World Bank Background Report
Madagascar Rural/Environmental Sector Review
Review of Madagascar's Rice sub-sector
FINAL VERSION
LOUIIS BOCKEL,, AGRIICULTURAL POLIICY ECONOMIIST CONSULTANT
Thursday, July 04, 2002
The findings, conclusions and recommendations are the author’s own and should not be attributed to the World Bank, it’s Executive Board of Directors or any of it’s member countries.
ABSTRACT
The study argues that acceleration of economic growth in the rural sector as envisaged under the PRSP would be difficult to envisage without setting the stage for productivity gains in the rice sub- sector. Increased rice productivity would go a long way in reducing poverty because of the high distributive potential of its benefits, thereby constituting an important factor to set the stage for more inclusive growth as sought under the PRSP. At the same time, the need for increasing rice productivity should be pictured against a trend of on-going rapid urbanization, which puts a premium on improving the integration of markets to effectively link food supply and demand. Taking together, the study subsequently claims that the roots of a more dynamic rice sub-sector are to be found in generating enabling conditions for increasing rice productivity and improving market integration simultaneously.
As far as the productivity objective is concerned, the study points out that there is an urgent need to break away with existing practice to increase rice production through area expansion and finally unleash existing potential of rice production systems intensification through: (i) the development of locally adapted productivity enhancing technologies, (ii) the creation of an innovating inducing enabling environment; and (iii) the establishment of productive on-farm infrastructure. As far as the market integration objective is concerned, the challenge would be to synchronize the pace of liberalization of external trade with the pace of integration of domestic so as to set an incentive structure that would enable rice producing households to capitalize on the intrinsic competitiveness of rice production at the farm level. This would entail: (i) putting in place an appropriate rice import policy; (ii) generating conditions for increased competition among downstream operators in the rice chain; and (iii) expanding local level rice storage capacity.
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TABLE OF CONTENTS
INTRODUCTION………………………………………………………………………………………………………..6 1 RICE IN MADAGASCAR...... 8
1.1 MACROECONOMIC SETTING AND SOCIO-DEMOGRAPHIC TRENDS...... 8 1.1.1 Macro-economic and sectoral Development Targets...... 8 1.1.2 Implications of demographic and economic trends...... 9 1.2 ECONOMIC IMPORTANCE OF THE RICE VALUE CHAIN...... 11 1.3 PUBLIC SECTOR SUPPORT TO THE RICE SUB-SECTOR CHAIN...... 13 2 INHERENT CHARACTERISTICS OF THE RICE CHAIN...... 16
2.1 RICE CROPPING SYSTEMS...... 16 2.1.1 regional variations...... 16 2.1.2 performances of different Cropping Systems...... 19 a) Irrigated Rice...... 21 b) Transplanted Irrigated Rice Cropping Systems...... 22 c) Other irrigated rice cropping systems: SRI, SRA and semi-direct ...... 22 d) Irrigated direct seeding cropping systems...... 23 e) Rainfed rice cropping systems...... 24 f) Slash and Burn (Tavy) Rice Cropping Systems...... 25 2.2 RICE-BASED FARMING SYSTEMS...... 26 2.2.1 Farming Systems Typology...... 26 2.2.2 farming systems performance...... 27 2.2.3 Typology of farming systems...... 29 a) Highly vulnerable micro-producers...... 30 b) Rice-selling producers...... 30 c) Multi-activity oriented self-sufficient producers...... 31 2.2.4 Rice Production Risk ...... 31 2.2.5 Rice productivity and agricultural wages...... 33 2.3 LINKING RICE SUPPLY AND MARKET DEMAND ...... 34 2.3.1 National supply and imports...... 34 2.3.2 Rice and Paddy Trade Flows...... 35 2.3.3 Rice Marketing...... 37 a) Processing and Trading...... 37 b) Regional transfers and Import volumes...... 37 2.3.4 Rice market Competitiveness...... 38 a) Effects of market liberalization ...... 38 b) Enclave production areas : effects on prices and operator's margins...... 40 c) Segmentation of rural markets...... 41 d) Farmers' direct participation in output markets...... 42 2.4 DETAILED PROFILE OF DOWNSTREAM OPERATORS...... 43 2.4.1 paddy/rice collectors...... 43 2.4.2 paddy processors ...... 44 2.4.3 Paddy/Rice Whole salers...... 45 2.4.4 Rice retailers...... 46 2.4.5 Comparison of operators' margins per region...... 47 2.5 PRIVATE SECTOR INVESTMENTS...... 47 2.5.1 on-farm investments ...... 47 2.5.2 Investments of Downstream rice operators...... 49 2.6 INTERNATIONAL COMPARISON OF MALAGASY RICE COMPETITIVNESS ...... 49 3 RICE PRODUCING HOUSEHOLDS AND RURAL POVERTY ...... 52
3.1 RURAL POVERTY IN MADAGASCAR...... 52 3.2 POVERTY PROFILE OF RICE PRODUCING HOUSEHOLDS...... 52 3.3 POVERTY IMPACT OF RICE PRICING POLICIES...... 56 3.3.1 Relation between paddy price and paddy production costs...... 56 3.3.2 Immediate effect of rice import tariff on rice retail and farmgate price...... 57 3.3.3 Effect of increased rice price on households monetary incomes and purchasing power...... 60 3.3.4 Effect of increased fertilizer use...... 61
3 4 RICE CHAIN AND POVERTY REDUCTION STRATEGY: POLICY IMPLICATIONS...... 63
4.1 RICE PRODUCTION SCENARIOS TOWARDS 2015 ...... 63 4.1.1 Projection of current trends...... 63 4.1.2 Productivion growth scenario...... 63 4.2 PRIVATE SECTOR PROPOSALS...... 65 4.2.1 Import Tariffs and Taxes ...... 65 4.2.2 Structural Problems ...... 66 4.3 RURAL POLICY FRAMEWORK...... 67 4.4 IMPLICATIONS OF THE OVERALL POVERTY REDUCTION STRATEGY AND RURAL DEVELOPMENT POLICY FOR THE RICE SUBSECTOR...... 69 4.4.1 spatial targets...... 69 a) High Potential Production Poles ...... 69 b) Less Favored Vulnerable Zones ...... 71 4.4.2 Production targets...... 71 4.5 INTERNATIONAL COMPARISON OF RURAL POLICY FRAMEWORKS...... 72 4.5.1 Lessons Learned from a comparative analysis of Rice policies...... 72 4.5.2 Lessons learned from an international comparison of rural poverty reduction strategies...... 76 5 CONCLUSION AND RECOMMENDATIONS ...... 80
LIST OF FIGURES
Figure 1: Evolution of GDP by sector (2000-2015)...... 9 Figure 2: Value Added Distribution by Type of Economic Operator in Rice Sub Sector...... 12 Figure 3: Map of rice producing regions...... 16 Figure 4: Intensification strategies in Lake Alaotra and Hauts Plateaux...... 21 Sources: based on FAO-UPDR rice survey data (1999)...... 21 Figure 5 : Rice production and availability in Madagascar (1962-99)...... 34 Figure 6: Physical paddy and rice flows (1999)...... 36 Figure 7 : Evolution or real prices to consumers (Prc) and to producers (Prp)...... 38 Figure 8: Comparison between rice retail price and paddy farm gate price in 1999...... 39 Figure 9: Comparison of seasonal rice price fluctuations among collectors in 1999 ...... 40 Figure 10: On-farm Equipment Investments ...... 48 Figure 11 Paddy Yields in Madagascar, Mali and Indonesia (source; FAOSTAT) ...... 50 Figure 12: Per capita Income of Rice Producing Households...... 53 Figure 13: Link between paddy production per capita and income per capita vis-à-vis the poverty line...... 55 Figure 14: Part of viable farmers and paddy farm gate price ...... 57
4 LIST OF TABLES
Table 1: Projection of labor force distribution by sector (2000-2015)...... 10 Table 2: PRSP projection of GDP by sector (2000-2015)...... 10 Table 3: Aggregated account of rice production, processing, and trade...... 12 Table 4: Areas of lowlands with poor water management (estimated through farmers' declaration)...... 14 Table 5: Regional comparison of rice value chain characteristics (1999) ...... 17 Table 6: Average Paddy Yields of Major Cropping Systems...... 19 Table 7: Productivity of Rice Cropping Systems ...... 20 Table 8: Regional comparisons of irrigated rice yields...... 21 Table 9: Effect of combined inputs application on irrigated rice productivity in the Center West region...... 22 Table 10: Regional Comparison of transplanted irrigated rice cropping systems "en foule"...... 22 Table 11: Regional Comparison of SRA based rice cropping systems...... 23 Table 12: Regional comparison of SRI-based rice cropping systems...... 23 Table 13: Regional comparison of irrigated direct seeding performances...... 24 Table 14: Regional Comparison of rainfed rice cropping systems ...... 24 Table 15: Regional comparison of tavy rice cropping systems...... 25 Table 16: Typology of Rice-Based Farming Systems...... 27 Table 17: Paddy Production, sales, purchases, productivity and paddy net balance by farming system ...... 28 Table 18: Paddy production economic performances in US$ per farming system...... 29 Table 19: Typology of rice-producing households...... 29 Table 20: Effect of risk on the economic situation of rice producing households...... 32 Table 21: Degree of Risk and Paddy Yields...... 32 Table 22: Effect of water management on paddy yields...... 32 Table 23: Effect of credit availability on paddy production...... 32 Table 24: Effect of rice production area on paddy production...... 33 Table 25 : Comparison rice productivity and agricultural wages...... 33 Table 26: Determinants of paddy production (1962-99)...... 34 Table 27: Regional comparison of downstream operator margins...... 41 Table 28 : Effect of spatial segmentation of markets in the Northern Region...... 41 Table 29 : Paddy price and rice price on local rural markets in 1999...... 42 Table 30: Regional comparison of paddy/rice collector profiles ...... 