Value Chain Financing Assessment and Primary Actors' Mapping For

Value Chain Financing Assessment and Primary Actors’ mapping for Priority Value Chains Feed the Future Ethiopia Livelihoods for Resilience – Oromia(LRO) Catholic Relief Services Rashmi Ekka, Sal International August 2019

This publication is made possible by the generous support of the American people through the United States Agency for International Development (USAID), as part of the U.S. government’s Feed the Future initiative. The contents are the responsibility of the authors and do not necessarily reflect the views of USAID or the United States Government. Catholic Relief Services Catholic Relief Services is the official international humanitarian agency of the United States Catholic community. CRS’ relief and development work is accomplished through programs of emergency response, HIV, health, agriculture, education, microfinance and peacebuilding. CRS eases suffering and provides assistance to people in need in more than 100 countries, without regard to race, religion or nationality. Sal International Sal International is an international development consulting firm, founded on the principle that market-driven business approaches for agriculture and financial inclusion, can scale up impact-oriented solutions using an inclusive multi- stakeholder approach. Sal International is a woman-owned small business. Photo credit: Mulat Alemayehu, an LRO-Supported Agro-dealer in Boset Woreda, Photo taken by Siyane Samuel, 2019

Table of Contents 1 Executive Summary ...... 7 2 Background ...... 10 3 Methodology ...... 11 3.1 Insights on Agricultural Finance Landscape in LRO Woredas ...... 12 3.2 Insights on Inputs Supply System in LRO Woredas ...... 13 4 Value Chain Finance Strategy by Focus Crop ...... 15 4.1 Wheat ...... 15 4.2 Haricot Bean ...... 17 4.3 Onion ...... 19 4.4 Red Chili Pepper ...... 21 4.5 Potato ...... 23 4.6 Livestock Fattening ...... 25 4.6.1 Ox Fattening ...... 25 4.6.2 Sheep and Goat Fattening ...... 26 4.6.3 Poultry ...... 28 5 Analysis of Focus Value Chains by Woreda ...... 30 6 Recommendations for Interventions ...... 31 6.1 Intervention #1: Upgrade Input Systems and Input Financing ...... 31 6.2 Intervention #2: Farmer Profiles ...... 33 7 Overall Recommendations for Value Chain Finance ...... 35 8 Annex ...... 38 8.1 Annex A: Value Chain Actor Mapping ...... 38 8.1.1 Actors Serving Several Value Chains ...... 38 8.1.2 Wheat Value Chain Actors ...... 39 8.1.3 Haricot Beans Value Chain Actors ...... 39 8.1.4 Onion Value Chain Actors ...... 40 8.1.5 Red Chili Pepper Value Chain Actors ...... 41 8.1.6 Potato Value Chain Actors ...... 41 8.1.7 Livestock Value Chain Actors ...... 42 8.1.8 Poultry Value Chain Actors ...... 43 8.2 Annex B: Market Systems Development Methodology ...... 44

8.3 Annex C: Institutions Interviewed ...... 45 8.4 Annex D: Target PSNP Beneficiaries and No. of Beneficiaries Trained by Sector ...... 47 8.5 Annex E: Financing Mechanism by Value Chain ...... 47 8.6 Annex F: Data collection Instruments ...... 48 8.6.1 Value Chain Actor Mapping Workshop Agenda - Jul 2, 2019 ...... 48 8.6.2 Focus group guidelines for Farmer groups ...... 51 8.6.3 Questionnaire guidelines for Cooperatives/Associations of Farmers ...... 53 8.6.4 Questionnaire Guidelines for Financial Institutions ...... 54 8.6.5 Questionnaire guidelines for Agro-Dealers ...... 55 8.6.6 Questionnaire guidelines for Potential Lead Firms ...... 56 8.6.7 Questionnaire guidelines for Other value chain supporting actors ...... 57

List of Figures Figure 1: LRO Target Woredas...... 10 Figure 2: Assessment Approach ...... 11 Figure 3: Wheat Value Chain Finance Needs and Opportunities ...... 15 Figure 4: Haricot Bean Value Chain Finance Needs and Opportunities ...... 17 Figure 5: Onion Value Chain Finance Needs and Opportunities ...... 19 Figure 6: Red Chili Pepper Value Chain Finance Needs and Opportunities ...... 21 Figure 7: Potato Value Chain Finance Needs and Opportunities ...... 23 Figure 8: Livestock Fattening VCF Needs and Opportunities ...... 25 Figure 9: Poultry Value Chain Finance Needs and Opportunities ...... 28

List of Tables Table 2: Finance Strategies for Wheat ...... 16 Table 3: Finance Strategies for Haricot Beans ...... 18 Table 4: Finance Strategies for Onions ...... 20 Table 5: Finance Strategies for Red Chili Pepper ...... 22 Table 6: Finance Strategies for Potatoes ...... 24 Table 7: Finance Strategies for Livestock Fattening ...... 27 Table 8: Finance Strategies for Poultry ...... 29 Table 8: Number of PSNP Beneficiaries by Woreda and Value Chain ...... 30

Acronyms ATJK Adami Tulu Jido Kombolcha CRS Catholic Relief Services FI Financial Institutions FTF Feed the Future GRAD Graduation with Resilience to Achieve Sustainable Development Activity LRO Livelihoods Resilience – Oromia MCS Meki Catholic Secretariat OCSSCO Oromia Credit and Savings Share Company PSNP Productive Safety Net Programme ROI Return on Investment RuSACCO Rural Savings and Credit Cooperatives SILC Savings and Internal Lending Communities USAID United States Agency for International Development VC Value Chain VCF Value Chain Finance

Acknowledgements This report was made possible by the support of the Feed the Future Ethiopia Livelihoods Resilience – Oromia (LRO) project with leadership from Ian de la Rosa, Haile Dolongo, Getahun Shimelis and Tamrat Woldegiorgis. This assessment demonstrates a deep commitment to better understand how CRS can support and scale inclusive access to finance for agriculture in Oromia. I am grateful to the CRS and Meki Catholic Secretariat team who participated in data collection, analysis and ideation: Abebe Getachew, Aferahu Tekle, Demise Assefa, Gemechu Godana, Habtamu Bacha, Shambel Mohammed, Siyane Samuel and Tsegaye Esseye. Finally, I thank Dereje Legesse for leading the CRS and MCS team for the field research and for his expertise in making value chain finance recommendations. This assessment was led and written by Rashmi Ekka. Rashmi Ekka Principal, Sal International [email protected] August 2019

1 Executive Summary Access to finance has been identified as a limiting factor for many value chain actors and is a significant barrier in the actor’s ability to increase their capacity and efficiency. In particular, Livelihoods Resilience – Oromia (LRO) Activitiy’s target Productive Safety Net Programme (PSNP) smallholder farmers face numerous difficulties in moving from producers that sell informally at local markets to brokers, to producers for more sophisticated markets that are based on supplying products that comply with specific consumer demand. Their difficulties include: poor access to inputs, timely delivery of inputs by cooperatives and/or government extension system in a timely manner, high cost of inputs like seeds, fertilizer or feed, poor access to veterinary services, lack of capacity (human and financial) to adopt improved agricultural techniques to increase yields, weak farmer organizations, low investment in postharvest management and technology, limiting economies of scale necessary to attract reliable buyers, insufficient transport, difficulties in meeting quality requirements and lack of access to credit for equipment, inputs and labor for production, among others. Given these challenges, increasing access to finance is an essential step to help farmers and other value chain actors to increase their capacity and productivity and thereby income in their current scale of operation. This assessment has been done for the Feed the Future Ethiopia Livelihoods for Resilience – Oromia project being implemented by Catholic Relief Services, to explore alternative sources of finance for farmers, and in particular value chain finance. Agricultural value chain finance has been successful in many developing countries and offers the opportunity to reduce cost and risk in financing smallholder farmers in the value chain. The term value chain finance is used to reference both internal and external forms of finance that are developed along the value chain: 1) Internal value chain finance takes place between actors within the value chain. For eg. from an agro-dealer to a farmer or from a processor to a cooperative. 2) External value chain finance is an arrangement where a loan is given by a formal financial institution based on value chain relationships and mechanisms. For eg. a bank gives a loan to a farmer based on a contract with a large-scale processor who will off-take the product at harvest. In the LRO focus woredas, options for value chain finance are limited largely because of the absence of large firms that can serve the role of lead firms. Lead firms are essential to value chain development and finance as they can take a leadership role in the value chain and work to streamline it. Strong lead firms that are committed to working with smallholder farmers can provide embedded financing and/or establish tri-party agreements with Financial Institutions (FIs) to finance producers and input suppliers. In Ethiopia, the agriculture value chain finance landscape is challenging for all market actors including PSNP farmers and Financial Institutions. Most value chains in the target woredas operate at an informal level and are deeply fragmented. Many value chains are characterized by powerful informal actors such as brokers, traders and wholesalers, which makes streamlining difficult. PSNP farmers are not well organized and have limited bargaining power. This has led to a situation

7 where farmers were not able to get the best price. Also, the financial system in Oromia has low liquidity which makes financial institutions hesitant to lend to PSNP farmers who are viewed as risky clients. Finance Recommendations: The assessment’s recommendations can be categorized into three common types of mechanisms. Direct Product Finance: direct loans from formal financial institutions such as Banks and Microfinance Institutions, and community-based financial institutions such as Savings and Internal Lending Communities (SILCs), RuSACCOs and unions. Input Supply Finance: Agro-dealers provide in-kind credit to farmers by advancing inputs. Repayment is done at harvest or other agreed time. The cost of the credit is embedded in the price of the inputs. Input supply credit enables farmers to access inputs in a timely manner while increasing sales for the agro-dealers. Lead Firm Financing: A lead firm such as a processor or even a Union can either directly finance farmers or facilitate access to finance from a financial institution on the basis of a sales contract. Lead firm financing on the basis of contract farming, not only enables farmers to access finance, but often also includes technical assistance and market access. At the same time, lead firms are ensured quality and timely products. Intervention Recommendations The assessment delves into detailed recommendations for two major interventions that can have an outsized impact on the agriculture sector and exponentially increase agricultural lending sustainably. • Intervention #1: Boost production by increasing input finance through partnerships with agro-dealers, large-scale input suppliers and financial institutions; • Intervention #2: Organize and profile farmers to show increases in agricultural and financial capabilities, reduce information asymmetry and increase visibility and credit- worthiness of PSNP beneficiaries. Principles for success: • Build interventions to leverage existing LRO investment. • Private sector engagement is key. Financing arrangements are most successful once trust is established between farmers and buyers. • Many PSNP farmers are focused on crops with low Return on Investments (ROI), most notably haricot beans (4,899 PSNP beneficiaries) and livestock rearing (14,698 PSNP beneficiaries). Value chain approach at the project level has to be combined with household level planning to ensure that households have year-round cash flow and maximize their most productive season.

