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Counterfeiting in African Agriculture Inputs – Challenges & Solutions

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Counterfeiting in African Agriculture Inputs – Challenges & Solutions Counterfeiting in African Agriculture Inputs – Challenges & Solutions Comprehensive Findings This report was prepared for the Bill and Melinda Gates Foundation in collaboration with Monitor Deloitte Bill and Melinda Gates Foundation Team: Walter de Boef, Ben Pierson, and Dan Kim Monitor Deloitte Team: John Mennel, Carl Engle, Pradeep Prabhala, Joel Bryce, Nemo Nemeth, Alyssa Jethani, Aliza Hoffman For more information, contact Walter de Boef at [email protected] or Pradeep Prabhala at [email protected] Table of Contents . Project Plan & Approach . Setting the Context: Counterfeiting in Africa . Value Chain Analysis & Selection . Value Chain Assessments . Ghana: Overview & Existing Initiatives to Address Counterfeiting . Ghana: Herbicide . Ghana: Maize Seeds . Uganda: Overview & Existing Initiatives to Address Counterfeiting . Uganda: Herbicide . Uganda: Maize Seeds . Uganda: Inorganic Fertilizer . Assessment of Technological Environment in Ghana & Uganda . Summary of Solutions . Assessment of Each Solution . Applicability of Solutions . Path Forward & Recommendation - 2 - Project Approach & Key Meetings Opportunity Prioritization Market Research Solution Development (2 weeks) (4 weeks) (3 weeks) Jan 6 – Mon. Jan 22 – Wed. Feb 14 – Fri. Mar 10 – Mon. (Working Group) (Working Group) (BMGF Key Partners) (Working Group) Location: Virtual Location: Virtual Location: Nairobi, Kenya Location: Seattle, WA Official Review of Prioritized Review Findings from Final Review of Solutions Kick Off Value Chains Market Research Align on engagement Review research on Align on findings and Review and align on the objectives and intended context and drivers of insights generated from solutions to reducing outcomes counterfeiting in Africa field work counterfeit agri. inputs in Africa, including costs, Review engagement Review research findings Review the value chain success factors, enabling approach, governance, and analysis on value maps of prioritized value technologies, etc. and project plan chains selection chains/product lines (distribution structure, Review applicability of Align on criteria for Align on value chains that key players, incentives, solutions across value selecting value will be focus of market drivers of counterfeiting, chains studied chains/product lines research phase etc.) Discuss broader context in Discuss and align on next Discuss Nairobi Brainstorm the factors which counterfeiting steps and path forward stakeholder meeting required to implement occurs design - including potential solutions objectives, format, and (enabling technology, Discuss next steps for participants non-technology BMGF and Deloitte’s platforms, etc.) recommendation - 3 - Executive Summary . Smallholder farmers in Africa face significant challenges as a result of using counterfeit agricultural inputs; counterfeit products result in reduction in income, increased risk to health and safety, less access to genuine inputs, and reduced trust in inputs. Manufacturers of agricultural inputs lose significant value annually to counterfeit agricultural inputs; it is estimated that over $20 million is lost annually in both Ghana and Uganda due to counterfeiting . There are broadly six archetypes of solutions to address counterfeiting; while there are many innovative applications of the technologies used in these solutions, all anti-counterfeiting solutions will fall under one of these archetypes: End-User Authentication, Quality Assurance/Certified Channels, Smallholder Education, Track-and-Trace Technologies, Product/Package/Channel Investment by Manufacturers, or Regulatory Investment. We have evaluated six leading scalable solutions that have been effective in other industries to address counterfeiting; they include: Barcode Applications, Mobile Testing Kits, Coin Scratch & Mobile Authentication, Information Dissemination Platform, Inventory Management Platform, and RFID Tags. In order for manufacturers to invest in the solutions to counterfeiting, the cost of implementation must be less than the incremental profits generated. Certain technologies show greater promise than others in terms of their maturity, cost of implementation, and viability in addressing counterfeit inputs. In the near-term, we recommend that BMGF invest in piloting coin scratch & mobile authentication as a mechanism to address counterfeiting in crop protection products markets. This technology has a low cost to implement, has been proven in other industries and piloted in agriculture, and leverages technology tools that farmers are familiar with. However, counterfeiting is a symptom of a broader problem in African agricultural input markets: inefficient