43 Table 31: Account of individual collector in Lake Alaotra...... 44 Table 32: Regional Comparison of Small-scale Paddy Processors...... 44 Table 33: Account of small paddy processor in Lake Alaotra...... 45 Table 34: Cost structure of wholesalers in Lake Alaotra...... 46 Table 35: Regional comparison of costs and margins of wholesalers...... 46 Table 36: Regional comparison of costs and margins of retailers...... 46 Table 37: Comparison of accumulated trade margins...... 47 Table 38: Average Number of Pieces and Value of Equipment by farm in Hauts Plateaux...... 47 Table 39: Use of monetary credit by rural households (ROR 2000)...... 49 Table 40: Global private investment stock in rice sub sector per region...... 49 Table 41: Comparison of productivity indicators Madagascar - Asiatic countries ...... 50 Table 42: Effect of Farming Systems Characteristics on the Economic Situation of Rice Producing Households...... 53 Table 43: Effect of farm size on the Economic Situation of Rice-Producing Households...... 54 Table 44: Comparison of paddy production cost and prices per kg...... 56 Table 45: Effect of rice import tariff on paddy farm gate price...... 59 Table 46: First scenario: Effect of Rice Price Increase on Purchasing Power of Rice Producing Households...... 60 Table 47: Use of Fertilizers in Madagascar...... 61 Table 48: Ratio of value added/ Intermediary expenses...... 62 Table 49: Rice production scenario based on current trends...... 63 Table 50: Growth scenario...... 64 Table 51: Contributing factors to rice production growth scenario ...... 64 Table 52: Evolution of areas and paddy yields by 2015 under a production growth scenario...... 64 Table 53: Inventory of potential pre-identified production poles...... 69 Table 54: Regional targets towards 2015 under a rice productivity growth scenario...... 71 Table 55: Evolution of areas and yields per type of cropping system...... 72 Table 56: Empirical Comparison of Rural Development Policies and their impact on rice sub sector performances ... 74 Table 57: Comparative assessment of macro-economic and sector growth dynamics effects on rural poverty reduction ...... 79
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INTRODUCTION
1. The objective of this background paper is to develop a policy framework for rice production in Madagascar that both exploits opportunities and strengths and addresses constraints and weaknesses of the rice value chain, while safeguarding the interest of poor rice consumers. By doing so, the present analytical work is aimed at contributing to a better articulation of Madagascar's rice policy with the country's overall poverty reduction strategy.
2. This background paper has been prepared as an input for the Rural/Environmental Sector Review, carried out by the World Bank in 2002. The overall objective of the Sector Review is to provide: (i) recommendations to the Government of Madagascar on how existing rural and environmental policies as embedded in the “Plan d’Action de Développement Rural” (PADR) and the Plan de Action Environnemental (PAE) could be sharpened and how sector-specific public expenditures could be reallocated to set the stage for a more dynamic rural/environmental sector as an engine for inclusive and sustainable economic growth that benefits the rural poor; (ii) a framework to the donor community to discuss and systematize thinking on rural development and environmental issues in Madagascar; (iii) analytical groundwork for future Bank involvement and support to the rural development and environment sector in Madagascar; and (ii) input and background material to the World Development Report 2002/2003 which aims to feature Madagascar as a case study.
3. A specific background paper on the rice value chain in Madagascar as part of the Rural/Environmental Sector Review was deemed necessary because of its importance as the backbone of the country’s rural economy in economic, social as well as food security terms.
4. This background paper synthesizes relevant studies that have been conducted along the upstream-downstream spectrum of the rice value chain in Madagascar by the Ministry of Agriculture, other relevant public sector agencies as well as the donor community. It takes into account experiences from other important rice-producing countries (e.g. Vietnam, Thailand, Indonesia, Bangladesh, Mali). In addition, the paper builds on the more general body of research associated with rural poverty in Madagascar, in particular UPDR/ FAO study and the “Réseau d’Observatoires Ruraux” (ROR).
5. The background paper is organized as follows. The first chapter looks at the current position of the rural sector in general and the rice sub-sector in particular within the overall context of the country’s economy. It also examines the level and nature of public support to the sector. Based on a projection of current trends and assumptions adopted under the PRSP, it then presents a more dynamic view of the sector and sub-sector that is in line with the planning horizon adopted under the international Millennium Development Goals of cutting absolute poverty by half in 2015. By doing so, the chapter provides a general indication of the contribution of the rice-sub- sector towards bringing about the necessary economic growth that is required for attaining the Millennium goals in Madagascar as well as the challenge that lay ahead in bringing the actual performance of the sub-sector in line with this contribution.
6. The second chapter presents a comprehensive view of the rice sub-sector chain in Madagascar with the aim to get a more concrete handle on how best to increase productivity. It reviews factors determining rice productivity differentiated according to the relevant production systems that exist in Madagascar. The chapter subsequently identifies household strategies from a farming systems perspective, culminating into the definition of three different categories of rice producing households. It also describes the functioning of rice markets and rice exchange flows in Madagascar and portrays the downstream actors in the value chain (collectors, processing operators, wholesalers, retailers). The chapter ends with a comparison of Malagasy rice competitiveness from an international perspective.
6 7. The third chapter focuses on rural poverty and highlights the linkages between rural poverty and profiles of rice producing households. It particularly examines how the level of the farm-gate price of paddy affects the ability of rice producing households to cover production costs so as to better understand poverty implications of actual rice pricing policies. By doing so, the chapter aims to contribute to a better understanding of how to optimize poverty reduction impacts of rice productivity enhancing policies.
8. The fourth chapter analyses the articulation between Madagascar’s rural development policy and its poverty reduction strategy. It incorporates feedback and suggestions from private operators concerning likely changes in the country’s rice policy to improve productivity. The chapter also looks at the spatial aspects of Madagascar’s rural development policy by distinguishing high potential production poles as well as vulnerable areas. In addition, Madagascar’s rural development policy, as applicable to the rice value chain, is compared with experiences from Vietnam, Thailand, Indonesia, Bangladesh, Mali and Guinea Conakry in order to obtain guidance on how to align its policy with international best practice.
9. Chapter 5 summarizes the main conclusions and recommendations of the background paper.
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1 RICE IN MADAGASCAR
1.1 MACROECONOMIC SETTING AND SOCIO-DEMOGRAPHIC TRENDS
1.1.1 MACRO-ECONOMIC AND SECTORAL DEVELOPMENT TARGETS
10. Madagascar has shown robust and accelerating economic growth over the last five years (1997: 3,7%, 1998: 3,9%, 1999: 4,7%, 2000: 4,8%, 2001: 6.7%)1. This trend is driven by: (i) a dynamic secondary sector (4,2 growth in 1999, 5,6% in 2000), with the export processing zones being by far the most active segment with 22,4% growth in 2000; and (ii) the tertiary sector (5,5% growth in 1999 and 6,7% in 2000) which is particularly pulled by construction, transport, and tourism. Growth of the primary sector has been lagging behind the other sectors (1997: 1,9%, 1998: 2.1%, 1999: 3.4%, 2000: 0,8%); thereby staying in line with its long-term disappointing trend of being unable to keep up agricultural production growth with the country’s population growth. Growth of the primary sector has been particularly driven by the forestry sub-sector (1999: 17.5%; 2000: 5.7%), while agriculture in fact contracted in 2000 (-2.4%) after growing at 5.3% in 1999.
11. As a result of the overall economic growth over the last five years, overall poverty levels have started to decline from 73% in 1997 to 71% in 1999. The decrease in poverty during these two years was strongest in the urban sector, which is not surprising since this sector has the strongest links with the formal economy. Poverty in the rural sector remained basically constant at around three quarters of the population, which means that the rural population has yet to benefit from the accelerated growth that the country has been experiencing recently. In order to address this problem, there is a need to strengthen the link between economic growth and poverty reduction, which is one of the basic premises of the recently formulated Poverty Reduction Strategy.