• Create demonstration effect to encourage farmers to move to high value crops in their cropping calendar. This can be further encouraged by working with Financial Institutions (FIs) to ensure that high value crops are adequately financed. • Value chain financing is based on the strength of the value chain – all-round value chain development is very important with a focus on increasing productivity and market linkages.

2 Background The Feed the Future Ethiopia Livelihoods Resilience - Oromia (LRO) is a household and community resilience building activity implemented by CRS and Meki Catholic Secretariat (MCS) which runs from February 1, 2017 through January 31, 2022. The key objectives/purposes of the activity are: • Increased income and diversification through crop and Livestock opportunities; • Increased income and diversification of off-farm livelihood options; • Increased income from gainful employment; and • Increased innovation, scaling and sustainability of livelihood pathways.

The LRO project is implemented in nine woredas from three zones of (East Shoa, Arsi and West Arsi) in Oromia regional state. The target woredas are Arsi Negelle, Shalla, Siraro, Adami Tulu Jido Kombolcha (ATJK), Ziway Dugda, Dodota, Sire, Heben Arsi and Boset. The project aims to reach 24,500 households that are part of the Productive Safety Net Programme (PSNP). The Program provides a safety net for households that are both chronically food insecure and poor, and often affected by shocks. The Program provides cash or food payments against public works that build local infrastructure or protect natural resources. Poor and vulnerable households with limited labor capacity receive unconditional direct support payments. LRO aims to extend access to finance for 75% of the PSNP households it is serving. This report shares the results from a value chain financing assessment and primary value chain actors mapping that was conducted for LRO in July 2019. The report includes information on methodology, insights on agricultural finance landscape in LRO woredas, insights on input supply system in LRO woredas, value chain finance strategy by focus crop, analysis of focus value chains by woreda and strategies and recommendations.

Figure 1: LRO Target Woredas

3 Methodology The value chain financing assessment’s scope included five crop and three livestock value chains. The targeted value chains are: Crop Value Chains • Wheat • Haricot bean • Onion • Red pepper • Potato Livestock value chains

• Oxen fattening • Sheep/goats fattening • Poultry production The assessment team used the following human centered design approach to analyze the market dynamics for the crops and access to finance for market actors. Figure 2: Assessment Approach

Listening from Data analysis and Intervention Stakeholders Ideation Prototyping

•Employing a human- •The large amounts •The team selected 2 centered design of data collected ideas to develop methodology from the field into interventions. approach, the research was The process assessment team synthesized to accounted for interviewed 37 provide insights, barriers, resource organizations opportunities and constraints and including producer intervention stakeholder buy-in, unions, processors, implications. to guide CRS in financial institutions, •The interviews carrying the agro-dealers and uncovered value intervention government officials. chain partnership forward. We also conducted opportunities that •The selected ideas 7 farmer focus can better serve are (i) boosting groups. PSNP farmers. production by •The interviews •The team generated increasing input focused on intervention ideas in finance and (ii) deepening the a collaborative Profiling farmers to understanding session, using reduce information related to the various tools to asymmetries and different issues that stimulate thinking. increase visibility are part of the and credit- agriculture financing worthiness of PSNP challenge. farmers.

3.1 Insights on Agricultural Finance Landscape in LRO Woredas

Insights on PSNP Clients by Financial Institutions • Work on dependency syndrome of PSNP farmers to make them more business-oriented • Clients have previously failed to repay loans • Youth are seen as high-risk clients as they don’t often have collateral and are also highly mobile • Remoteness of PSNP farmers makes them harder to serve for FIs Insights on Access to Finance Landscape from Financial Institutions • Interested in strengthening Agriculture lending, however, recent history of defaults because of droughts, makes FIs vary of increasing their Agriculture portfolio • FIs interested in seeing clients with diversified income sources including petty trade • Request to facilitate connection between potential members and the FI • Request to facilitate increase in liquidity for small FIs • Request for capacity building for members and management in business management, cooperatives management, bookkeeping, savings and credit management, and SILC methodology Assessment Team’s Observations • Loan approval process is long and bureaucratic and loan sizes often don’t meet farmer’s investment needs. • Low liquidity in the banking sector has led to financial institutions having a very low risk appetite. Financial institutions are unwilling to lend to clients who have previous defaults which were more than 3 years back despite the MOU with LRO. • Support from Unions to SACCOs is very low. Unions have some liquidity but are not giving appropriate funding for on-lending to Primary Cooperatives. • Low capacity of RuSACCOs1 - Many RuSACCOs are not giving out loans and don’t function very well. RuSACCOs don’t have an agricultural loan product and give 3x savings as a loan. • Loan amounts are small. Average Loan size is ETB 6,000 (USD 208) on average. Farmers have to use a mix of approaches to invest in production – SILC, RuSACCOs, MFIs, sale of livestock, and Trader Finance. • MFIs presence in rural areas is very limited due to poor infrastructure and low population density. • Unfriendly regulatory environment for creating agent networks that may assist in increasing financial services to rural areas.

1 Refer to the CRS Financial Capacity Assessment Report (2018) that listed a number of challenges that RuSACCOs faced. 12

• Unfriendly telecommunication regime including high prices and low density of cash in/cash out M-birr agents, inability to push and pull mobile money to and from bank accounts, low digital literacy and poor infrastructure make digital financial services hard to scale. • PSNP Youth have trouble accessing the Youth Revolving Loan fund because of bureaucratic inefficiencies in processing and awarding the applications. • Only few FIs have women and youth focused financial products. 3.2 Insights on Inputs Supply System in LRO Woredas

Capacity of Private Agro-dealers • Many Agro-dealers recorded a turnover in their business of ETB 300,000 - 500,000 per month • PSNP clients demand small pack sizes at low prices. • Private agro-dealers have experience giving inputs on credit to farmers they know. PSNP farmers can rarely afford to buy a full input package on a cash basis. No partnerships with FIs for working capital to finance farmers. • Agro-dealers visit farms to make sure that the farm is good. They have strong information about the farmer and give loans to farmers based on their relationship. • Some agro-dealers are interested in expanding their business with new outlets • They provide capacity building to their clients • Agro-dealers need support for storage of input supplies Input Supply and Finance Landscape with focus on Private Agro-dealers • Ensure that business with agro-dealers and any loans from them are not viewed as hand- outs because of the project’s involvement (experience from GRAD project)

• Private Agro-dealers are not part of Government’s Input Voucher System • Agro-Dealers don’t have access to finance with favorable terms from Formal Financial Institutions or Large-scale Input Suppliers. • All Private agro-dealers state that they sell to individual farmers and not as groups/associations/cooperatives.

4 Value Chain Finance Strategy by Focus Crop

4.1 Wheat Wheat has a high-income potential and is a profitable crop with a return on investment estimated at 80% in LRO target woredas. LRO is targeting 1,743 wheat farmers with Arsi Negelle being a focus Woreda. Improving access to improved seeds and other inputs can help farmers who already have a competitive advantage to further boost their production and increase their marketable surplus. Insights from wheat farmers: ● Production practices: Trained Farmers have started modern production using improved seeds and fertilizers in the past two years after they have received technical training by the support of LRO project ● Challenges: shortage of labor, lack of inputs (fertilizers and improved seeds), high price of Agricultural inputs and limited financial capacity ● Risks: Market fluctuation, drought/climate change impacts, pest and diseases attack are common risks of crop production ● Buyers: Local traders and Multipurpose Cooperatives ● ROI: 80% - investment is 14,400 per ha. 56% of the investment is for inputs. ● Current Finance: The farmers interviewed are currently using loan received from Metemamen MFI for inputs purchases and production and some of them also receive additional loan from local trader for harvesting costs. Figure 3: Wheat Value Chain Finance Needs and Opportunities

