Welfare Effects of a Rice Out-Grower Scheme in Ghana: Challenges and Initial Results from a Randomized Trial Daniel Ali₁, Derick Bowen₁, Eliana Carranza₁, Klaus Deininger₁, Angeli Kirk₁, Markus Goldstein₁, Tricia Gonwa₁ Land and Poverty Conference, Washington D.C. – March 25, 2014 ₁ The World Bank 1

Policy Context & Research Question Strong interest from Sub-Saharan African client governments in projects designed to boost smallholder farmer productivity to achieve poverty reduction, economic growth, and food security. Many projects seek to establish investment promotion infrastructure and public-private partnerships in commercial agriculture – client government projects of this type are planned or under way in Ghana, Senegal, Zambia, Burkina Faso, Tanzania, DRC, and Mozambique. Yet, very little rigorous evidence on the economic and social impact of these and similar projects on smallholder farmers QUESTION: What is the economic and social impact of participation in a contract farming scheme on smallholder farmers in Ghana? Specifically, what is the effect of participation on smallholder technology adoption, knowledge transfer, productivity and profits, net indebtedness and credit constraint, the distribution of resources (e.g. labor and inputs) and profits within the household, investment in the human capital of children (health and education), changes in relationships within the household, and income diversification? How do these impacts differ by gender, wealth, indebtedness, and personality characteristics that have been found to predict entrepreneurial success? 2

COPA-Connect Smallholder Program (CCSP) Outgrower scheme introduced by the Global-Agri Development Company (GADCO) to complement its nucleus rice farm in the Volta region of Ghana (>1,000 ha currently under production). Farmers offered fertilizer, crop protection chemicals, extension services, and mechanization on credit in exchange for exclusive right to purchase the smallholders’ rice paddy for that season. GADCO dries, mills and packages rice product for regional distribution. Enrolled 77 irrigated farmers in pilot program for 2013 major season (April 2013-October 2013) 3

Randomized Trial Design 1600 study sample participants randomly sampled from a population of 2200 irrigated smallholder farmers in two irrigation schemes. Study sample administered baseline survey from July-November 2013 Enrollment in CCSP contract farming program randomly assigned to 800 study sample farmers stratifying on irrigation scheme, gender, number of plots and tenure status. Endline survey to be administered following 4 seasons of program activity from September-November 2015 High-frequency surveys collecting input application and output data to be administered seasonally, starting with 2013 minor season (November 2013-March 2014) Roll-out delay: Only 223 farmers enrolled during season 1. Total enrollment reaches 530 for second season and 800 for third. While treatment status is randomized, enrollment phase-in is not 4

AGENDA 1) Before-after comparison of pilot farmer outcomes 2) Baseline characteristics for study sample by treatment status, location, and gender. 3) Enrollment and Take-up 4) Baseline Smallholder Production & Technical Efficiency 5) Smallholder Profitability 5

PILOT FARMER BEFORE-AFTER COMPARRISON (1) Feasibility Assessment Ɨ (2) Administrative Data (2013 Major) Change in Average (1) ► (2) Percentage Change in Average (1) ► (2) Dry Rice Paddy Harvested per Hectare (Kg)4304*** % NPK-Activia Fertilizer Applied (Kg) % Urea Fertilizer Applied (Kg)134*** % Ammonia Fertilizer Applied (Kg) % Nitrogen Applied per Hectare (Kg) ƗƗ % Total Fertilizer Cost (GHC Major Price) [Observations > 3sd from source mean dropped (one case)] % Cost of Nitrogen Applied per Kilogram (GHC) ƗƗ 1.91*** % Area of Plot Planted (Ha) % Number of Observations 38 Stars are significance levels for t-tests of the equality of means between male and female pilot farmers. * significant at 10%; ** significant at 5%; *** significant at 1%. Ɨ Feasibility Assessment data was collected for 2012 Minor in Kpong and 2012 Major in Weta and Aveyime 9 of the 38 farmers reported here are from Kpong (26 from Weta; 3 from Aveyime). ƗƗ Includes Nitrogen application from Urea and Ammonia only 6

FARMER-LEVEL CHARACTERISTICS BY TREATMENT STATUS TotalControlTreatment N Yield Dry Paddy Yield Per Hectare (KG) Value of Yield per Hectare (GHC) Plot Characteristics Planted Area (Hectares) Parcel Hired-in/Subletted by Primary Cultivator17%18%16%1362 Years Parcel in Use by Primary Cultivator Non-Labor Inputs Any Herbicide Used on Field99% 1295 Any Insecticide Used on Field88% 87%1303 Any Fungicide Used on Field66%65%67%1298 Value of Herbicide Applied per Hectare (GHC) Value of Insecticide Applied per Hectare (GHC) Value of Fungicide Applied per Hectare (GHC) Cultivation Techniques Transplanting Used35% 34%1361 Any Paddy Milled52%54%50%1289 Mechanization Mechanized Ploughing97%98%96%1306 Crop Cut & Threshed Using Combine47%49%44%*1306 Primary Cultivator Characteristics Primary Cultivator is Female36%37%35%1549 Primary Cultivator Main Occupation: Farming HH Plots – Rice88% 1525 Number of Observations