12. "Following the Poverty Reduction Strategy, the Government aims to continue to encourage direct foreign investments for high growth potential sub-sectors such as tourism, fishing resources, mining, labor-intensive industries, and telecommunication. The Government targets to reach 6,3% GDP growth in 2003 and thereafter, as a consequence of on-going structural and institutional reforms. As a result, it is expected to reduce the incidence of poverty in Madagascar by half in 2015 from 70% down to 35% of the population). "(DSRPI 2000).
13. Given their high incidence of poverty, the Poverty Reduction Strategy should be particularly effective in rural areas. Consequently, it emphasizes the importance of rural growth : (i) to ensure food security; (ii) to support overall economic growth; (iii) to reduce poverty and improve living conditions in rural areas; and (iv) to promote sustainable management of natural resources.
14. Consolidation of an overall growth rate at 6.3% would double GDP in 2011, providing a growth of GDP/ inhabitant over 40% by 2010 (increase from US$ 235 to US$336/inhab in 10 years) and reaching US$400/inhabitant by 2015. To ensure such a growth path, the primary sector would have to grow by about 4% per year from 2001 to 2015. This represents a significant acceleration from both historic levels as well as the sector’s more recent performance since 1997 (2% annual growth on average between 1997-2000). Given the dominant position of rice in the primary sector, representing 43% of agricultural GDP in 1999, it is clear that the success of the Government’s Poverty Reduction Strategy to a large extent depend on its ability to improve the productivity of rice producing households and to promote considerable diversification.
15. For the secondary and tertiary sectors, DSRP growth objectives are respectively 8,6% and 7,4% on average until 2015. These growth rates also represent a significant increased compared
1 International Monetary Fund (2001). “Madagascar: Selected Issues and Statistical Appendix”. Washington, D.C.
8 to their average levels of respectively 5.7% and 5.4% in 1998-2000. Application of these differentiated sectorial growth rates implies a progressive change in the composition of GDP as shown in Figure 1, with the share of the primary sector falling from 36% to 25% of GDP by 2015.
Figure 1: Evolution of GDP by sector (2000-2015)
Evolution prospective du PIB 1999-2015
60 000
50 000
40 000 Industries 30 000 + services
20 000 Primaire 10 000
en milliards fmg (constant base 1999) - 1999 2000 2005 2010 2015
1.1.2 IMPLICATIONS OF DEMOGRAPHIC AND ECONOMIC TRENDS
16. The rural sector represents a significant share of the Malagasy economy, estimated at about 43%2 of GDP3 in 2000 when including agriculture, livestock, fishing, forest and downstream agro-industries. Agriculture alone provides around 27 % of GDP, 40 % of exports4 and provides a living to about 75 % of the population. Nevertheless, taking into account the current growth rates of the secondary and tertiary sector (5-6,5% between 1998 and 2000) which are about double primary sector growth (2,5% - 3%), the Malagasy economic landscape and its rural-urban balance is going through a process of transformation. The rapid development of secondary urban centers with a high concentration of labor intensive industries, rural oriented services and rural dependant activities is reflected by an urban population growth rate that is three times as high as the growth rate of the rural population.
17. Projections from the National Institute of Statistics (INSTAT, Recensement Général de la Population et de l'habitat, January 97), based on relatively conservative assumptions of 1.5% rural and 4.7% urban annual population growth, indicate that by 2015 the relative rural population weight in the total population will have been reduced from 75% to 64%, while the urban population will have grown from 25% to 36% of the population.
18. In terms of active population, the secondary and tertiary sector would mobilize 40% of all workers (compared with 29% in 2000). This represents almost a doubling of the number of non- agricultural workers in absolute terms by 2015. Contrary to this massive increase, the number of workers in the primary sector would increase by about 18% in absolute terms (Table 1). The projected shift in the demographic composition of Madagascar’s population, implies that the market
2 35,5% issued from primary sector strictly (agriculture, forest, livestock) and 6,9% issued from downstream industries (agroindustries,, food industries, tobacco, drinks, oil processing,, leather industries) based on statistical data from 1999 (Ministère des Finances) 3 PIB 2000 26 350 billions fmg 4 Total Export Value in 2000: 6631 billions fmg
9 demand for basic food stuffs, of which rice is an important component, would rise significantly. Although food imports could play a role, it is difficult to envisage that all of the increased demand could be met without increasing agricultural labor productivity. Given that a large share of agricultural production is currently realized in a subsistence context, the structural change in the composition of the population and labor force, also puts a premium on improving the integration of markets to effectively link food supplies and demand.
Table 1: Projection of labor force distribution by sector (2000-2015)
2000 2005 2010 2015 Rural Population (inhabitants) 11 244 000 12172000 13087000 13806000 % agricultural population 91% 90% 89% 88% Agricultural population / primary sector 10 270 228 10954800 11647430 12149280 Number of agricultural households 2 166 000 2 258 722 2 401 532 2 505 006 Number of agricultural workers / HH 2,78 2,78 2,78 2,78 Number of agricultural workers (primary) 5 898 000 6 279 246 6 676 259 6 963 917 No of rural non-agricultural Households 202 869 250 969 296 819 341 592 Urban Population 3 905 273 4 933 000 6 192 000 7 742 000 Number of urban households 976 318 1 233 250 1 548 000 1 935 500 Urban active population /HH 2 2 2 2 Urban active population 1 952 636 2 466 500 3 096 000 3 871 000 Number of rural non agric. Workers 405 738 501 938 593 637 683 184 Total Non Agricultural workers 2 358 375 2 968 438 3 689 637 4 554 184 % labor force in Primary sector 71% 68% 64% 60% %labor force in Industry - Services 29% 32% 36% 40% Total Labor force 8 256 375 9 247 684 10 365 896 11 518 101 Total Population 15 149 273 17 105 000 19 279 000 21 548 000
19. Combining the demographic projection with the assumed overall economic growth rate in the PRSP of 6.3%, the evolvement of GDP/capita and GDP/worker can be estimated accordingly as shown in Table 2. By doing so, it shows the significant labor productivity differential that existed in 2000 between the primary sector on the one hand and the secondary and tertiary sector on the other hand (ratio of 1:4.8). It also demonstrates a continuing shift in the gravity point of the economy away from the primary sector towards the secondary and tertiary sectors.
Table 2: PRSP projection of GDP by sector (2000-2015)
2000 2005 2010 2015 (billions fmg) (billions fmg) (billions fmg) (billions fmg) GDP 22 221 30 160 40 935 55 559 GDP Primary Sector 7 840 9 495 11 500 13 929 GDP Secondary/Tertiary Sector 14 381 20 664 29 434 41 630 GDP primary sector / GDP 35% 31% 28% 25% (000 fmg) (000 fmg) (000 fmg) (000 fmg) Primary Sector GDP/inhabitant 517 555 597 646 Sec.-Tert. Sector GDP/inhabitant 949 1 208 1 527 1 932 Primary GDP / agric. worker 1 329 1 512 1 723 2 000 Sec.-Tert. Sector GDP/non-agric. worker 6 098 6 961 7 978 9 141
20. Converting projected sector economic growth rates and corresponding sector workforce growth rates into annual labor productivity growth rates, results in a figure of 2.8% for both the primary as well as the secondary/tertiary sector. Regarding the primary sector, this reflects an 1.1% growth rate of the agricultural workforce, as well assumed primary sector growth of 3.9% in
10 the PRSP. For the secondary and tertiary sector, the annual labor productivity growth rate is composed of 4.5% growth of the non-agricultural labor force and assumed sector growth of 7.3%.
1.2 ECONOMIC IMPORTANCE OF THE RICE VALUE CHAIN
21. Given the overwhelming importance of home-consumption as well as the practice of bartering rice in exchange for paddy processing services, the importance of rice production in Madagascar can not be measured in monetary terms based on reported market transactions. Consequently, there is a need to arrive at estimates of farmers’ economic incomes, whic h include the value of home-consumption as well as rice traded in kind5, in order to gain a proper insight of the importance of rice production in the country. An analysis along these lines would provide an estimate of farmers’ incomes as if were selling all of their production through monetary transactions.
22. With a Monetary Gross Product of 4883 billions FMG and an economic weight of 6630 billions FMG (including non-monetary exchanges), the entire rice supply chain represented the single most important economic activity in Madagascar in 1999; generating a value added of 2661 billions FMG. The direct value added in 1999 contributed to 12% of the GDP in current terms6 and to 43% of agricultural GDP. Therefore, the performance of the rice sub sector determines to a large extent the overall performance of the agricultural sector in Madagascar.
23. A total of 1.721.000 farmers are involved in the production of rice in Madagascar. In addition, there are about 30,000 downstream operators, who perform multiple functions (collection, processing, wholesale, importers, retailers). Since the vast majority of them represent family businesses, there exist approximately 1.750.000 households that are involved in the production, processing and handling of rice. Based on the average family size of 5.7 persons per rural household, it could be calculated that there are about 10 million people in Madagascar, or almost 70% of its population, who derive at least part of their economic income from the rice sub-sector.