Table 1: Finance Strategies for Wheat Strategy 1: Work with Big Financial Strategy 2: Engage big financial institutions Institutions such as established Microfinance such as the Cooperative Bank of Oromia to Institutions and banks to lend to Agro- increase lending to Lume Adama and Uta dealers so that they can increase lending to Wayu Union and work with the unions to PSNP farmers growing wheat. More details increase financial flows to the primary on lending through agro-dealers provided in cooperatives and there on to the farmers. the intervention section. Flow of Finance: MFI/Big Financial Flow of Finance: Big Financial Institution Institution → Agro-dealers → PSNP Farmers such as Cooperative Bank of Oromia → → → Unions Primary Cooperatives PSNP Farmers Who’s buy-in do you need? Financial Who’s buy-in do you need? Financial Institutions, Agro-dealers, Unions and Institutions, Unions and Cooperatives and Cooperatives and PSNP Farmers PSNP Farmers Potential Lead Actor: Private Agro- Potential Lead Actor: Unions such as Uta dealers Wayu and Lume Adama CRS Facilitation: Professionalize agro- CRS Facilitation: Work with Unions and dealers credit management systems and Cooperatives to access loans and manage abilities liquidity and annual planning Benefits: Farmers can easily access finance Benefits: Channels for financing from Union without a lengthy process and obtain needed to Cooperative to Farmers already in place, inputs in a timely manner. Agro-dealers are however not effective currently because of well familiar with farmers and lending is done lack of liquidity. Secures product for the on a relationship basis. Assured sales for the Union for marketing and helps in their agro-dealer. planning. Geographic focus: Most of the wheat farmers identified by the project are in Arsi Negelle followed by Dodota and Adami Tulu. Uta Wayu Union is in Shashemane and Lume Adama Union is in Mojo. Wheat activities should be focused in this area. Technical Assistance for Success • Create market linkages. Create market linkage through direct sales to millers and agro-processors of pasta, breads etc. and reduce imports of wheat. The project should explore contractual agreements with processors with the aim to generate contracts that can lead to financing (either from the buyer or from a formal financial institution). • Strengthen cooperatives and unions. Farmers who are organized and collectively aggregate, market and process the grain will have a strong profit advantage. Work with Unions to increase financial and inputs flow to the farmers.

4.2 Haricot Bean Development of the haricot beans value chain offers potential for improving smallholders' nutrition as well as soil health (inter-cropping is a traditional practice). 4,899 PSNP farmers have chosen to grow haricot beans, most of them from Siraro, followed by ATJK, Negelle Arsi and Shalla. The primary end market opportunity for haricot beans is exports to European and American markets as well as local consumption in the form of foul. Increasing farm-level productivity while enhancing farmer's access to markets is important, for this to be a profitable crop. Because of low market prices (influenced by world market prices), and disease such as rust, the crop has a low return on investment, however the crop has benefits for soil health, employment generation and nutrition. Insights from haricot bean farmers:

• Main Challenges - Reliable seed source and agro-chemical supply • Risks - Low Productivity due to low effectiveness of the inputs • Buyer: Negelle Arsi market (Woreda level market). Abera is a famous buyer stationed at Negelle Arsi. • Need financing for: Inputs like seed, fertilizer purchase, transplanting and agrochemical purchase and production mostly comprising of labor cost • Current Finance: Currently taking loan from SILC between 200 to 400 Birr. Previously had loan from Metamamen MFI that they were unable to repay because of bad weather conditions Figure 4: Haricot Bean Value Chain Finance Needs and Opportunities

Table 2: Finance Strategies for Haricot Beans Strategy 1: Strengthen non-functional Strategy 2A: Work with big processors RuSACCOs and encourage SILC members to and exporters such as ACOS and facilitate join RuSACCOs contract farming with loans. Strategy 2B: If ACOS does not have liquidity work with a FI for a tri-party arrangement Flow of Finance: RuSACCOs → Farmers Flow of Finance: ACOS → Farmers Or FI → Farmers with ACOS Contracts Who’s buy-in do you need? Farmers, Who’s buy-in do you need? ACOS, SILCs, RuSACCO Management Farmers and Potentially FIs Potential Lead Actor: RuSACCOs Potential Lead Actor: ACOS CRS Facilitation: Increase capacity of CRS Facilitation: Facilitate dialogue RuSACCOs and increase their membership. between farmers and ACOS and encourage Also ensure market for farmers ACOS to have a contractual relationship with the farmers Benefits: Strengthen community based Benefits: Secured product quantity at good financial institutions and farmers ability to quality and price organize themselves Geographic focus: Adama and Shashmane for the Buyers and Processors. Siraro, ATJK, Negele Arsi and Shalla for the growers Technical Assistance for Success • Intensify production. Work to increase improved seeds and agro-chemical package availability to farmers in a timely manner. This will greatly improve yield and make haricot bean farming more appealing to farmers. • Aggregation of produce. Farmers grow small quantities of haricot beans as they are inter-cropped with maize. Aggregation of produce at the Kebele level will increase farmer’s ability to bargain and sell directly to big buyers such as ACOS, by- passing traders. • Direct linkages with buyers. A contract with ACOS or other big exporters will be crucial to the development of the haricot bean farmers, so that they can have a higher fraction of the total value. Relationship with buyers will also make it easier for producers to meet quality requirements. The project should explore partnership opportunities with ACOS, where the farmers can find a ready buyer for their haricot bean produce.

4.3 Onion Trader Finance: Commission and Onions are one of the most important vegetables Profit Sharing produced in Ethiopia and used in almost all traditional Due to lack of appropriate source of dishes. Currently, only 225 PSNP farmers targeted by financing, farmers go to traders for LRO are engaged in onion farming. The area under onion financing as a last resort. The cultivation is increasing due to its high profitability, ease arrangement is as follows: The trader of production and increased use of small-scale irrigation invests all the capital requirement s systems, however the high investment cost is a barrier including input supply, labor and for PSNP households. harvest cost. The trader arranges the sale, during which he deducts his Insights from Onion Farmers: investment first. The remaining net • Main Challenges - high input prices, low quality revenue is shared equally between the farmer and the trader. If there is a loss vegetable seeds with low germination rate, and the trader cannot recover his water pump access, repair and maintenance investment, then the land is taken cost. away from the farmers and cultivated • Risks – Poor onion seed variety and quality and by the trader until he gets back all the price fluctuation. investment. • Buyer: buyers are traders from Ziway and local market. • Financing: Self-financing, SILC, from relatives and friends, share cropping, MFIs (OCSCO, Bussa Gonofa, Meklit MFI) • Need financing for: Input purchase, planting and harvesting time. • ROI is high at 133%. Investment per season is 60,000 ETB/HA • Other thoughts: Need Motor pump repair and maintenance services, Crop sharing production with trader finance is a last resort for farmers. Figure 5: Onion Value Chain Finance Needs and Opportunities

Table 3: Finance Strategies for Onions Strategy 1: Work with Big Strategy 2: Encourage direct Strategy 3: Encourage Financial Institutions to lend to lending from Financial lending from Meki Batu Agro-dealers so that they can Institutions to Farmers at the Union for inputs increase lending to PSNP right loan size. Currently loans farmers growing onions. More average ETB 5000 which is not details on lending through agro- sufficient for even a quarter dealers provided in the hectare of onions intervention section. Flow of Finance: MFI/Big Flow of Finance: Financial Flow of Finance: Financial Institution → Agro- Institutions → Farmers Unions → Farmers dealers → PSNP Farmers Who’s buy-in do you need? Who’s buy-in do you need? Who’s buy-in do you Financial Institutions, Agro- Financial Institutions and need? Unions dealers and PSNP Farmers Farmers Potential Lead Actor: Potential Lead Actor: Potential Lead Actor: Private Agro-dealers Financial Institutions Meki Batu Union CRS Facilitation: CRS Facilitation: Share the CRS Facilitation: Meki Professionalize agro-dealers high profit potential of onions Batu Union may have a credit management systems and with FIs and encourage higher liquidity challenge that abilities loan sizes for onion farming CRS can help facilitate Benefits: Agro-dealers are Benefits: Farmers can access Benefits: Farmers can well familiar with farmers and formal finance with the right access inputs and lending is done on a loan size and get away from markets through the relationship basis. Assured sales predatory lending from Union for the agro-dealer. traders. Geographic focus: Focus onion production and value chain development in areas with access to irrigation Technical Assistance for Success • Improve production practices: CRS should partner with Melkassa Agriculture Research Center to provide training on good production practices for farmers including best seed varieties to use, plant nutrient management crop water requirements and scheduling, spacing and disease and insect pest control • Strengthen farmer marketing groups – Onion value chain is characterized by strong influence of brokers and wholesalers. Organizing farmers into marketing groups will increase their bargaining power. • On-farm or at home storage – Farmers do not have a space to store their onions under optimum conditions (dry with good air circulation). Farmers should be trained in building simple and safe storage structures, so they do not have to sell immediately at harvest.