FARMER INCOME PER HECTARE 2012 Major Season KPONG IRRIGATIONS SCHEME WETA IRRIGATION SCHEME REVENUE (Per Hectare - GHC) Revenue Build HARVEST per Hectare (Kg) PRICE (per Kg) VALUE OF INPUTS (SEED, FERTILIZER, CROP PROTECTION - Per Hectare - GHC) Input Cost Margin12%18% MECHANIZATION (PLOUGHING, CUTTING AND THERSHING - Per Hectare - GHC) Mechanization Cost Margin10%12% TOTAL LABOR (Per Hectare - GHC) Labor Cost Margin14%24% Labor Build FIELD PREPARATION LABOR (Per Hectare - GHC) FIELD MANAGEMENT AFTER PLANTING LABOR (Per Hectare - GHC) HARVEST LABOR (Per Hectare - GHC) TRANSPORT (Per Hectare - GHC)13594 Transport Cost Margin2.3%2.6% DRYING (Per Hectare - GHC) Drying Cost Margin1.2%1.7% POST-HARVEST LOSS (Per Hectare - GHC) Post-Harvest Loss Cost Margin3.7%5.8% OPERATING INCOME (Per Hectare - GHC) Operating Margin56%37% INTEREST (Per Hectare GHC) %2.9% NET INCOME (Per Hectare - GHC) %33.8% NET INCOME (Per Hectare - USD)

FARMER-LEVEL FIELD CHARACTERISTICS BY GENDER AND LOCATION TotalMaleFemale KpongWeta Yield Harvest Per Hectare (Kg - Common Rice Units Only) *** *** Value of Yield per Hectare (GHC) ** *** Plot Characteristics Planted Area (Hectares) *** *** Parcel Hired-in/Subletted by Primary Cultivator17%19%14%***20%10%*** Cultivation Techniques Transplanting Used35%34%36%49%3%*** Crop Lifecycle (Days Between Completion of Planting and Completion of Harvest) *** Non-Labor Inputs Any Herbicide Used on Field99%98%99% 98% Any Insecticide Used on Field88% 87%96%67%*** Any Fungicide Used on Field66%63%69%**79%33%*** Any NPK Activia Used on Field98% 97%98% Any Urea Used on Field75%77%72%*70%88%*** Any Ammonia Used on Field83%81%87%***83%84% Mechanization Field Ploughed Using Power Tiller67%69%63%**89%14%*** Field Ploughed Using Tractor30%28%34%**9%82%*** Cutting & Threshing Performed Using Combine47%44%52%***49%40%*** Crop Cut Manually50%54%45%***49%54%* Crop Threshed Manually47%49%42%**49%40%*** Post-Harvest Wastage Average Post-Harvest Loss/Wastage (%)5%4%6%**4%6%*** Main Reason for Post-Harvest Loss Insects13%12%15%16%5%*** Number of Observations

FARMER-LEVEL CHARACTERISTICS BY GENDER AND LOCATION TotalMaleFemale KpongWeta N Household Characteristics Female Headed Household20%3%50%***20%19% Primary Cultivator Characteristics Primary Cultivator Education ***9.47.1***1506 Primary Cultivator Can Neither Read Nor Write (Local Language or English) 27%12%53%***23%37%***1523 Primary Cultivator Currently Holds Political or Traditional Office16%19%9%***16%15%1508 Assets0 Value of Household Physical Assets ***547902***1523 Value of Household Livestock (GHC) *** Credit0 Outstanding Household Loans (Initiated Last 18 Months) ***1583 Principal of Loans (Initiated Last 18 Months) **1583 PC Applied for Any Loan (Last 18 Months)41%43%38%**28%71%*** Income0 Household Received Any Non-Farm Enterprise Income52%53% 48%61%***1584 Household Non-Farm Enterprise Income (Past 12 Months) Any Household Member Received Wage Income32%34%28%**32%31%1540 Household Wage Income (Past 12 Months) ***612354**1540 Total Net Household Income (includes transfers and other income) Number of Observations