24. In terms of employment, the production of rice (excluding transport, post harvest handling, processing and trading etc.) is estimated to generate around 242 millions working days per year. This number is equivalent to about 0,97 - 1,21 millions full time jobs (ratio of 200 - 250 working days per year). Based on labor requirements of agricultural activities associated with the production of rice, rice producing households on average invest 141 working days in producing rice. Given that there are on average 2.78 active members per rural household, each active member spends about 51 working days per year in growing rice. This represents about 20-25% of the annual potential working capacity. Salaries of agricultural workers account for about 20% of the value-added in the rice sub-sector. Downstream activities generate around 70 000 salary jobs. In addition, the rice sub-sector also generates jobs and incomes upstream in the value chain (agricultural inputs and services).
25. Rice farmers generate over 85% of the total value added of the rice value chain, estimated at about 2,661 billion FMG in 1999. Traders and processors generate about 10% and 4% of value- added respectively (Figure 2).
5 Economic analysis at market price would permi t to value all the services paid in kind with paddy or rice such as land rental and share cropping payments, agricultural salaries, credit reimbursements (which concerns 20% of credits to farmers) and all rice consumption realized without any monetary transaction (household self- consumption and gifts in kind). All these exchanges as well as home-consumption are valued at the current local market price of paddy. 6 GDP in current terms 1999 : 23.000 Billions Fmg (INSTAT).
11 Figure 2: Value Added Distribution by Type of Economic Operator in Rice Sub Sector
Processors Rice farmers Traders 4,2% 85,2% 10,5%
Source: Study FAO/UPDR
26. Total value-added of the rice value chain is composed of 74% of net income (including value of family labor) of rice producers, processing agents and traders. Another 19,6% of total value added is paid out in the form of salaries for agricultural workers (Table 3). Only 6% of total value added reflects compensation for renting land, 1% is used to compensate financial (interest) costs and 0,3% is collected as taxes. Family labor costs of rice producers 7 are estimated at 33% of their net income (1627 billion FMG in 1999).
Table 3: Aggregated account of rice production, processing, and trade
Unit: million Fmg Rice Processing Trade operators Whole chain producers Agents and detailers Of operators Production Gross Value 2.517.504 312.599 3.785.643 - Intermediary Consumed inputs 249.302 200.363 3.505.178 692.758 (hors filière) 8 Added Value . 2.268.202 112.236 280.465 2.660.901 Salaries and gifts 490.193 8.630 24.407 523.230 Land renting cost 150.790 - - 150.790 Financial interest costs - 4.589 22.081 26.669 Taxes - 2.256 4.616 6.872 Net Income 1.627.219 96.761 229.361 1.953.341 Sources : FAO/UPDR Rice Study 1999
27. Both the large number of rice producing households that exist in Madagascar, as well as the observation that the vast majority of the value-added in the rice value chain goes to rice producers in the form of net income and to salaries of agricultural workers, point in the direction that the benefits of any rice productivity increase most likely would be widely distributed and would directly support the bottom-line of many rural households. This is particularly true considering that the value added distribution inside the rice chain does not change dramatically from one year to another (except in case of sweeping changes in relative prices). Therefore in a strategy aimed at setting the stage for more inclusive economic growth as mean to reduce poverty, such as the PRSP, it appears that efforts aimed at increasing rice productivity would potentially have a high pay-off in strengthening the link between poverty reduction and economic growth in Madagascar. The high distributive potential of the benefits associated with productivity growth in the rice sub- sector also suggest the likelihood of significant multiplier effects as most of the increase in net incomes of rice producing households would be translated into increased consumption demand for products and services generated by an expanding secondary and tertiary sector in urban areas.
7 Valued by multiplying labor quantity by daily rate of local agricultural salary 8 Added Value: it is the new value generated by a production/service activity. It is measured by the gross product P to which we subtract the value of goods which have been consumed for production (Intermediary inputs). Therefore it measures the net added value or created wealth which contributes to economic growth
12 This observation is line with the findings of IFPRI9 which indicate that sustained growth in rural incomes that is widely distributed across households is capable of unlocking significant additional growth as for every dollar in new farm income earned, at least one additional dollar could be realized from growth multipliers.
1.3 PUBLIC SECTOR SUPPORT TO THE RICE SUB-SECTOR CHAIN
28. After a long period of excessive direct involvement in economic activities, including in the rice sub-sector, Madagascar has embarked on a policy of liberalization and disengagement of the state since the mid-80s. The key to success for this major policy overhaul is to strike the right balance between the inertia of state interventionism and the anarchy of laissez-faire. This points in the direction of the state as a facilitator with “public investments generating enabling conditions for investments by the private sector” (DE OLIVEIRA CRUZ B. TEIXERIRA J.R. 1999). From this perspective, the provision of infrastructure is important as it has been shown that rural areas that are better endowed with infrastructure are more dynamic and quicker to adopt productivity enhancing innovations, both through easier access to external inputs as well as better linkages with output markets (AHMES et HOSSAIN 1987). Since infrastructure contain public goods elements, provision of it by the private sector would be sub-optimal. This means that the productivity of the rice sub-sector one way or the other depends on the level and effectiveness of public investments in areas such as rural roads, irrigation and drainage systems, communications network, as well as marketing infrastructure.
29. As far as the involvement of the public sector in the rice value-chain is concerned, according to the AFD ("Le riz et le problème vivrier malgache" transmitted to GOM early 1994): "During the last 10 years, price liberalization and state disengagement have been the main drivers of Malagasy rice policy. Under this policy, efforts to stimulate the rice sub-sector are not really provided anymore. Madagascar has adopted an ultra-liberal framework, which is not applied elsewhere, except recommended in economic text books. Yields seem to have declined since liberalization, with the state disengaging from rural areas and significantly reducing support to producers. Although the average yield decrease is partly explained by the expansion of the agricultural frontier into areas with low agricultural potential (tanety, tavy) as confirmed by MADIO ROR data (1999), it is also driven by a decrease of yields in the most productive irrigation perimeters which were previously supported by State (GPI, PPI, DROY 1997). In Marovoay in the 1970, average yields were 3,9 tons/ha, while in 1995, a AGRAR / FIFABE study showed that yields had been reduced to 2,8 tons/ha. Hence, between a situation of « everything directly managed by the state» during the 70s, and the situation of «laissez-faire » during the 80s and 90s, it is time to define the modalities of an adequate public sector policy, without substituting to private sector operators; there is a role for the state to facilitate the market process”.
30. The Public Investment Program (PIP) is the main public vehicle to actively set the stage for productivity increases in the agricultural sector. In 1998, there were 35 programs and projects registered within the PIP of the Ministry of Agriculture, amounting to a total of FMG 171 billion). A total of 11 projects directly focused on the rice sub-sector, totaling FMG 78 billion, equivalent to 46% of PIP resources. These resources were mainly used to finance construction and rehabilitation of irrigation perimeters, rural micro-hydraulic systems and anti-erosion measures. During 1998, there were also 6 integrated development projects, totaling FMG 61 billions or 36% of PIP resources, which one way or the other also dealt with rice production. Hence, although the exact share of the agricultural PIP in the total PIP is not known, it is clear that within the sectoral PIP, the rice sub-sector does receive its due share. At the same time, the rice sub-sector also
9 IFPRI Research Report 107, Christopher L. Delgado, Jane Hopkins, and Valerie A. Kelly, with Peter Hazell, Anna A. McKenna, Peter Gruhn, Behjat Hojjati, Jayashree Sil, and Claude Courbois. “Agricultural Growth Linkages in Sub - Saharan Africa”. The report shows that adding $1.00 of new farm income should be able to increase total household income by $2.88 in Burkina Faso (including the original $1.00 of stimu-lus), $1.96 in Niger, $2.48 in the Central Groundnut Basin of Senegal, and $2.57 in Zambia.
13 generates revenues for the public sector. In 1999, rice imports accounted for about FMG 43 billion of state tax revenues, while input taxes generated another FMG 15 billions. The domestic rice sub-sector generated about FMG 7 billions in taxes levied on downstream processing and trade- related activities. The global tax entry provided by rice sector is around 65 millions FMG.
31. A number of areas deserve attention to improve actual public sector policy vis-à-vis the rice sub-sector chain. First, as far as water management is concerned, there is a need to stop the deterioration of irrigation infrastructure caused by eroded soil and sand silting in canals. At the national level there are around 700 000 ha of lowlands affected by poor water management conditions ( Table 4). This situation exists against the background of apparent ineffective public investments that have been made in the past, which focused particularly on hardware requirements of large-scale irrigation schemes. It is felt that the focus on the hardware dimension of irrigation infrastructure has been pursued to the detriment of improving the rural roads network and strengthening the management capacity of farmers’ organizations10.