4.4 Red Chili Pepper Ethiopia is one of the world’s largest producers of peppers. The red chili peppers are dried, powdered and go into the two most popular spice mixes of berbere and mitmita. Only 119 PSNP farmers are being engaged in red chili pepper farming by LRO. This crop has a very high profit potential and more farmers should be engaged in it. Additionally, more processing especially drying of red peppers as well as processing into spice mixes should be considered at the marketing group level for women marketing groups. Insights from red pepper farmers: • Main Challenges - Red Pepper disease: Late blight, root rot, worm. • Risks - Red Pepper seed Variety and quality

• Buyer - Our buyers are traders from Addis Ababa, Adama and Koshe (near to Butagirra). • Financing – Self-financing (selling ox ), SILC, from relatives and friends, loans from Metemamen MFI and Oromia Credit and Savings Share Company. • Need financing for - Input: for seed, fertilizer purchase, transplanting and agrochemical purchase. • ROI is 400% - investment is ETB 20,000/HA • Other thoughts - Need Quality seed (on time with reasonable price) Training, Monitoring and follow ups Figure 6: Red Chili Pepper Value Chain Finance Needs and Opportunities

Table 4: Finance Strategies for Red Chili Pepper Strategy 1: Work with Big Strategy 2: Encourage Strategy 3: Catalyze big FIs to lend to Agro-dealers direct lending from Financial processors such as large so that they can increase Institutions such as bigger Baltenas and international lending to PSNP farmers Microfinance Institutions and companies such as Unilever growing red chili. banks to Farmers at the right to buy from PSNP farmers loan size. and finance them Flow of Finance: MFI/Big Flow of Finance: Financial Flow of Finance: Big Financial Institution → Agro- Institutions → Farmers Baltena → Farmers → dealers PSNP Farmers Or FI → Farmers with Big Baltena Contracts Who’s buy-in do you Who’s buy-in do you Who’s buy-in do you need? Financial Institutions, need? Financial Institutions need? Baltena, Unilever – Agro-dealers and PSNP and Farmers Knorr brand shiro and other Farmers products for local market Potential Lead Actor: Potential Lead Actor: Potential Lead Actor: Big Private Agro-dealers Financial Institutions Processor CRS Facilitation: CRS Facilitation: Share the CRS Facilitation: Facilitate Professionalize agro-dealers high profit potential of contract farming and value credit management systems onions with FIs and chain finance deals and abilities encourage higher loan sizes for onion farming Benefits: Farmers can easily Benefits: Farmers can Benefits: Secured product access finance without a access formal finance with quantity at good quality and lengthy process and obtain the right loan size and get price needed inputs in a timely away from predatory lending manner. Agro-dealers are from traders. well familiar with farmers and lending is done on a relationship basis. Assured sales for the agro-dealer. Geographic focus: Areas with access to irrigation Technical Assistance for Success • Training on better production - Chili peppers are susceptible to rot and mold. Farmers need training on how to reduce physiological and pathological disorders. They also need training on reducing postharvest losses • Promote local processing and packaging – Promote small-scale processing and packaging at the village level by women’s marketing groups to gain a larger share of value.

4.5 Potato Potatoes are one of the most popular vegetables in Ethiopia and are eaten in traditional vegetarian dishes as well as French fries and chips. Potatoes offer a high return on investment to farmers.1,337 PSNP farmers are growing potatoes with a majority of them in Siraro. The potato value chain is informal and farmers struggle with storing seed potatoes for use in the next season and often buy from other regions. Senselet Food Processing is potato processing company which is selling the Sun Chips brand in Ethiopia. This company is open to working with smallholder farmers and can be a potential lead player that can integrate the value chain. Insights from Potato Farmers: • Main Challenges - Disease: Worm, late blight, root rot; moisture stress (water shortage); procurement and high price of inputs; Lack of Finance access/support; Distribution of forged fertilizer

• Buyer - Local market retailer, potato cooker/processor, local trader(Hotel & Restaurant) • Financing - Self-financing (wage), SILC, from close relatives and friends. • Need financing for - Input: for seed, fertilizer purchase, planting and agrochemical purchase. Loans from Oromia Credit and Savings S.C, RuSACCO, Vision Fund • ROI 208% - investment is ETB 37,400/ha • Other thoughts - the government should control the contraband of forged fertilizers, Quality seed provision (on time with reasonable price), Capacity building Training Figure 7: Potato Value Chain Finance Needs and Opportunities

Table 5: Finance Strategies for Potatoes Strategy 1: Encourage direct lending from Strategy 2: Facilitate contract farming and Financial Institutions such as bigger value chain finance in partnership with Microfinance Institutions and banks to Senselet Food Processing Farmers at the right loan size. Currently 1 ha of potato requires an investment of ETB 37,000 Flow of Finance: Financial Institutions → Flow of Finance: Processor → Farmers Farmers Or FI → Farmers with Senselet Contracts Who’s buy-in do you need? Financial Who’s buy-in do you need? Senselet Food Institutions and Farmers Processing Potential Lead Actor: Financial Potential Lead Actor: Senselet Food Institutions Processing CRS Facilitation: Share the high profit CRS Facilitation: Facilitate contract potential of onions with FIs and encourage farming and value chain finance deal higher loan sizes for onion farming Benefits: Farmers can access formal finance Benefits: Secured product quantity at good with the right loan size and get away from quality and price predatory lending from traders. Geographic focus: Siraro Technical Assistance for Success • Training on better production – Potatoes are susceptible to diseases and rot. Farmers need training on how to reduce physiological and pathological disorders. They also need training on reducing postharvest losses • Strengthen farmer groups – Organize and strengthen farmers groups or cooperatives who are involved in input and output marketing in the study area • Support seed efforts – Engage women in potato seed supply business. Build on the success of GRAD project with the diffused light storage of potato seeds.

4.6 Livestock Fattening The assessment will cover Ox and Goat/Sheep fattening in one section as the value chains and financing options are largely the same. 4.6.1 Ox Fattening Ox fattening is a major livestock activity for PSNP farmers. LRO is aiming at 5,295 ox fattening households with a majority of them in Siraro followed by ATJK and Shala. Household ownership of livestock in the LRO intervention woredas is better than the national average. Cattle species owned by PSNP smallholders are indigenous Arsi breeds/types whereas the large-scale processors prefer Boran breed. Livestock is primarily kept for safeguarding against food insecurity during the critical lean season. They are also kept for cash and considered an asset and means of traditional insurance. Insights from Farmers engaged in Ox Fattening:

• Main Challenges - Insufficient loan amount to purchase ox, lack of access to processed feeds (Fagulo, Furusheka, Molasses, Teftire, etc), Weak technical follow up/advice and brokers influence to sell the fattened ox at low market price. • Risks - There are no significant risks in ox fattening except market fluctuation • Buyer - Local traders at Sire and Dera towns. There is no steady relationship between farmers and buyers/traders. • Financing – Loans from MFIs such as Metamamen • Need financing for - Ox purchase, feeds purchase, vaccination and transportation of feeds costs

• ROI 40% - investment is ETB 16,000 per ox. Figure 8: Livestock Fattening VCF Needs and Opportunities

4.6.2 Sheep and Goat Fattening Sheep and goat rearing and fattening can be divided into two types of practice: traditional/subsistence and entrepreneurial/innovative. PSNP beneficiaries are practicing the traditional/subsistence system. Whenever household cash demands arise, households are forced to sell their sheep/goat and, as a result, they often do not make the profits they anticipate. Sheep and goat fattening is thus a resilience strategy rather than a commercial activity. However, improved animal husbandry as well as selling during high demand can be quite lucrative. Insights from Farmers engaged in Sheep/Goat Fattening: • Main Challenges - Insufficient loan amount to purchase sheep and goat, lack of access to water, high cost of feeds and delayed loan disbursement. • Risks - There significant risks about sheep and goat fattening are market fluctuation and the disease called kiftina. ( kiftina is the disease of skin and mouth) • Buyer - The buyers of fattened sheep and goat is commonly local traders existing at Dera towns. There is no steady relationship between farmers and buyers/traders. Farmers sell their products to any traders on the open market for the best price offered. • Financing – MFIs and RuSACCOs. The farmers interviewed, received financing from the Degagdu saving and credit primary cooperatives which us part of Kalata Union. The loans were facilitated by LRO. • Need financing for - Sheep and goat purchase, feeds purchase, and vaccination. • ROI 50% - investment is ETB 1500 per animal

Table 6: Finance Strategies for Livestock Fattening Strategy 1: Work with Big FIs Strategy 2: Work with Strategy 3: Catalyze to lend to Agro-dealers so that financial institutions to develop big processors such they can increase lending to a loan + livestock insurance abbatoir to buy from PSNP farmers for livestock product. PSNP farmers and feed finance them Flow of Finance: MFI/Big Flow of Finance: Financial Flow of Finance: Financial Institution → Agro- Institutions → Farmers Abbatoirs → Farmers → dealers PSNP Farmers Or FI → Farmers with Abbatoir Contracts Who’s buy-in do you need? Who’s buy-in do you need? Who’s buy-in do you Financial Institutions, Agro- Financial Institutions and need? Abbatoirs dealers and PSNP Farmers Farmers Potential Lead Actor: Potential Lead Actor: Potential Lead Actor: Private Agro-dealers Financial Institutions Abbatoirs like Verde Beef, Modjo Modern Export and Luna CRS Facilitation: CRS Facilitation: Bundled CRS Facilitation: Professionalize agro-dealers livstock insurance and loan Facilitate contract credit management systems product development. farming and value chain and abilities finance deal Benefits: Farmers can easily Benefits: Farmers can access Benefits: Secured access finance without a formal finance with insurance product quantity at good lengthy process and obtain which will protect one of their quality and price needed inputs in a timely primary resilience-oriented manner. Agro-dealers are well assets. familiar with farmers and lending is done on a relationship basis. Assured sales for the agro-dealer. Geographic focus: For Ox fattening the focus is Siraro, STJK and Shala. For Sheep and goat fattening the focus is on Siraro, Shala, Behele Arsi, ATJK and Zeway Dugda Technical Assistance for Success • Facilitate market linkage and support marketing groups • Train farmers on animal husbandry • Increase farmers access to preferred breeds

