Union and WFP agree payment modalities for deliveries against forward contracts Banks reassured that proceeds will flow through the designated accounts, enhancing probability of repayment Union Management support TechnoServe and WFP provide management support to specific unions to help ensure delivery against contracts, and proper management of output credit provided by banks Third party support provides an extra layer of comfort to banks that financing provided to unions will be well managed Majority of the unions participating in the 2012 trial received financing from the Commercial Bank of Ethiopia, without the usual large collateral requirements Source: ATA team analysis

Support to unions has been provided with sustainability in mind, with a clear exit and path to scale Integrated support to unions WFP forward contracts Total 30,000 MT maize contracts to 16 unions Output financing from Commercial Bank of Ethiopia US $ 4 million total financing Support by TechnoServe, ACDI-VOCA Training and maintenance support provided by SG 2000 and WFP Extension support from SG 2000 Unions graduation path Markets Advanced Finance Intermediate Basic Management Competitive tender No support Storage & Post-harvest handling Soft tender Mild support Direct procurement Intensive support Extension Yr 1- 2 Yr 2- 3 Yr 3 - 5 ~100,000 farmers in 2012 ~500,000 farmers by 2015 Source: ATA team analysis

The first year of implementation has provided several lessons and challenges With proper support, unions can deliver on large forward contracts The “forward” element of these contracts is essential to unlock participation by other players in the value chain, such as local finance providers. This relies heavily on WFP’s food purchase facility Zero-collateral output financing is possible, but requires significant coordination between the buyer (WFP), government agencies (ATA), banks, unions, and management service providers In initial phases, unions require significant amount of on-the-ground management support Unions still lack the physical infrastructure and managerial capabilities needed to aggregate at commercially significant levels Financial institutions still consider agricultural lending to be particularly risky, and they lack the capability to accurately assess this risk Determining and agreeing upon the final purchasing price is particularly time-consuming and inefficient, because of poor market information and general misunderstanding of forward contracts Challenges

Going forward, we see clear value for P4P engagement in developing cereal markets in Ethiopia, and with a long-term vision for Ethiopia transitioning from food aid to food assistance P4P can be leveraged to help develop: A Structured demand Forward contracting with producers Collaboration with financiers to ensure timely and cost-effective aggregation Collaboration with other value chain participants to optimize production and aggregation Improved reliability of production, enabling a transition from food aid to food assistance B Transparency within the value chains Use of WFP purchasing power to encourage transparency across the various levels of the marketing chain, down to farm gate Increased reliability and traceability of product going forward C Commercial-scale aggregation capability Development of a local pool of aggregators with the ability to fulfill large commercial contracts These actors could fulfill large-scale demand from both public and private sector players, as well as domestic and regional markets Source: ATA team analysis