Table 4: Areas of lowlands with poor water management (estimated through farmers' declaration)
Region % farmers with poor Area concerned water management 000 ha North 55 70 North-West 78 197 Center-West 34 66 Hauts Plateaux 73 231 East 67 101 Lac Alaotra 59 73 Source: étude FAO/UPDR 99
32. Second, as far as input supply policy is concerned, the recent application of taxes (VAT) and customs tariffs has caused fertilizer use to decline. By doing so, soil fertility decline on existing rice cultivation areas is accelerated11, while at the same time area expansion through tavy in order to maintain paddy production is encouraged. The application of fertilizers in rice cultivation, which was estimated at around 15kg/ha of rice in the 70s decreased to 6 kg/ha in 1990 (Source Minagri). Between 1975 and 1996, the total volume of imported fertilizers oscillated between 12,000 and 25,000 tons, per year, mainly driven by fluctuations in fertilizer donations. In 1999 the fertilizer volume used in rice production was estimated at 14,700 tons, equivalent to 10 kg/ha albeit with strong variations among regions and cropping systems. Similarly, the use of pesticides as negligible (0,3-0,4 kg of phyto products per ha of rice). According to a survey conducted by UPDR- FAO, rice producers mentioned lack of access to agricultural inputs as the second most important problem (59% of all respondents), after water management (74% of all survey respondents).
33. Third, in terms of access to capital, the agricultural sector, which represented 34% of GDP and 55% of exports in 1996, received less than 5% of all formal credit provided by the financial sector during the same year. From that only 9% was targeted towards the rice sub-sector (FMG 7,5 billions in 1996 or 0,5% of all credit to the economy estimated at FMG 1,619 billions according to FRASLIN, 1997). This means that the rice sub-sector, which represents 42-45% of the added value of the agricultural sector (12-14% from GDP) is effectively cut off from any access to capital provided by the formal sector.
34. Fourth, support to the rice sub-sector also suffers from an inefficient interface between the public sector and farmer’s organizations and the private sector. National programs still have the tendency to be centrally planned and managed, while the lack of organizational capacity of farmers’ organizations complicates their voice being heard and constitutes a real challenge
10 It is the case for many donors who recognize to have prioritized some themes while neglecting credit issues or farmers'organization 11 Agro-ecologic technics have nevertheless allowed to find alternatives to face soil degradation and yield decreasing which remained up to now poorly diffused at farm level.
14 towards their desire to assume a more active role in taking the process of development into their own hands. A start has been made with the establishment of GTDRs as a platform for participation at the regional level. However, they are a recent feature on the institutional environment and it not clear what their role would be in the context of an on-going decentralization of the state. At the same time, the role of farmers’ organizations and rural municipalities has not yet been clearly defined vis-à-vis the role and functions of the provincial governments. Clarification of these institutional gaps in the interface between the various levels of the public sector on the one hand and farmers’ organizations and private sector on the other hand, would be an important condition to successfully translating the overall direction of the Poverty Reduction Strategy into concrete action aimed at improving productivity in the rice sub-sector that is supported and shared by all relevant stakeholders of the rice sub-sector chain.
15
2 INHERENT CHARACTERISTICS OF THE RICE CHAIN
2.1 RICE CROPPING SYSTEMS
2.1.1 REGIONAL VARIATIONS
35. Rice cultivation in Madagascar is concentrated in six distinct regions, covering approximately 1.4 million hectares. These regions include: 2, q Hauts Plateaux , which covers 27.340 Km , subdivided in 16 fivondronana and 325 Communes, 12 q Center West with 20 fivondronana , covering the largest geographical area. q North West which includes Melaky, Betsiboka, Tsimihety country, part of Menabe q Northern region which includes the whole northern part of Madagascar and includes two main production sub-regions: Diana and Sava q Lake Alaotra with four fivondronana : Ambatondrazaka, Amparafaravola, Andilamena, Moramanga. q Eastern region which includes the whole eastern Coast region from Maroantsetra to Vangaindrano
Figure 3: Map of rice producing regions
36. Hauts Plateaux13 region is the largest region in terms of rice cropping area14, rice production, number of rice farmers and value added. It covers the major urban cities and 33% of all downstream operators (wholesalers, retailers …) in the rice chain. Nevertheless, the region does not produce enough rice to cover regional demand and shows a structural deficit, which is further exacerbated by a rapidly growing regional population. As a result, the region purchases
12 Toliara, Manja, Beroroha, Morombe, Ankazoabo, Belo/Tsiribihina, Morondava, Mahabo, Betioky Sud, Miandrivazo , Sakaraha, Benenitra, Betroka, Fenoarivo Centre, Tsiroanomandidy, Betafo, Ambatofinandrahana, Ikalamavony, Ihosy, Soavinandriana 13 population estimated around 4.150.000 inhabitants (1998) (without Antananarivo), 14 cropped area : Cropped area is summing areas of rice parcles by accounting twice the double cropped plots.
16 about 120,500 tons of rice or 44% of its market needs from other regions such as Lake Alaotra, Center West, (52000 tons) and from rice imports (68500 tons).
Table 5: Regional comparison of rice value chain characteristics (1999)
Northern North Center- Hauts East Lake Total Region West West Plateaux Coast Alaotra Paddy produced (tons) 248 184 362 078 445 223 1 004 573 357 461 360 873 2 778 391 % of national volume 8,9% 13,0% 16,0% 36,2% 12,9% 13,0% 100,0% Area in rice (hectares) 184 759 268 741 250 900 317 882 278 118 148 544 1 448 945 % of rice area 12,8% 18,5% 17,3% 21,9% 19,2% 10,3% 100.0% Number of farms 189 751 215 233 266 723 501 965 471 561 76 017 1,721,250 % of total rice farms 11% 13% 15% 29% 27% 4% 100% Average Yield (kg/ha) 1 343 1 347 1 775 3 160 1 285 2 429 1 918 Rice Area cropped per farm (Ha) 0,97 1,25 0,94 0,63 0,59 1,95 0.84 Production per farm (T) 1,31 1,68 1,67 2,00 0,76 4,75 1.61 Quantity Kg de paddy /working day 9,2 14,3 11,7 10,6 5,0 26,9 12.0 Rice Volume traded by producers 21 891 69 362 102 680 152 008 22 060 153 241 521 243 % of national volume of local rice traded. 4% 13% 20% 29% 4% 29% 100% Rice Volume sold by retailers 74 215 98 142 62 049 275 241 171 125 26 236 707 008 Degree of coverage of market demand 29% 71% 165% 55% 13% 584% 74% Number of other operators 2 229 5 880 3 273 10 301 4 444 4 874 31 002 % operators non producers 7% 19% 11% 33% 14% 16% 100% Added Value by region (millions fmg) 219 778 368 150 362 538 747 900 322 468 344 484 2 456 408 % of national Added Value 9% 16% 15% 32% 14% 15% 100%
37. The average rice producing household in Hauts Plateaux produces a total of 2 tons of paddy. A total of 458 kg of paddy is sold, while a total of 1,240 kg of paddy (equivalent to 820 kg of rice) is consumed. The remaining paddy is used as gifts and to pay for land tenure obligations (160 kg), while a total of about 150 kg remains to be used as seed for the next cropping season an to compensate for post-harvest losses. Beside an average of 200 Kg of rice, totaling nearly 20% of total household consumption is purchased. Total annual household consumption, amounting to 1020 kg, equals 2.8 kg of rice per day. The basic food balance is completed with maize ( 257 gr. per day), and cassava (874 gr. per day), which are both widely grown as secondary house-garden crops. With 458 kg of paddy being sold (equaling about 300 kg of rice) and 200 kg of rice being purchased, it means that the average rice producing household has a rice surplus in quantitative terms. Besides growing rice, most farmers in the region have widely diversified income sources with extra-agricultural activities [brick processing15, handicraft (hat making…), milk/ cheese production, fish-farming], seasonal migration etc.
39. The second most important rice producing region is Lake Alaotra. This region includes Madagascar’s most productive farms, with average yield per ha standing at 25% over the national average. Rice cultivated area per farm also significantly exceed (2.3 times) the national average, which stands at 0.84 ha. Consequently, average total farm production is threefold the overall average figure of 1.600 kg of paddy. Finally labor productivity in Lake Alaotra, measured in kg of paddy per day, is by far the highest in the country with 27,2 kg / day while average is only 11,4 kg. The region is the basis for a relatively large number of downstream operators, who are located in urban centers such as Ambatondrazaka and Amparafavola. The bad road situation, particularly RN44, represents a real bottleneck to link Lake Alaotra with other regions, thereby hampering local market efficiency and limiting the number of rice operators around Lake Alaotra. As a result, the limited number of local operators enjoy some sort of trade protection, with local market conditions resembling a monopsony. At the same time, the bad road connection has a very negative effect on transport costs, which amount to FMG 120,000/ton to the Antananarivo market, although the distance Lake Alaotra - Antananarivo is only 258 km.
15 Antsirabe, interview SRAT (fév.2000): 50-70 fmg/brick allows to earn 1 million de fmg / season on 1 are (0,01 ha) of lowland plot, which is over any crop margin.