4.6.3 Poultry Poultry production in the LRO Woredas is done in a traditional way and is characterized by a low input-output system. Poultry rearing contributes to the livelihoods of poor households economically and nutritionally; bridging gaps in food insecurity and offering socio-cultural benefits that empower women at the household level. The main challenges in the poultry sector are relating to disease, genetics, feed and nutrition, and management. Additionally, there are no lead firms or large-scale producers. There is also a cultural sensitivity around eating a “dead chicken” as consumers prefer to butcher their own chicken. Current poultry rearing is not economical and requires a full transformation. In summary, since this is a low return on investment value chain, farmers should rely on SILCs for investment. Insights from Farmers engaged in Poultry: • Main Challenges: Current poultry rearing practices are too small-scale and not economical. Flock size needs to be at least 50 and up to have a profitable business

• Risks – disease, high mortality, low input-low output • Buyer – Live birds and eggs are bought by village collectors. There is a high demand during holidays. • Need financing for feed • ROI: Investment in Year 1 for 50 chickens is ETB 44,501 and revenue from egg and chicken is ETB 54,225. ROI 21% (lowest of all target VCs)

Figure 9: Poultry Value Chain Finance Needs and Opportunities

Table 7: Finance Strategies for Poultry Strategy 1: Since the ROI for poultry farming is low at the household level, poultry farming should be considered as a resilience strategy and for household nutrition. For a small flock of chicken, borrowing from SILCs will be sufficient for households needs. Farmers can consider working together in Marketing Groups to get more lucrative pricing. Flow of Finance: SILC → Farmers Who’s buy-in do you need? SILCs and Marketing Groups Potential Lead Actor: Farmers CRS Facilitation: Facilitate better poultry raising practices and increase the capacity of marketing groups Benefits: Low level of investment can be made easily through funds from SILC. This provides the household with a side business that does not increase their debt Geographic focus: Siraro Technical Assistance for Success • Improve access to inputs • Improve production practices • Improve market participation of women's marketing groups • Promote local consumption

5 Analysis of Focus Value Chains by Woreda

Table 8: Number of PSNP Beneficiaries by Woreda and Value Chain Row Labels Shala Negel ATJK Hebe Dodot Zewa Boset Sire Siraro Total e Arsi n Arsi a y Dugd a Baltina/pepp 2 18 32 6 - - - 58 er processing Cabbage - 15 39 - 1 5 - - - 60 Haricot 442 542 777 - - 19 - - 3,119 4,899 beans Onion 13 9 32 - 7 58 7 99 225 Ox Fattening 688 349 821 131 10 39 103 3,154 5,295 Potato 43 18 12 - - - - - 1,264 1,337 Poultry 42 175 222 51 1 - - 2,022 2,513 Red Chili 10 34 75 ------119 Peppers Sheep/goat 1,853 1,500 1,030 133 175 1,524 53 274 2,861 9,403 fattening Wheat 119 813 208 33 256 168 - 146 - 1,743 Grand Total 3,212 3,473 3,248 348 456 1,774 99 622 12,420 25,652

Analyzing the distribution of farmers by woredas and by value chain, the majority of farmers are working in sheep/goat fattening (9,403), ox fattening (5,295), haricot beans (4,899) and poultry (2,513). These are low return on investment value chains as compared with onions, wheat, red chili peppers and potatoes. It is recommended that CRS work to increase farmer participation in more high return on investment value chains so that the farmers can increase their incomes. This is especially important for farmers who are not involved in petty trade or other off-farm activities.

6 Recommendations for Interventions 6.1 Intervention #1: Upgrade Input Systems and Input Financing Agricultural production depends on inputs including seeds, pesticides, fertilizer and labor. However, the upfront investment required incurs significant cost long before any proceeds from the sale of production is realized; this is especially challenging for PSNP farmers. Without access to finance PSNP risk underinvesting in their production, thereby receiving sub-optimal yields and sub-par incomes. Input supply finance can address this challenge and facilitate PSNP farmers in driving up their production and incomes. Input System Finance Facilitation Findings Recommendations

Private Agro-dealers give • Professionalize input suppliers by helping them use ICT inputs in-kind to farmers on a to manage their sales data relationship basis. These are • Provide ICT systems to help them to better manage “interest free loans” their credit to farmers • Broker deals for working capital and on-lending to farmers with Financial Institutions Private Agro-dealers provide • Broker stronger relationships between Large-scale inputs of high quality in a Input Suppliers and Private Agro-Dealers, so that sales timely and efficient manner, can be increased by offering better payment terms however are not supported including credit by Large-Scale Input Supplier who they source from

Some Input suppliers are m- • Encourage digital finance by promoting payment of birr agents and some PSNP inputs through M-birr. This can be done for repayments farmers receive their after receiving input credit payments through M-birr. • Encourage digital finance for up-front savings for inputs (known as lay-away). Farmers save for 4-5 months towards inputs on a monthly basis and then receive discounted pricing. Need Large-scale input supplier buy- in for this. Private Agro-dealers not part • ATA is planning to pilot Input Voucher System with of ATA’s Input Voucher Private Agro-dealers. LRO has offered to have it’s System facilitated Agro-dealers to be part of the pilot

Private Agro-dealers sell to • Since Cooperatives/Unions have their own buying individual farmers process, work with farmers who are in other types of groups (SILCs, Livelihood Groups, Marketing Groups, RuSACCOs) to purchase quality inputs on a timely basis from Agro-dealers in bulk. This will also reduce the problem of pack size (too large for many PSNP farmers Examples of Agro-dealer input finance structures:

Option1: Simple arrangement with agro-dealers receiving financing to on-lend to farmers

CRS can use it’s loan guarantee fund to facilitate loans to agro-dealers from formal financial institutions. The agro-dealers can then on-lend the loan to the farmers based on their knowledge of the farmer and their farming practices. This also helps the financial institution to invest in agriculture without directly facing the agricultural risk and dealing with several small loans to smallholder farmers. Agro-dealers are better suited to be intermediary lenders as they have a strong relationship with the farmers and they are part of the community. It is not advised for the agro-dealers to dramatically increase their in-kind lending without support from the financial institutions as they do not have the working capital. Additionally, input suppliers should focus on their primary business of selling inputs and selling in-kind is primarily a way to increase sales. Option 2: Voucher system where Bank lends to Farmer specifically for Inputs

In this type of financial arrangement, CRS can provide a guarantee fund to incentivize Financial Institutions to give loans to farmers using an input voucher. An input voucher is a slip of paper given to farmers in lieu of a cash loan. These input vouchers can then be used at the participating agro-dealer’s shop to receive inputs for the amount of the loan. The bank repays the agro-dealer with the loan money. The farmer repays the financial institution for the inputs when the loan term ends. The primary benefit of using an input voucher system is that financial institutions can now have confidence that the loans have only been used for buying inputs and not for other purposes.

Option 3: Advanced Input Supply Finance with Contract from Buyer or a Cooperative An advanced input supply finance arrangement involves a buyer such as an agribusiness. In this arrangement, a loan guarantee fund can incentivize a financial institution to give a loan to a farmer based on a contract with a formal buyer or a cooperative. The loan can be used to buy a bundle of inputs which are according to the specifications of the buyer. Further a Cooperative can be a

32 key actor to aggregate the farmer production, interface with the agribusiness as well as distribute loans to the individual farmers. Financial Institutions are more willing to lend to farmers who have contracts from agribusinesses as this indicates a ready market for the product.

6.2 Intervention #2: Farmer Profiles Lack of visibility with financial service provider leading to limited access to loans needed by small holder farmers. Lenders need additional information to evaluate the farmer’s potential for honoring their loan commitments. Farmer Profiles related Findings and Recommendations Findings Recommendations

Financial institutions are risk averse • Create Farmer profiles -share information with and have a low willingness to lend to FIs and reduce their burden of data collection PSNP farmers as information and Know Your Customer (KYC). . KYC is symmetry is high the process that banks used to verify the identity of their clients and assess their suitability for a business relationship. • Farmer profiles should include: Name, gender, age, household size, address, size of land, what they grow, productive capacity, annual income, credit needs, all financial standing related information Farmers have risk mitigation • Tag farmers with the capacity building they practices in place, which are not have received taken into account during loan • Note their risk mitigation strategies such as assessment diversification, buying high quality inputs, good agricultural practices, better planning Cooperatives, Unions and • Database will provide pertinent information on Agribusiness Buyers need crop production that can help in planning information on what the farmer has

33 planted and when it will be ready for sale, but it is not easily available for large-scale planning

Advanced food safety and quality • Farmer Profiles can include Farm Management initiatives like certification and Plans and progress towards certification and traceability need farmer level traceability initiatives information

Impact of Farmer Profiles: ● Increasing access of value chain actors and financial institutions to relevant, accurate, timely and insightful information can increase finance in a sector that is viewed as risky. ● Farmer Profile database can increase interest in lending to agriculture sector and stimulate competition among Financial Institutions ● Farm Profile database can act as a proxy credit scoring that can help financial institutions make quicker loan decisions ● Cost-effective collection and analysis of high-quality information on the socio-economic productivity and financial conditions of farmers can be monetized in several ways How to build a Farmer Profile Platform? ● Innovation Competition for AgTech start-ups to create a Farmer Profile Platform, so that the platform can live past the life of the project ● Facilitate innovative ways to collect high quality data on the platform on a regular basis including self-reporting

