IC and IDG1: Measuring Investment Climate’s Contributions to IDG 1 IDG 1 Working Group 28 January 2013

IDG 1: Current Definitions ♦ IDG 1: “To increase or improve economic and sustainable farming opportunities” ♦ IDG 1 Indicator : “Farmers reached” ♦ Whom to Count? “those farmers who will benefit from (i) improved access to markets, inputs and services; (ii)improved functioning of marekts and services; (iii) improved financial outcomes; or (iv) training on practices to imporve productivity or promote sustainability of their farm operations” ♦ When to Count? AS asked to trigger their farmer count within one year of approval of the implementation plan

IC in Agribusiness ♦ Ultimately IC reaches farmers either through their output markets (improved output prices and/or greater marketed volumes); or through input markets (improved input prices or increased access to inputs): ♦ While IC interventions can follow a number of channels of impacts, the lion’s share of IC interventions share two common channels—and therefore two methodologies—for counting ‘farmers reached’: 1.Reaching farmers through changes in input or output prices 2.Reaching farmers through changes in volumes ( increased demand for output or inputs) ♦ These two methods cover a variety of IC interventions:  Trade logistics in agricultural products and inputs  Industry specific reform in commodity sectors and inputs  Investment generation in agribusiness  Competition reforms along the agribusiness chain

IC IDG 1 Methodology ♦ Note that IC project M&E may not report on quantities and volumes, it may report only an intermediate impact on farmers (e.g. $ of investment generated, time and $ saved etc.) ♦ There are therefore two parts to the IC IDG1 methodology: 1.An assumption (or conversion process) through which an IC M&E outcome leads to a change in price or in quantity. This conversion varies by activity. 2.Calculation of ‘farmers reached’ from a given price / quantity change, which has been standardized for all IC activities (based on IS methodology) Varies by activity Standard across all IC IC Activity Change in Price or Quantity Farmers Reached

From IC impact on volumes to ‘farmers reached’ ♦ IC activities may lead to increased demand for farmers’ output through;  New/additional investments in agro-processing or in corporate farming (e.g. Investment promotion)  A more competitive product market for primary product exports (e.g. trade logistics interventions)  Greater demand for agriculture products due to elimination of restrictions on the number of market participants (e.g. competition reforms in a subsector) ♦ Based on the IS methodology, the number of farmers reached through this volume change is then calculated as follows ΔVolume of production ÷ Av. Yield = Area Area ÷ Av. farm size per farmer = # of farmers

From IC impact on prices to ‘farmers reached’ ♦ Reaching farmers through price changes can happen in either of two ways: 1.Reduction in price of inputs ( e.g. regulatory reform in input markets, trade logistics or competition reforms, etc.) ; and/or 2.Increase in price of an agricultural commodity in a previously distorted market ( e.g. industry price regulation reforms, competition reforms, etc.)

(1) Reduction in price of inputs ♦ Number of farmers reached through (1) reduction in input prices is equivalent to either i. number of farmers known to use that input (through agri-stats, etc.); or ii. if number of farmers using that input is unknown, farmers reached is calculated following IS methodology for input price changes: ♦ This estimation procedure is very conservative. Basic supply and demand theory tells us that such price changes would induce further input uptake (i.e. more farmers reached) but we do not attempt to estimate additional demand following input price reduction Volume of input bought ÷ Av. app. rate = Area Area ÷ Av. farm size per farmer = # of farmers

(2) Increase in price of outputs ♦ Number of farmers reached through a reform which raises the price of their agricultural output, is equivalent to either: i. Number of farmers known to be involved in that commodity’s production; or ii. If the number of farmers producing a particular commodity is unknown, then the number of farmers reached through increase in output prices, follows the same methodology for estimating volume changes (i.e. through the known volume of production in that country) ♦ Data Assumption: Either farm gate prices are available or, if price reform is not at farm gate, some degree of price pass-through assumed ♦ Again, we use a conservative approach that does not estimate along the demand curve, but uses number of farmers at old (lower) price

Summary of Salient Points for the IC IDG 1 Methodology ♦ IC project activity impacts, however reported in project M&E, are assumed or converted into changes on prices and/or volumes in agri markets (e.g. CCS have pass through to prices > 0); ♦ IC activities share standard methodology for calculating farmers reached from either the price or volume impact they have had; ♦ IC IDG 1 approach is conservative (e.g. do not claim farmers reached through increased demand for an input following a price fall, although this is likely to happen)

Annex 1: Example of Increase in Marketed Volume (Rwanda Investment Promotion ) ♦ Key interventions: establishment of a horticulture task force, selection of 26 potential investment sites, 3 investor outreach events,6 investor visits … ♦ Key outcomes: Policy reforms such as enhanced land lease, 3 investment deals signed ($2.8 million) and 6 in the pipeline ($8.2 million) ♦ Specific case: East Africa Growers Company (a signed deal of $1.5 million in avocados) 1. Supply from out-growers 2. Supply from Nucleus farm 3. Total

Annex 1 (con’t) ♦ 182 farmers reached through the other two investment deals signed ($2.8 million in fruits and veg.) and 364 thorough four investments in the pipeline ($1.7 million in fruits and veg.) ♦ The rest two pipeline investments ( $6.5 million in flowers) can reach about 1391 farmers if yield is assumed to be the same as in fruits and veg. ( i.e., 364*6.5/1.7) ♦ Therefore a total number of 2157 farmers reached ♦ Data Source: production & investment (TTL), Crop specific yield (FAO), Farm holding (National Institute of statistics), Labor productivity (same sources but own calculation. See appendix.) ♦ Caveat: Production & investment data would be hardly available at project signing ; a case for moving the IDG trigger for IP to signing investment deals

Annex 2: Example of Decrease in Input Price (Uganda Seeds Sector Reform) Key interventions:  easing requirements in the introduction of new seed varieties  implementing existing rules regarding importing seeds developed in other African countries  Limiting compulsory certification in maize and sunflower Expected outcomes: lower seed price Date Assumption: pass through of compliance cost savings from reform to input prices Data Source: Total Ag. Area (WDI), Current coverage (Concept Note), Average farm holding (Uganda Bureau of Statistics)

Annex 3: Example of Improved Input Prices (Honduras – Fostering Competition in Agri-Inputs) Key interventions:  Foster competition in fertilizers and pesticides market by removing entry barriers and discretionary application of regulations Expected outcomes: greater competition is expected to lower input prices Date Source: Volume of fertilizers (FAO 2010), Fertilizer Application Rate (WDI 2010), Average small holder land size (estimate) Note: Number of farmers reached in the pesticide market is not estimated to avoid double counting with farmers using fertilizers (as these are likely to also use pesticides); note further that the median, rather than average land holding may be preferable