delivery channels. Over time, markets will develop as channels consolidate, farmers consolidate, manufacturers invest in Africa, farmers become more sophisticated, and technology becomes more widely adoption. To catalyze market development and bring increased efficiency to African agricultural input sectors, we would recommend that BMGF consider conducting a challenge prize to unlock innovations that would professionalize delivery channels. - 4 - Table of Contents . Project Plan & Approach . Setting the Context: Counterfeiting in Africa . Value Chain Analysis & Selection . Value Chain Assessments . Ghana: Overview & Existing Initiatives to Address Counterfeiting . Ghana: Herbicide . Ghana: Maize Seeds . Uganda: Overview & Existing Initiatives to Address Counterfeiting . Uganda: Herbicide . Uganda: Maize Seeds . Uganda: Inorganic Fertilizer . Assessment of Technological Environment in Ghana & Uganda . Summary of Solutions . Assessment of Each Solution . Applicability of Solutions . Path Forward & Recommendation - 5 - Counterfeiting is a challenge with global reach that spans multiple sectors; agricultural input sectors in Africa are not immune Value Lost Due to Counterfeiting: Global Value Lost Due to Counterfeiting1 Agricultural Input Sectors in Africa2 $1,600 $1,468 $1,200 Counterfeit $1,000 CAGR: estimates $1,200 13.6% $900 $800 range from illions ($US) illions Billions B Millions ($US) Millions 15% (of total $800 $775 $600 product sales) $500 in some African $300 markets up to $400 $300 $240 50% in others $150 $0 $0 2008 2013 Crop Protection Seed Fertilizer Counterfeit Agricultural Inputs: Prevalence in Africa “Rwanda: ICT to Fight Fake “Kenya: Fake Maize Seeds Worry “Tanzania Amends Law to Curb “Cocoa Farmers Advised to Desist from Agriculture Inputs” South Sudan Minister” Fake Fertilizers” Using Fake Pesticides” November 2013 October 2013 October 2012 March 2012 30% 40% 30% COUNTERFEIT HYBRID HIGH-YIELDING UNLICENSED OR SMUGGLED PESTICIDES ESTIMATE OF FAKE SEED PACKETS IN VARIETY SEEDS IN UGANDAN MARKET5 ON SALE IN GHANA3 KENYA4 Source: : (1) BASCAP (2011); (2) Frost and Sullivan Research (2013); FAOSTAT; Hernandez and Torero (2011); Monitor Deloitte Analysis; (3) CropLife Middle East Africa (2011); (4) Kenya Agricultural Research Institute (2012); (5) Joughin (2014) - 6 - Counterfeiting in Africa’s agricultural input sectors takes multiple forms – from imitation branding and packaging to partially diluted or entirely fake products Combinations of How Counterfeiting Occurs (Example Highlighted in Green) Product Brand Package Producer Authentic Authentic Authentic Licensed Diluted Imitation Re-used Unlicensed No Brand Expired Tampered (Un-labeled) Fake Examples of Counterfeit Agricultural Inputs Counterfeit Label and Re-used Brand Expired Unlicensed Bags Packaging Products Producers FARMERS IN NORTHERN GHANA COUNTERFEITERS CHANGE YARA INT’L FERTILIZER BAGS WERE APPROXIMATELY 50% OF SEED LOST SEVERAL HECTARES OF ROUNDUP TO ROUNDALL AND REPACKAGED AND SOLD WITH COMPANIES IN UGANDA ARE COTTON AFTER USING EXPIRED FILL WITH FAKE PRODUCT1 COUNTERFEIT PRODUCT2 UNLICENSED PESTICIDES3 Source: (1) Bloch, Kisitu, Gita (2013); (2) Kazoka (2012); (3) Ghana Web (2007); - 7 - Smallholder farmers in Africa face significant challenges as a result of using counterfeit agricultural inputs Reduction in Income Health and Safety Access to Genuine Inputs Trust in Genuine Inputs Farmers who use counterfeit Untested and often dangerous Trustworthy agro dealers are After continuing to buy agricultural inputs risk crop protection products pose forced out of the market when counterfeits, farmers may lose significant crop damage, directly food safety, environmental, and they cannot compete with trust in the efficacy of genuine impacting their income health issues cheap, counterfeit inputs manufacturers – forcing some farmers to travel further for genuine inputs Farmers can lose an entire There isn’t the same sort of Margins are often higher on It is important to find “ season to counterfeit “ consumer protection… we’re “ the fake or low-quality “champions in farming products not talking about an FDA that products communities…A lot of them monitors these issues already don’t trust us -- DEVELOPMENT” ORGANIZATION -- IMPORTER ” -- DEVELOPMENT ORGANIZATION” -- INDUSTRY ASSOCIATION ” - 8 - Furthermore, manufacturers lose significant value annually to counterfeit agricultural inputs across the markets studied Value Lost Due to Counterfeiting Maize Herbicide Maize Herbicide Inorganic Fertilizer Estimated losses Estimated losses Estimated losses Estimated losses Estimated losses are between are between are between are between are between $0.9M to $1.4M $12M to $21.5M $3.9M to $6.0M $6.3M to $15.4M $0.5M to $1M 22M $21.5M 20M 18M 16M $15.4M 14M $12.0M $6.0M 6M $6.3M 4M $3.9M $1.0M 2M $0.9M 0M Methodology Maize Seed: The size
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