7 Overall Recommendations for Value Chain Finance Findings Recommendations 1) Environmental disasters like droughts • Work with selected MFIs to pilot a bundled greatly effect farmer’s ability to repay credit and insurance loan product for loan. Ag insurance sector has been farmers investing in commercially oriented primarily donor driver in Ethiopia. farming (e.g. horticulture and relationship- However, climate vulnerability is only based farming of livestock). The premium projected to increase hence it is very price for the insurance can be part of the important to advance the ag-insurance loan. sector especially for commercially oriented farming and high value crops 2) Traders have the capacity to offer • PSNP farmer marketing groups to connect transport, travel to remote areas, buy with legal traders who are working at scale small quantities per farmer, and pay in cash immediately, yet they don’t have steady relationships with Farmers 3) Financial landscape is characterized by • Organize Finance Fairs – Finance fairs can low levels of competition and low bring together several value chain actors recognition of smallholder farmers as with a focus on Financial Institutions, potential clients. Ag finance to farmers, traders, small and medium Smallholder farmers estimated at 1% of agribusinesses such as processors. total finance in Ethiopa • Value chain actors can know what financial products are on offer and financial services providers can know the need of the sector 4) Lack of examples of tri-party value • Deepen facilitation between financial chain finance in Ethiopia. institutions, agribusinesses and organized farmers • Organize value chain finance workshops for Bankers to raise awareness of financing based on Farmer-Buyer relationships 5) Finance from Agribusinesses to • Foster dialogue: Deepen facilitation of Farmers has often failed because of side stakeholder workshops to build trust, selling. . Side selling is a common issue, understanding and collaboration by where farmers sell to a buyer other than facilitating discussions between producers, the one with whom they hold a contract. Lead firms and other market actors about Value Chain Financing is based on a the issues that each are faced with. steady relationship and trust and when • Cross visit: Helping stakeholders see the buyer is not able to get it’s expected other’s position and situation will help them supply, it can threaten this relationship. understand each other’s needs, challenges Honoring the contract can ensure and foster trust. Organize visits of farmers income stability, improved efficiency and to Lead Firm’s factories and vice versa assured market. organize Firm visits to producers.

Findings Recommendations • Facilitate Contracts2: Formal, written agreements that stipulate all aspects of the business relationship can reduce misunderstanding and build trust. • Price incentives, friendly payment terms and other support for producers: Try to negotiate friendly payment terms and ensure that payment is fair and on time 6) Capacity of many Cooperatives, • Ensure that Unions are financially sound and Unions and RuSACCOs is very low to able to finance their activities. If funding is finance farmers. Many Cooperatives are required LRO can assist the Unions and the not functional. Many Unions have Cooperatives in developing a detailed challenges with market linkages. business plan to ensure that the intervention is successful. Connect them with bigger FIs to solve the liquidity crunch • Create partnership with Union to give special loans to PSNP households including inputs on credit • Ensure that credit flows from Unions to Primary Cooperatives to Farmers • Ensure that LRO has a professional management team that can be dedicated to such activities and they are supported with appropriate training • Work on new market linkages for Unions which offer premium price so that selling to the Union becomes attractive to farmers • Work with farmers to increase their quality of production so that they can target premium markets. 7) Capacity of many Cooperatives, • Follow recommendations from the Financial Unions and RuSACCOs is very low to Institution Assessment report3 and improve finance farmers as they need capacity the capacity of focal Cooperatives and building Unions • Training both for Union and Primary cooperatives staffs on • Business management • Cooperatives management • Loan management • Bookkeeping

2 Model Agreement for Responsible Contract Farming. Available at http://www.fao.org/3/ca1772en/CA1772EN.pdf 3 Financial Service Providers Capacity Assessment done by Catholic Relief Services/Ethiopia 36

Findings Recommendations • Awareness building events for members • Savings and Credit Management 8) Cooperatives, Unions and Agro- • Facilitate business planning and connection dealers can increase their capacity if they to Financial Institutions for construction have warehousing, storage, collection loans centers, cold storage and other such • These physical assets can be used further as infrastructure. They need this collateral for working capital infrastructure for doing organized marketing and maintain quality. 9) Low incidence of support for women • Encourage FIs to have a target/quota for and youth in agriculture. Most financial women and youth. LRO agreements should institutions don’t have any special loan include targets for women and youth products for women and youth. through the innovation fund/other mechanisms • Promote gender-sensitive governance mechanisms including greater and real representation for women as directors and senior managers in Financial Institutions including community based financial institutions

8 Annex

8.1 Annex A: Value Chain Actor Mapping Value Chain Actor Mapping exercise was conducted by CRS in a workshop held in Addis Ababa. The Workshop generated names of market actors by value chain. LRO can work to facilitate relationship between these market actors and the target PSNP farmers. 8.1.1 Actors Serving Several Value Chains Name Type of Institution Location Cooperative Bank of Oromia Bank NA Oromia Insurance Company Insurance Company NA Meklit MFI MFI NA Vision Fund MFI MFI East Shoa Allue Janna RuSACCOs RuSACCO ATJK Awash Saving and Credit RuSACCO Awash Cooperatives Union Chara Gari Saving and Credit RuSACCO Sire Primary Cooperative, Sire district Heben Arisi Buku Bekotta RuSACCO Heben Arsi RuSACCOs Hunda Chala Saving and Credit RuSACCO Dera Primary Cooperative, Dodota district, Dera town Kaleta Saving and Rural RuSACCO cooperatives Union Siraro Wolda Shirkenno RuSACCO Siraro RuSACCOs Waktola Saving and Credit RuSACCO Sire Primary Cooperatives, Sire district, Kumbe Gugsa PA Ziway Dugda Negaye Genda Ubo RuSACCO Ziway Dugda Bericha RuSACCOs Alemayehu Agricultural Input & Agro-Dealers Heben Arsi Agrochemical Trading Belachew Poultry Ranch Agro-Dealers Gedam and Zenebech Input Agro-Dealers Negele Arsi Supply - Animal Feed Agro- Dealer Hibret Agro-Chemical Trading Agro-Dealers S.C Kebed Shanko Livestock feed Agro-Dealers Siraro Agro-Dealer Meki Farm Service Center Agro-Dealers Meki

Merko and Mekdes Agricultural Agro-Dealers Shalla Input Supply Partnership Mulat farmers Agricultural Agro-Dealers Boset inputs supplier Rahima Livestock fodder Agro-Dealers supplier Saba Agro-Dealer Agro-Dealers Shashemene Farm Service Agro-Dealers Shashemene Center Temam Dini Agro-Dealer Agro-Dealers

Woljeji Agricultural Industry PLC Agro-Dealers Ethiopian Commodity Exchange Buyer NA Agriculture Transformation Public Sector Addis Ababa Agency Lume Adama Farmer's Union Cooperative Union Uta Wayu Union Union

8.1.2 Wheat Value Chain Actors Name Type of Institution Location Bora Dembel Multipurpose Input supplier Meki Farmers cooperatives Union Ethiopia seed enterprise agents Input supplier (improved seeds) Shalla/Asela Oromia seed enterprise agents Input supplier (improved seeds) Shalla Hetosa Multipurpose Farmers Input supplier, processor, Itaya cooperatives Union Aggregator, mechanization Lume Adama Multipurpose Input supplier, processor, Modjo Farmers cooperatives Union mechanization, aggregator Uta Wayu Multipurpose Farmers Input supplier, processor, Shashemene cooperatives Union mechanization, Aggregator Alvima food complex Processor Adama Arsi Nagelle Flour Factory Processor Nagelle Arsi Brothers Flour Factory Processor Batu Brothers Food Complex Processor Adama Chilalo Food Complex Processor Asela Addis bakery and Cake House Retailer Adama Shoa Bakery Retailer Adama Lume Adama Multipurpose Retailer also Modjo Farmers cooperatives Union

8.1.3 Haricot Beans Value Chain Actors Name Type of Institution Location ECX Licensed Collect grain and sell to ECX East Shoa, West Arsi

Lome Adama Union Collect grain and sell to ECX Local/Village aggregators Collect grain and sell to East Shoa, West Arsi exporters Bean Producer Weredas Extension Various service/guidance/training East Shoa Zone Extension Adama service/guidance/training West Arsi Zone Extension Shashemene service/guidance/training Menagesha Biotech Industry PLC Inoculant producer and supplier Addis Ababa Mirko & Mekdes PLC Input distributer Ajje Selam Hawassa Business Group Post harvesting machinary Hawassa/Addis Ababa manufacturing Abraham Abebe PLC Processing & Exporting Adama ACOS/Ethiopia Processing & Exporting Adama Albar Trading Processing & Exporting Adama Soreti International Processing & Exporting Adama Small Holder Farmers Producer East Shoa/West Arsi Assela Seed Quality Control Seed certification Assela Lome Adama Union Seed producer and fertilizer Modjo suppliers Ethiopia Seed Enterprise Seed producers and suppliers Hawassa/Addis Ababa Haile Wako Intergrated Farm Seed producers and suppliers Bofa Oromiya Seed Enterprise Seed producers and suppliers Assela Tokuma Seed Processers Seed producers and suppliers Bofa Wirtu Boset Seed Producers Seed producers and suppliers Welenchiti Associations Bora Dembel Union Seed supplier Meki Utta Wayu Union Seed supplier Meki Self Help Africa Support seed producer Boset (facility,training) World Vision Support seed producer Boset (facility,training) Melkassa Agriculture Research Variety release, early generation Melkassa Center seed production, training and VC support ECX Warehouse service/ Addis Ababa/Adama Grading/Certifying/Trading