Farmer-Level Characteristics By Take-Up Status Total Not Offered Contract (Kpong) Offered Contract (Kpong) Not Offered Contract (Weta) Offered Contract (Weta) Unenrolled (Weta) Enrolled (Weta) Yield Value of Yield per Hectare (GHC) Harvest Per Hectare (Kg - Common Rice Units Only) Land and Fertilizer Planted Area (Hectares) ** NPK-Activia Applied Activia Per Hectare (Kg) * Urea Applied Activia Per Hectare (Kg) * Ammonia Applied Ammonia Activia Per Hectare (Kg) Cultivation Techniques Crop Lifecycle (Days Between Completion of Planting and Completion of Harvest) Transplanting Used34%47%53%4%2%0%2% Assets and Credit Value of Household Physical Assets Outstanding Household Loans (Initiated Last 18 Months) Income Household Received Any Non-Farm Enterprise Income 53%50%49%69%56%**50%58% Household Non-Farm Enterprise Income (Past 12 Months) ** Total Net Household Income ** Primary Cultivator Characteristics Primary Cultivator is Female35%34%37%31%39%37%40% Primary Cultivator Education * Primary Cultivator Can Neither Read Nor Write (Local Language or English) 26%23% 27%39%*50%33%* Primary Cultivator Currently Holds Office16% 19%16%15%20%12% Number of Observations

PRODUCTION FUNCTION ESTIMATION FOR IRRIGATIONS SCHEME FARMERS AT BASELINE (1)(2) Cobb-DouglasTranslog Log Value of Insecticide Applied (GHC) (-0.014)(-0.020) Log Value of Herbicide Applied (GHC) (-0.012)(-0.014) Log Value of Fungicide Applied (GHC) *** (-0.011)(-0.012) Potassium and Phosphorus Applied (Kg)0.186***0.236*** (-0.034)(-0.036) Nitrogen Applied (Kg)0.173***0.127*** (-0.041)(-0.047) Log Mechanized Ploughing Cost (GHC)0.138***0.139*** (-0.036)(-0.041) Log Mechanized Cutting & Threshing per Hectare (GHC) 0.090***0.137*** (-0.030)(-0.035) Total Labor (Days)0.051**0.040* (-0.023)(-0.024) Log Planted Area (Hectares)0.484***0.439*** (-0.051)(-0.052) Transplanting Used0.096***0.091*** (-0.030) Parcel Owned by Primary Cultivator (-0.031) Weta Irrigation Scheme-0.302***-0.289*** (-0.073)(-0.079) Female Primary Cultivator-0.081***-0.073** (-0.031) Primary Cultivator Can Neither Read Nor Write (Local Language or English) * (-0.035)(-0.034) _cons7.111***6.916*** (-0.575)(-0.509) Number of observations1,440 Adjusted R2(0.607)(0.616) Note : Includes Enumerator Fixed-Effects *** p<0.01, ** p<0.05, * p<0.1 12

TE Overall63.9 Kpong64.7*** Weta61.2 Female60.9*** Male65.4 Rent64.9 Own63.6 Loan Outstanding61.7** No Loan Outstanding64.4 Bravo et. Al (2006) - TE for Rice Production (28 studies) 72.4 Technical Efficiency by Sub-Group 13

CHANGE IN COST STRUCTURE BASELINECCSP SEED % 180 NPK-ACTIVIA % 255 UREA & AMMONIA % 250 HERBICIDE INSECTICIDE AND FUNGICIDE % 311 MECHANIZED PLOUGHING 297 2% 304 MECHANIZED CUTTING AND THRESHING % 439 FIELD PREPARATION LABOR 268 0% 268 FIELD MANAGEMENT AFTER PLANTING LABOR 316 0% 316 HARVEST LABOR % 104 TRANSPORT % 30 DRYING POST-HARVEST LOSS % 106 IRRIGATION CHARGE 50 0% 50 INTEREST MILLING AND PACKAGING TRAINING/MANAGEMENT/OVERHEAD CHARGE TOTAL INPUT COST % 3602 FARMER PROFIT COST INCREASE1091 EQUIVALENT YIELD INCREASE21% YIELD INCREASE REQUIRED TO BREAK EVEN UNDER 30% PROFIT SHARING43% Moderate Increase in Yield (28%) & Price (25%) would modestly raise farmer profit by (19%) under 30% profit sharing assumption PROFIT UNDER 28% INCREASE IN YIELD AND 25% INCREASE IN PRICE PER DRY KG PERCENTAGE INCREASE 19% PER SEASON INCREASE PER HECTARE (GHC) 599 ANNUAL INCREASE PER HECTARE (GHC) 1198 COST OF CAPITAL 23% BREAK-EVEN SUBSIDY PER HECTARE

Thank you! 15

Appendix 16

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