17 40. The Center West region, with 20 fivondronana16 constitutes the third most important rice production area after Hauts plateaux and Lake Alaotra. With 54 000 tons of inter-regional traded rice, it provides 30% of local rice transfers between regions in Madagascar (177-178 000 tons). Rural households in the Center-West Region are less dependent on rice (whose consumption represents 62% of the basic food balance) as maize makes up a much larger share of the basic food basket compared to other regions. As in Lake Alaotra, rice trade transfers are complicated due to transport constraints associated with poor roads infrastructure. Ihosy17 and Tsiroanomandify18, are two towns that show a real concentration of downstream operators as they benefit from good road access and close proximity to rice production areas. In addition, transport by ship is also common for moving rice along the West Coast. This trade has reinforced the role of Tulear and Morondava as trading poles.
41. The North West and Northern Regions represent rice deficit areas with average yields at 1.350 Kg/Ha, which is about 30% below the national average (1,918 kg/ha) and significantly trailing Hauts Plateaux (3.160 Kg/Ha) and Lake Alaotra (2.419 Kg/Ha). In the North West Region, locally produced rice supplies only 70% of market requirements. Although it produces 250.000 tons of paddy, the Northern Region is rice-deficit. Locally produced rice covers only 29% of demand that is expressed in the regional markets, totaling 75,000 tons. The deficit is made up by extra-regional transfers of domestically produced rice amounting to 40,000 tons and imported rice amounting to about 14,000 tons
42. The Eastern region includes two sub regions, South-East and North-East from Vatomandry/Mahanoro to Maroantsetra. In terms of rice production, this is Madagascar’s least important region. The limited rice cultivated area per farm (0,59 Ha) along with low yields (1,2 T/ha) limit the production per farm to around 0,76 tons. Also, labor productivity in rice cultivation in the Eastern Region is nearly three times less than the national average. However, the significant presence of cash crops (coffee, clove, vanilla, litchi, banana) in the regions allows farmers to diversify income generating sources. Rice production is primarily for home consumption. Only 10% of the regional production supply is sold on the market (34.000 tons). At the same time, regional market demand is around 171.000 tons. Hence, the region is structurally rice-deficit with less than 20% of regional market demand covered by locally produced rice. Remaining demand is covered by (i) extra-regional transfers in the amount 62.500 tons and (ii) imported rice at around 87.000 tons. The Eastern Region accounts for almost half (46%) of all imported rice in Madagascar19. Consequently, changes to the rice import tariff structure, while taking into account the existing lack of market integration in Madagascar, would particularly affect the price of the rice in the Eastern Region.
43. With total imports in 1999 at about 188,000 tons, it is particularly the Hauts Plateaux and Eastern Regions that are the major destinations for imported rice, accounting for respectively 37% and 46%, or 83% of all imports. It is interesting to note that according to the draft PRSP (October 2001), these regions also show the lowest poverty incidence figures.
16 Toliara, Manja, Beroroha, Morombe, Ankazoabo, Belo/Tsiribihina, Morondava, Mahabo, Betioky Sud, Miandrivazo , Sakaraha, Benenitra, Betroka, Fenoarivo Centre, Tsiroanomandidy, Betafo, Ambatofinandrahana, Ikalamavony, Ihosy, Soavinandriana 17 Ihosy is located on a key crossroad of strategic roads for trading with South West , and South -East (RN7, RN13, RN27) voir de l’Est
18 in the North, Tsiroanomandidy, headtown of a fivondronana rice heavy producer and livestock market isprovide with direct access to RN1 (218 km 19 Total rice imports in 1999 amounted to 188,000 tons.
18 2.1.2 PERFORMANCES OF DIFFERENT CROPPING SYSTEMS
44. Rice is grown in three main cropping systems20, including: (i) irrigated rice; (ii) rainfed rice21; and (iii) tavy rice or upland slash and burn rice22. Paddy yields are highest under irrigated conditions, followed by rainfed cropping systems. Paddy yields under slash-and-burn conditions are very poor (Table 6). The regional variation in paddy yields is driven by differences in agro- climatic conditions, water management, use of inputs etc.
Table 6: Average Paddy Yields of Major Cropping Systems
T/ ha North North Center Hauts East Alaotra Average West West Plateaux Irrigated 1,5 1,4 2,0 3,2 1,7 2,6 2,1 Rainfed 0,8 0,8 1,2 2,6 1,7 2,0 1,5 Slash and burn (Tavy) 1,0 - - - 0,7 0,6 0,8 Source : Enquête FAO/UPDR 99
45.In terms of cultivated area, irrigated rice is most important, covering 82% of all areas under rice. Tavy and rainfed rice cover respectively 10% and 8% of the total rice cultivated area. Irrigated rice can be subdivided into four sub cropping systems, including: (i) direct seeding cropping systems23; (ii) transplanting “en foule” irrigated rice24; (iii) improved rice cropping systems, SRA25; and (iv) intensive rice cropping systems, SRI26. Of these, transplanted rice is by far the most important subsystem, covering over 60% of the total cultivated area of rice under irrigated conditions (Table 7). Labor productivity performances is especially high for direct seeding irrigated rice, which is 2-4 times higher than traditional transplanting "en foule" as practiced in the Center West and Hauts Plateaux regions. Labor productivity is highest in the Lake Alaotra region with a regional average of 26,5 kg/day compare to the national average of 11,5 kg/day. On the other extreme, there is not a single cropping system in the Eastern region that produces over 6 kg of paddy per working day.
20 A Cropping system is characterized by a set of factors (type of land, water supply, cultural techniques employed (seeds, fertilizer …) mobilized by the farmer to manage the production activity in a specific rice growing environment (aquatic, rainfed, tavy). Cropping systems analysis is mainly targeting technical, agronomic and economic performances. Usual comparative indicators are yield / ha yield / working day, gross return per ha. 21 Rainfed rice is grown on non-irrigated plots whose water source is fully depending on rainfalls 22 Slash and burn (tavy) includes heavy work to clear all vegetation on newly to be established plots. Vegetation is subsequently burned in order to prepare topsoil for cropping. Tavy is usually practiced on steep hillsides. This ancestral practice has disastrous effects on the top soil which is not covered any longer and, being exposed, rapidly degrades (losing its organic matter) and washed away downhill where it affects existing irrigation infrastructure. 23 The "riz aquatique en semis direct" involves direct seeding in lowlands areas; it requires that water management is relatively well-developed as water levels should be maintained in relation to the height of young rice plants. The system is appreciated for easy mechanization and limited weeding 24 The "riz aquatique repiqué en foule" is a traditional lowland transplanting system practiced by planting a number of rice seedlings into every hole. It is the most common system. This traditional practice is widely used because it limits the development of weeds. The transplantation method also allows to start growing rice seedlings in relatively small areas with good water availability (thereby lowering risks during plant establishment) in anticipation of the on-set of the rainy season. 25 The" système rizicole amélioré (SRA)" (improved rice system) which is also practiced in low lands with permanent water coverage provides a set of recent techniques such as on-line transplanting which permits use of mechanical weeding, easier fertilizer and pesticide use 26 The "système rizicole intensif (SRI)" (intensive rice system) is based on promoting the root development of rice plants by employing very young replants and replacing plot's permanent water coverage by a succession of temporary water coverage periods in order to maintain soil aerobic conditions for root expansion. It requires important organic manure inputs. This method which requires very good water management also has very demanding labor requirements for weeding (6-8 times per season ). The SRI provides by far the best performance in terms of yield/ha but both the high labor requirements as well as the sophistication of required water management limits expansion of this cropping system; consequently, SRI areas remain marginal.