8.1.4 Onion Value Chain Actors Name Type of Institution Location

Hibret Agro-Chemical Trading Input Supplier

Merko and Mekdes Agricultural Input Supplier Shalla Input Supply Mulat farmers Agricultural Input Supplier Boset inputs supplier Saba Agro-dealer Input Supplier Meki Batu Cooperative Union Processor Meki Fantu Supermarket Retailor Addis Ababa Fresh Corner Retailor Addis Ababa Novis Supermarket Retailor Addis Ababa Shoa Supermarket Retailor Addis Ababa

8.1.5 Red Chili Pepper Value Chain Actors Name Type of Institution Location Berite Farm center Input supplier Shashemene Bishoftu Mutli purpose Agri. Input supplier Shashemene Input store Mirko and Mekides Ag. Input Input supplier Meki Batu union Input supplier and Aggregator. Meki Burundo International Processer Adje Selam baltina Processer/Trader and exporter Negele Arsi (Gubeta arjo kebele). Abyssinia baltinal Processors Modjo Oda bultum Cooperative Producer, Collectors Addis Ababa Acer Baltina Trader Shashemene Girma Baltina Trader Dera Fantu Supermarket Retailor Addis Ababa Fresh Corner Retailor Addis Ababa Novis Supermarket Retailor Addis Ababa Shoa Supermarket Retailor Addis Ababa

8.1.6 Potato Value Chain Actors Name Type of Institution Location Fantu Supermarket Retailor Addis Ababa Fresh Corner Retailor Addis Ababa Novis Supermarket Retailor Addis Ababa Shoa Supermarket Retailor Addis Ababa

Senselet Food Processing Processor

Solagrow Input Supply – Seed Potatoes

8.1.7 Livestock Value Chain Actors Name Type of Institution Location Afric PLC Producers Adama Alema Kaudice Farm Center Big Trader,Processor Debre Zeit Basha Pharma PLC veterinary medicine and Addis Ababa equipment importers Beker general business PLC Pharmaceuticals Addis Ababa BrazMart Machinery Importer From Brazil Addis Ababa Damtit Vet Farma PLC veterinary medicine and Addis Ababa equipment importers DAT international trading plc Importers of Veterinary Addis Ababa Pharmaceuticals Semien hotel Debre Zeit Vet Drug Store near Retail Debre Zeit Genesis Dr Getahun Veterinary Drug Store Adama Dynamic Veterinary Drug Store Retailer Debre Zeit Electromecc Manufacturer(Feed Processing Addis Ababa Machinery) Elere Farm Processor Debre Zeit ELFORA Agro industries PLC. Big Trader,Processor Addis Ababa Ethio-Feed Manufacturer of Animal Feed Adama Fantu Supermarket Retailor Addis Ababa Fresh Corner Retailor Addis Ababa GASCO Trading PLC Importers of Veterinary Addis Ababa Pharmaceuticals, Premixes and Equipment Hawetu Importers of Veterinary Addis Ababa Pharmaceuticals Helwa Producers Wheat Bran Batu/ Zeway Kidstemariam Vet Drug Store Retailer Debre Zeit Lume Adama Farmers Cop Producers Adama Union Luna Export Abbatoir Abbattoire Modjo Modjo Modern Export Abattoir- Meat Exporter Modjo Naseba Animal Nutrition Manufacturer Holeta Neway PLC Importers of Veterinary Addis Ababa Pharmaceuticals Novis Supermarket Retailor Addis Ababa NVI Manufacturer of various Debre Zeit Vaccines Savanah Veterianry Drug Store Importers of Veterinary Addis Ababa Pharmaceuticals Shoa Supermarket Retailor Addis Ababa

Tropical Pharma Trading veterinary medicine and Addis Ababa equipment importers Verde Beef Processor Weljeji Agro Industry Effective Micro Organism(EM) Debre Zeit Wenji-Shenkora Union Producers Wenji

8.1.8 Poultry Value Chain Actors Name Type of Institution Location Adama feed Feed production Adama Alema Farmers Input Supplier Bishoftu Alema Farms Supermarkets Processed poultry meat Addis Ababa Aliya and Foziya small scale Feed and day old chick Shashemene poultry producers producers Ato Fanta Pullet Production, Feed Bishoftu Elere Poultry Production production Brazmant (Brazil) Machinery Importer Addis Ababa Debrezeit research center Pullet Bishoftu poultry farm Dr. Abebe Vet Pharmaceuticals Bishoftu Dr. Genene in collaboration with Pullet production, feed Hawassa government farm production Dynamic Vet drug store Vet Pharmaceuticals Bishoftu Ethio Chicken Input Supplier Bishoftu, Adama( on the way), Burayu, Gelan Fresh corner supermarkets Processed poultry meat Addis Ababa Gasco Trading Machinery, Premix, Medicine Addis Ababa Genesis Farm Input Supplier Bishoftu Hawassa Poultry Farm Pullet Distributer Hawassa Kidistemariam Vet. Drug store Vet Pharmaceuticals Bishoftu Medina Hamza Medina Pullet distributor Haje/Shashemene Naseba Animal Nutrition Feed supplements Holeta Neway PLC Premix supplier Addis Ababa Shoa Supermarket Processed poultry meat, egg Addis Ababa Tedrwos kassahun Poultry farm Live poultry exporter, Bishoftu Temam Muhammed Pullet distributor Sire/Arsi

8.2 Annex B: Market Systems Development Methodology

• Ground research in markets and Household level Analyze to uncover context the root causes of • Use diverse perspectives to analyze system systems dynamics include value chain analysis and USAID’s 5 Rs – Resources, Rules, Roles, Relationships and performance Results

Identify an initial • Identify desired changes closes to root causes • Identify leverage points that are most amenable strategy that to change with high potential for impact includes a clear • Design deliberate strategies for spillover impact & vision for inclusive inclusion • Evolve strategy with learning and shifting systems change dynamics

Facilitate participatory, • Co-design interventions with system actors to ensure ownership iterative design and • Engage market actors to address underlying issues implementation of using facilitation; minimize direct delivery interventions

• As pilot phase matures and positive results Planning for Exit: become visible, crowd-in other market actors to further expand the system and enhance Crowding in other competitiveness. Crowding in involves quantifying market actors the benefits, making the value propositions public and offering support to competitors

Adapted from: USAID Technical Note on The 5Rs Framework in the Program Cycle; ACDI/VOCA's Note on Inclusive Market Systems Approach: At the Forefront; and DAI's Note on Market System Development: A Primer on Pro-Poor Programming

8.3 Annex C: Institutions Interviewed Type of Name Institution Value Chain Haricot ACOS Processor Beans Agriculture Transformation Agency Public Sector Several Alema Farmers Input Supplier Poultry Alemayehu Agricultural Input & Agrochemical Trading Agro-Dealers Several Allue Janna RuSACCOs RuSACCO All Awash Saving and Credit Cooperatives Union RuSACCO All Belachew Poultry Ranch Agro-Dealers Several Chara Gari Saving and Credit Primary Cooperative, Sire district RuSACCO All Cooperative Bank of Oromia Bank All Ethio Chicken Input Supplier Poultry Ethiopian Commodity Exchange Buyer Several Gedam and Zenebech Input Supply - Animal Feed Agro-Dealer Agro-Dealers Several Hebe Arisi Buku Bekotta RuSACCOs RuSACCO All Hibret Agro-Chemical Trading S.C Agro-Dealers Several Hunda Chala Saving and Credit Primary Cooperative, Dodota district, Dera town RuSACCO All Kaleta Saving and Rural cooperatives Union RuSACCO All Kebed Shanko Livestock feed Agro-Dealer Agro-Dealers Several Lume Adama Farmer's Cooperative Union Union Several Luna Processor Processor Sheep/Goat Meki Batu Cooperative Union Processor Several Meki Farm Service Center Agro-Dealers Several Meklit MFI MFI All Merko and Mekdes Agricultural Input Supply Partnership Agro-Dealers Several Modjo Modern Export Abbatoir Processor Sheep/Goat Mulat farmers Agricultural inputs supplier Agro-Dealers Several Insurance Oromia Insurance Company Company All Rahima Livestock fodder supplier Agro-Dealers Several Saba Agro-Dealer Agro-Dealers Several Shashemene Farm Service Center Agro-Dealers Several

Siraro Wolda Shirkenno RuSACCOs RuSACCO All Temam Dini Agro-Dealer Agro-Dealers Several Uta Wayu Union Union Several Verde Beef Processor Beef Vision Fund MFI MFI All Waktola Saving and Credit Primary Cooperatives, Sire district, Kumbe Gugsa PA RuSACCO All Woljeji Agricultural Industry PLC Agro-Dealers Several Ziway Dugda Negaye Genda Ubo Bericha RuSACCOs RuSACCO All

8.4 Annex D: Target PSNP Beneficiaries and No. of Beneficiaries Trained by Sector

Crop/Sector Male Female Total Target Trained % Trained Baltina or pepper processing 34 24 58 0 0% Cabbage 0 0 60 0 0% Haricot beans 2317 2582 4,899 3511 72% Onion 85 140 225 60 27% Ox Fattening 2279 3016 5,295 0 0% Potato 669 668 1,337 1062 79% Poultry 1385 1128 2,513 183 7% Red Chili Peppers 49 70 119 387 325% Sheep and goat fattening 4694 4709 9,403 2138 23% Wheat 761 982 1,743 2125 122%

Total 12,273 13,319 25,652 9,466 37%

8.5 Annex E: Financing Mechanism by Value Chain Direct Product Finance Input Supply Finance Lead Firm Finance Wheat ✓ ✓ Haricot beans ✓ ✓ Onion ✓ ✓ Red Chili Peppers ✓ ✓ ✓ Potato ✓ ✓ Ox Fattening ✓ ✓ Sheep/goat fattening ✓ ✓ Poultry ✓

8.6 Annex F: Data collection Instruments 8.6.1 Value Chain Actor Mapping Workshop Agenda - Jul 2, 2019

Time Agenda Details

8:30 Registration Registration and name tags

9:00 Introduction ● Introduction to Workshop ○ Welcome all Participants ○ Share agenda of the workshop ● Introduction of Participants ○ Ask all Participants to share Name, Position, Institution, Location and what they would like to get out of this workshop

10:00 Value Chain ● Divide people up into the 8 value chains by interest. Mapping Exercise Ensure that there are at least 4 people in each group. Introduction Assure participants that they will be able to move to other groups later on: ○ Wheat ○ Haricot bean ○ Onions ○ Potato ○ Red Chili pepper/Berbere (including value added processing) ○ Sheep and Goat rearing and fattening ○ Small-scale beef/Cattle fattening ○ Poultry ● Share big printed maps of the value chains from the value chain reports or share maps on normal paper and provide chart paper so that they can draw a bigger one. Share that the printed maps are just provided as a starting point and they are free to make changes that reflect the reality of the target woredas. ● Do a quick review of the value chain map and add any major types of actors that may be missing.