19 In fact, margin per day of family labor27 for tavy and rainfed rice is below the on-going daily agricultural wage. Aquatic direct seeding in the Eastern Region requires much higher labor compared to all other regions. In Eastern coast, the farm equipment is very low with 20 times less ploughs than elsewhere (2% of farmers with ploughs compared to 40% in HP). In aquatic direct seeding, water management is very scarce; required ploughing is done through Angady labor by hand; hand weeding is heavier than in transplanted rice
Table 7: Productivity of Rice Cropping Systems Irrigated Rainfed Tavy Direct Transplanted SRA SRI seeding "en foule" TOTAL AREA /CROPPING SYSTEM 128 767 822 702 188 555 23 246 136 003 149 673 NORTH Average price paddy:1 010 % of total rice cultivated 24% 35% 2% 7% 20% 11% Average yield (kg) 1 114 1 649 2 560 2 297 785 1 005 Labor requirements/ha (days) 77 184 249 171 71 272 Vol. paddy kg/ working day28 13,3 8,7 10,1 13,4 9,9 3,5 Gross Income /ha 29 1 022 242 1 394 586 2 155 339 1 627 699 735 082 598 641 Margin / day of family labor 19 658 11 338 14 563 22 297 13 365 3 480 NORTH-WEST Average price paddy:1 104 % of total rice cultivated 12% 81% 3% 4% Average yield (kg) 813 1 457 1 332 - 754 - Labor requirements/ha (days) 76 96 107 - 108 - Vol. paddy kg/ working day 10 15 12 - 6 - Gross Income /ha 612 508 1 399 731 1 154 509 284 818 - Margin / day of family labor 19 141 24 995 24 564 - 4 069 - CENTER-WEST Average price paddy: 862 % of total rice cultivated 2% 64% 9% 2% 24% Average yield (kg) 1 883 1 864 2 527 2 544 1 174 - Labor requirements/ha (days) 70 143 165 284 168 - Vol. paddy kg/ working day 25 13 15 9 7 - Gross Income /ha 1 358 223 1 201 589 1 550 448 801 632 546 098 Margin / day of family labor 34 826 14 477 19 626 4 979 5 748 - HAUTS PLATEAUX Average price paddy: 964 % of total rice cultivated 1% 50% 44% 1% 4% Average yield (kg) 2 747 3 007 3 316 5 787 2 557 - Labor requirements/ha (days) 70 311 275 441 412 - Vol. paddy kg/ working day 38 9 12 13 6 - Gross Income /ha 2 398 200 2 036 973 1 964 590 3 893 031 801 390 - Margin / day of family labor 61 492 10 446 13 643 17 226 5 565 - EASTERN COAST Average price paddy: 987 % of total rice cultivated 4% 51% 1% 1% 42% Average yield (kg) 2 010 1 691 2 738 - 1 653 678 Labor requirements/ha (days) 348??? 253 459 865 232 Vol. paddy kg/ working day 6 6 6 - 3 Gross Income /ha 1 304 996 1 412 031 2 202 791 956 377 342 425 Margin / day of family labor 11 348 8 209 8 189 1 576 2 395 LAKE ALAOTRA Average price paddy: 922 % of total rice cultivated 22% 54% 6% 1% 10% 7% Average yield (kg) 1 863 2 818 3 656 4 274 1 958 619 Labor requirements/ha (days) 44 88 95 237 90 224 Vol. paddy kg/ working day 39 31 38 18 20 3 Gross Income /ha 1 478 648 1 813 036 2 650 443 2 859 761 1 127 734 368 892 Margin / day of family labor 82 147 78 828 66 261 23 250 30 479 2 236
27 Margins per work day are calculates as follows: (net production per ha after subtracting seeds and losses x average Price per kg of paddy - monetary prod. Costs, including inputs: phyto., fertilizer, purchased seeds, hired labor costs, workers mills, equipment renting)/ number of family working days per ha: MB/Jtf = (Pnette/ha x prix - Coûts divers)/ Jtf 28 The volume of paddy/working day is based on the net production supplied after subtracting the volume of local seeds 29 Gross Income per ha = Net production per ha (after subtracting seeds x average price / kg of paddy - monetary costs including inputs: phyto., fert, purchased seeds, salaries, rice workers'food, equipment renting: GI/Ha = Pnet/ha x price - production costs
20 Source: issued from analysis based on data from FAO UPDR Rice study 1999-2000
a) Irrigated Rice
46. At the national level, 69% of the area under irrigated rice is cropped without any mineral or organic fertilizer application. An exception is the Hauts Plateaux region, where fertilizers are applied on 76% of all areas under irrigated rice, mainly in the form of manure. With an average level of fertilizer application amounting to 33 kg/ha in the Hauts Plateaux region as compared to 15 kg/ha in Lake Alaotra, one observes a significant yield differential of 568 kg/ha or 22% between the two regions. (Table 8). The difference with the Central-West, where 78% of all irrigated rice is grown without fertilizers is even larger. This differential suggests that at the currently low levels of fertilizer application in Madagascar, the yield response potential associated with a modest increase in fertilizer use could be significant.
Table 8: Regional comparisons of irrigated rice yields
Average yield irrigated Fertilizer use (% of rice (kg/ha) cultivated area) Hauts Plateaux 3,200 76% Lake Alaotra 2,632 40% Center West 1,966 22% Source: calculated from FAO UPDR rice survey data (1999-2000)
47. It is believed that the small size of farms in the Haut Plateaux region stimulates farmers to pursue ways and means that improve yields/ha through intensification of their cropping systems. With three times more rice land cropped per farm in Lake Alaotra, and given existing financing constraints that are typical for the rural areas in Madagascar, farmers in this region are only able to finance 50% more on monetary production costs (US$ 240/farm) than the Hauts Plateaux region (US$ 160/farm); this translates into an amount of monetary costs /ha which is only half the level as compared to the Hauts Plateaux region (Figure 5).
Figure 4: Intensification strategies in Lake Alaotra and Hauts Plateaux
300 250 Monetary prod. 200 Cost/ farm
US$ 150 100 Monetary prod. Cost/ Ha 50 0 Lake Alaotra H-P
Sources: based on FAO -UPDR rice survey data (1999)
48. Combined use of inputs is making a significant difference as shown by the situation in the Center West region, where the average yield on areas without fertilizer (1,872kg/ha) jumps to 2,527 kg / ha (+35%) when mineral fertilizers are applied and 2,773 kg/ha when both mineral fertilizers and manure are used. A further increase to 3,030 kg/ha (+62%) is noted when in addition to fertilizers, also improved seeds are used in combination with good water management techniques (Table 9).
21 Table 9: Effect of combined inputs application on irrigated rice productivity in the Center West region
Without Mineral Mineral fertilizer+ Mineral fertilizer+ fertilizer fertilizer only manure improved seeds + improved water control % of farmers 80% 13% 4% 2% Paddy Yield (kg/ha) 1,872 2,527 2,773 3,030 Yield difference (kg/ha) n.a. 655 246 257 Yield difference (%) n.a 35% 10% 9% Source: calculated from FAO UPDR rice survey data (1999-2000)
49. Taking the current situation in the Center West region as a point of departure, with 80% of rice cultivated area without fertilizers, and using the yield data of Table 9 as the basis for a projection of total regional production assuming a future situation of 20% of all areas without fertilizer, 50% with mineral fertilizer only and 30% of all areas with combined fertilizers (mineral + manure), the average yield would increase from 1,966 kg/ha to 2,479 kg/ha and the Region would produce an additional 100,000 tons on its existing 192,000 ha of irrigated land
b) Transplanted Irrigated Rice Cropping Systems
50. Transplanted irrigated rice "en foule" is by far the most widely used cropping system. It covers the main part of the irrigated lowlands. It is the most traditional way of growing rice in Madagascar. In comparison to the total rice cultivated area (aquatic, Rainfed, tavy), transplanted irrigated rice (" en foule") covers 80% of all rice growing areas in the North West region, 64% in the Center West region, 54% in Lake Alaotra, 50% in the Hauts Plateaux region. Regional comparison indicates that labor intensity, input use, and labor productivity vary significantly (Table 10). In Lake Alaotra, efforts appear to be geared towards maximizing returns to labor, with returns that are actually 8-9 times higher compared to the Hauts Plateaux (HP) region. This production orientation is reflected in the number of service operators in the Lake Alaotra region who provide mechanized agricultural services (e.g. plowing), the wider use of chemical weeding (41% of areas ) which allow to minimize the labor per ha and increase returns per family working day. At the other end of the spectrum is the Hauts Plateaux (HP) that because of its smaller average farm size is oriented towards maximizing yields/ha. The Center West region demonstrates an intermediary strategy. The big differential of labor per ha between Lake Alaotra and HP (ratio of 1 to 3,5) for a very close yield (7% of difference) is to be noted.
Table 10: Regional Comparison of transplanted irrigated rice cropping systems "en foule"
Average Manure/ Mineral Volume of Volume of Gross Gross return yield /ha compost Fertilizer labor per paddy return/ha /family workday (kg) (kg) ha /work day (millions fmg) (fmg) Lake Alaotra 2,818 261 16 88 31 kg 1,8 78 000 Hauts Plateaux 3,007 1924 1 311 9 kg 1,9 9 700 Center West 1,864 81 13 143 13 kg 1,2 14 400 Source: calculated from FAO UPDR Rice survey data (1999-2000)
c) Other irrigated rice cropping systems: SRI, SRA and semi-direct
51. Based on a yield ranking of 2,550 irrigated rice plots surveyed in 1999, the top 10% plots, with an average yield of 4,239 kg/ha, consist of in 59% of all cases of either SRI or SRA cropping systems. At the same time, these systems cover only about 15% of the total area under irrigated rice. Fifty percent of all SRI plots and 25% of all SRA plots included in the survey sample made it into the top 10% yielding list. The highest SRI yields are found in the Hauts Plateaux region (5,787 kg/ha) and in Lake Alaotra (4,274 kg/ha). SRA yields are most attractive in Lake Alaotra (3,656 kg/ha); while the Hauts Plateaux region comes in second with 3,316 kg/ha. These results show that the yield potential of rice in Madagascar is considerable and raises the question what is required to scale-up the SRA and SRI experiences.