10:30 Coffee break

11:00 Value Chain ● Pick a group facilitator Mapping - Actors ● Please feel free to use different colors to indicate different things on your map ○ Add in the Names of Important Actors next to the relevant categories. Include names of

relevant Financial Institutions, cooperative unions, banks, traders, processors, big buyers, exporters, farmers. Farmer cooperatives and unions, cooperative promotion agencies, other service providers, and other actors.. ○ Identify Actors by location (city name or Kebele/Woreda - wherever known) ○ Identify challenges and tensions between different actors ○ Identify where finance is needed ○ What are some areas of opportunities for women? for youth? ○ Identify other needs? opportunities?

12:30 Lunch

13:30 Value Chain ● Stick maps up on the wall around the room. Tradeshow ● Ask the Facilitator to stand near his/her map and the others should circulate between the different maps. ● Ask participants to switch to the next value chain after 5-7 minutes - you can play a bell ringing sound to tell people to shift to the next value chain. ● The facilitator should give the visitors an overviews of the map ● The visitors should add their comments and add in actors according to their knowledge. ● Visitors should also share their thoughts about the challenges and opportunities identified. Then move on to the next value chain.

14:30 Group Share-out ● The facilitator of each group will make a 4 minute presentation of the final map to the whole group. There will be 4 minutes of Q&A and discussion for each value chain

15:45 Break

16:00 Feedback, Closing ● Ask participants to share their closing thoughts remarks and thank ● On chart paper or white board ask participants to yous share their thoughts on the following:

● ● They can write on the chart paper or white board directly or write on sticky notes and stick on the board. ● Say Thank yous and close the workshop

Supplies needed: ● Chart paper ● Printed value chain maps - if possible printed on large paper. If not, it can be printed on regular paper and participants can use it as a starting point on the big chart paper. ● Markers with at least 7-8 different colors. Try to get 30-40 markers. ● Sticky notes (optional)

8.6.2 Focus group guidelines for Farmer groups Use small groups of 8-10 farmers. Who to Interview? Please ask these questions to farmers who are working in the focus crops. Have one focus group for each crop.

For each question, try to get 3 or 4 people provide their answer. Write down the answer that was given in full sentences and try to capture each farmer story in as much detail as possible.

1. Introduce yourself and the project. 2. Name 3. Age 4. Gender 5. Institution 6. Take permission to record the interview 7. Introduce the purpose of the focus group - understand your finance needs for this crop 8. What crop are you farming? 9. How long have you been working in this crop? 10. Have you received training in how to grow this crop better? If yes, have you seen any improvements? 11. What are the main challenges your face? 12. What are the main risks in this crop? 13. Have you learned some strategies on how to reduce these risks? 14. What else do you grow? 15. Do you do any value-added processing? (Cleaning, sorting, grading, processing) 16. Who is your buyer? Do you have a steady relationship with this buyer? 17. Which big companies do you know who could be potentially buyers for your crop? 18. How do you finance your investment in this crop? 19. How much do you need to invest every season? 20. What is the return you get? 21. Is this a profitable crop for you? 22. What do you need money for the most? Inputs? Harvesting? Production? Etc. 23. Where do you get your inputs from? Do they provide credit?

24. Are you taking loans from anyone right now? Who and for what? (eg. loan from trader, agro-dealer, wholesaler etc.) 25. Are you currently working with any financial institutions? 26. Would you be interested in taking a loan to finance your investment in this crop? 27. If you took a loan do you think you would be able to repay it? 28. Other thoughts? 29. Thank the person for their time

8.6.3 Questionnaire guidelines for Cooperatives/Associations of Farmers 1. Introduce yourself, the project and purpose of the interview 2. Name 3. Age 4. Gender 5. Institution 6. Take permission to record the interview 7. What crop are you working in? 8. For the target crops - How long have you been working in these crops? 9. How many farmers do you work with? Male? Female? Youth? 10. What are the main activities of your Cooperatives? Give details below: a. Technical assistance to farmers b. Finance c. Input supply d. Processing e. marketing 11. What are the main challenges your face? 12. What are the main risks in the target crops? 13. What strategies do you use to reduce these risks? 14. Who are your buyers? Do you have a steady relationship with this buyer? 15. Which big companies do you know who could be potentially buyers for your crop? 16. Do you support your member farmers in getting access to finance? 17. Are you currently working with any financial institutions? What do you do with the loan? 18. What assistance do you need for making your cooperative more successful? 19. Other thoughts? 20. Thank the person for their time

8.6.4 Questionnaire Guidelines for Financial Institutions Who to Interview? Please ask these questions to the Agriculture/Agribusiness Portfolio Manager at the Financial Institution’s Headquarters

Write detailed answers/transcribe everything that the interviewee says:

1. Introduce yourself, the project and purpose of the interview 2. Name 3. Age 4. Gender 5. Institution 6. Take permission to record the interview 7. Is your institution serving the agricultural sector? 8. What products do you have? 9. Are you interested in increasing your agriculture portfolio? 10. Are you interested in developing any particular types of loan products or crops? 11. Would you be willing to give loans to farmers that CRS has been training and discuss an MoU? 12. Would you be willing to give loans to farmers who are selling with contract to a particular buyer (for example a processor or exporter)? Would you lower the loan requirements such as collateral? 13. Do you have special loan products for women? For youth? 14. What types of technical assistance does your bank need to lend more to the agriculture sector? 15. Other thoughts? 16. Thank the person for their time

8.6.5 Questionnaire guidelines for Agro-Dealers 1. Introduce yourself, the project and purpose of the interview 2. Name 3. Age 4. Gender 5. Institution 6. Take permission to record the interview 7. What are your products and for which crops? 8. How do farmers pay for your product? 9. Are there any government subsidies for your products? 10. CRS Project is working with small-scale farmers. We are providing them different types of financial and agriculture training to make them stronger farmers - would you be interested in selling to them? How can we connect them to you? 11. Do you have experience selling to farmer groups/associations? What are some examples of the best relationships you have with your customers? 12. Do you finance your customers? If yes, give an example of a common financial arrangement? 13. Do you share information with your customers which will help them improve the quality they sell to you? For eg. do you have any extension service? 14. What support services would be beneficial for farmers to get so that they can buy from you? 15. Do you provide transportation services to your farmers to deliver the inputs? 16. Other thoughts? 17. Thank the person for their time 18. Take their photo

8.6.6 Questionnaire guidelines for Potential Lead Firms This questionnaire can be used for firms that can help facilitate access to finance such as Processors, Buyers, Exporters, and other SMEs. 1. Introduce yourself, the project and purpose of the interview 2. Name 3. Age 4. Gender 5. Institution 6. Take permission to record the interview 7. What is your product? 8. What is the specification of the primary raw material (the one from our focus crops)? Which variety? 9. How do you source your raw commodity? 10. How do you set the price? 11. What is the method of payment to your suppliers? 12. CRS Project is working with small-scale farmers. We are providing them different types of financial and agriculture training to make them stronger farmers - would you be interested in sourcing from them? 13. What quality requirements do the farmers need to meet? Size, shape, color, packaging etc.? 14. What are the quantity requirements? Minimum and maximum amount? 15. Do you have experience working with farmer groups/associations? 16. What are some examples of the best relationships you have with your sources? 17. Do you finance your suppliers? If yes, give an example of a common financial arrangement? 18. Do you share information with your suppliers which will help them improve the quality they sell to you? For eg. do you have any extension service? 19. What support services would be beneficial for farmers to get so that they can become suppliers to your firm? 20. Do you provide transportation services to your suppliers? 21. Other thoughts? 22. Thank the person for their time

8.6.7 Questionnaire guidelines for Other value chain supporting actors 1. Introduce yourself, the project and purpose of the interview 2. Name 3. Age 4. Gender 5. Institution 6. Take permission to record the interview 7. What is your experience or perspective on access to finance and value chain finance in the target crops in Oromia region? 8. What would you say is the biggest challenge when it comes to dealing with access to finance? 9. What have you done to address the challenge? 10. What can be done by other actors to address the challenge? 11. Other thoughts? 12. Thank the person for their time