22
52. Input use of SRA based rice cropping systems is presented in Table 11. It shows that both fertilizer use and improved seeds are critical in achieving yields that exceed 3,000 kg/ha (Lake Alaotra and Hauts Plateaux). The yield differential of Lake Alaotra over the Hauts Plateaux region is attributed to better water control management. The high return to labor in Lake Alaotra is associated with a higher level of mechanization and input use for weeds control: 61% of farmers are equipped with harrows (as compared to 40% for Hauts Plateaux), 17-23% have sprayers (as compared to 5% in Hauts Plateaux), while 17% use mechanic weed control measures. Farmers in Lake Alaotra on average own 3,5 oxen (as compared to 1,1 in the Hauts Plateaux region). Therefore the average equipment capital per rice household (including oxen) amounts to 2,8 millions FMG in Lake Alaotra compared to 0,94 million FMG in the Hauts Plateaux region.
Table 11: Regional Comparison of SRA based rice cropping systems
Avg yield Labor per ha Improved Fertilizer Phyto Manure (kg/ha) (Man-days) seeds kg/ha (kg/ha) (kg/ha) kg/ha North 2,560 249 2 Center Wes t 2,527 165 19 7 4 276 Hauts Plateaux 3,316 275 35 69 2 2000 East 2,738 459 2 - Lake Alaotra 3,656 95 34 69 157 Source: calculated from FAO UPDR rice survey data (1999-2000) 53. SRI yields are exceptionally high in the Hauts Plateaux and Lake Alaotra regions (Table 12). Use of manure appears to be a critical element in this type of rice cropping system, with application rates between 700-2,400 kg/ha. Mineral fertilizers are hardly used. Labor inputs of SRI systems amounting to 240-440 kg/ha are relatively high due to weeding requirements.
54. Despite their relatively high yields, diffusion of SRI and SRA cropping systems is limited A limiting factor that is particularly associated with SRI is that it requires nearly perfect water management. Furthermore, SRI uses very young rice plants which presents a radical departure from traditional practices. Although the use of SRA is more widespread, its diffusion is limited by its heavy dependence on purchased modern inputs which remain difficult to finance by small farmers.
Table 12: Regional comparison of SRI-based rice cropping systems
% of Average manure/ Labor Kg paddy Gross Gross rice Yield/ha compost /ha /working margin/ha margin/day of area (kg) (kg) day family labor North 7% 2,297 98 171 13 1 627 286 22 292 Center West 2% 2,544 678 284 9 802 397 4 984 Hauts Plateaux 1% 5,787 2378 441 13 3 893 530 17 228 Lac Alaotra 1% 4,274 751 237 18 2 859 938 23 252
d) Irrigated direct seeding cropping systems
55. Irrigated direct seeding cropping systems are most coming in Lake Alaotra (22% of rice areas, 33,000 ha), the North Western region (44,263 ha with 24% of rice cropped) and the Northern region (32,826 ha or 12% of areas). Direct seeding is marginal in other regions, covering 1% of the rice cultivated area in the Hauts plateaux, 2% in the Center West and 4% in the Eastern region.
56. In terms of yields/ha, direct seeding cropping systems are particularly attractive in the Hauts Plateaux region (2,747 kg/ha) while other regions are lagging behind quite considerably (Table 13). However, the advantage of the system is its relatively low labor requirements with only 45-80 labor days/ha which compares favorably with transplanted rice and SRA and SRI cropping systems. As a results, gross returns per labor day are relatively high: up to 82,000 FMG/ day in Lake Alaotra,
23 61,000 FMG in the Hauts Plateaux regions and between 11,000 and 34,000 FMG/day in other regions.
Table 13: Regional comparison of irrigated direct seeding performances
Part of Average manure/ Mineral Labor Kg Gross Gross margin rice yield/ha compost fert/ha /ha paddy margin /ha /day of family area (kg) (kg) /MD lab labor North 24% 1,114 0 0 77 13 1 022 041 19 655 North West 12% 813 0 0 76 10 612 192 19 131 Center West 2% 1,883 0 22 70 25 1 358 789 34 841 Hauts Plateaux 1% 2,747 0 22 70 38 2 398 437 61 498 Eastern Coast 4% 2,010 0 0 348 6 1 340 453 11 343 Lac Alaotra 22% 1,863 20 0 44 39 1 478 725 82 151 Source: calculated from FAO UPDR rice survey data (1999-2000)
57. Although not practiced on a large scale, the Hauts Plateaux figures show the potential of direct seeding to improve rice productivity with only limited labor and input supply. In that sense, it might be an interesting alternative to SRA and SRI as the level of water management capacity that is required for direct seeding is more in line with existing capacity than the levels that are required from SRA and SRI.
e) Rainfed rice cropping systems
58. According to various studies30, the cultivated area under rainfed rice shows a gradual increasing trend in response to limited availability of yet to be developed lowland areas for irrigated rice cultivation. In 1999, rainfed (tanety) rice covered about 136,000 ha and together with rice grown under slash-and-burn conditions (150,000), the total area under rainfed rice is estimated at 286,000 ha
59. Rainfed rice productivity is poor, particularly because of its very high labor requirements for weeds control caused by the fact: (i) that weeds growth is not constrained through submersion (as in irrigated systems); and (ii) herbicides are only used sparsely. As a result, labor requirements of rainfed rice cultivation in for instance the Hauts Plateaux region are five times as high as compared to irrigated rice results. Not surprisingly, yields/ha tend to be poor, varying between 800 and 1,200 kg in the Northern and Center West regions, where rainfed rice is most common in relative terms as compared to the area under irrigated rice. Yields/ha in the Hauts Plateaux region are considerably higher, most probably caused by very high labor investments in weeds control. Also yields in the Lake Alaotra region are on the high side in relative terms, which could be attributed to the more common use of chemical weeds control in this region.
Table 14: Regional Comparison of rainfed rice cropping systems
% of Avg Yield Manure/ Chemical labor/ha Volume of Gross Income /day rice /ha (kg) compost Products per ha paddy /day Income/ha of family work area (kg) of work (fmg) (fmg) North 20% 785 2 0 71 10 734 941 13 363 North West 4% 754 0 0 108 6 284 525 4 065 Center West 24% 1,174 1430 0 168 7 546 451 5 752 Hauts Plateaux 4% 2,557 1333 0 412 6 801 610 5 567 Lac Alaotra 9,5% 1,958 1321 2,69 90 20 1 127 815 30 481 Source: calculated from FAO UPDR rice survey data (1999-2000)
30 Mantasoa Workshop ("Etat des lieux de la filière riz malgache" 1996); Economy of Madagascar, Challenges and constraints in liberalization process, oct.1997; Enquête permanente des Ménages EPM 1999, 2000 (INSTAT) ; Etude IFPRI-FOFIFA "Politique de libéralisation et ajustement des marchés agricoles" 1997 ; Ajustement structurel dans le secteur agricole de Madagascar 1998 Mission Banque Mondial.
24 60. Further increases in the cultivated area under rainfed rice are likely to continue. Key to improve rice productivity under this cropping system is to offer technologies that reduce labor requirement for weeds control and land preparation as well as reduce risk associated with drought stress. Zero tillage systems as well as the newly developed NERICA seed technology, which offers drought resistance as well as natural weeds control through plant vegetal cover, might offer interesting potential in this context.
f) Slash and Burn (Tavy) Rice Cropping Systems
61. Slash and burn (Tavy) cropping systems is practiced by about 382,000 rice producing households (22% of total), mostly in the Eastern, Northern and Lake Alaotra region. In terms of cultivated area, tavy cropping systems cover 118,000 ha or 42% of the rice growing area in the Eastern region and 20,900 ha (11%) in the Northern region. The total area under tavy systems is estimated at about 150,000 ha Table 15).
62. Paddy yields under tavy conditions are very low, on average not exceeding 1,000 kg/ha. However, the average reflects a steep decline in yields, which tend to be more favorable during the first two years, after which they drop dramatically due to depletion of soil fertility caused by nutrient mining and erosion. Returns to labor in terms of paddy production/working day are also low, in fact in many cases below the on-going regional agricultural wages, reflecting the very strong subsistence charac ter of this type of rice cropping system. The major challenge facing tavy systems is to find ways and means to maintain soil fertility in order to avoid the progressive abandonment of tavy areas after a few years of rice cultivation and subsequently the further opening of the agricultural frontier through forest conversion.
Table 15: Regional comparison of tavy rice cropping systems
Part of Avg Yield Labor Kg paddy Gross Gross margin /day rice area /ha (kg) /ha /working day margin/ha of family labor North 11% 1005 272 3,5 598 461 3 479 East 42% 678 232 2,8 342 242 2 393 Lac Alaotra 7% 619 224 2,6 368 918 2 236
63. Field investigations have shown that part of old tavy land will not be re-used, it is too degraded (equiv. 50 years of rehabilitation), while part of it will be recropped after around 8 years . If we assume 50% land with 50 years rehabilitation and 50% with 8 years average recovery time is 29 years Based. on a critical assumption of 2 years of land use under a slash and burn system and these 29 years of soil recovery, tavy affects and degrades over 2,32 millions hectare of sloped areas, equivalent 23 200 sq. km (4% of the national territory). Besides significantly reducing yields under these conditions to the point where it is no longer attractive to grow rice, the off-site erosion effects contribute severely to reducing the irrigation potential of many irrigated schemes located in the Lake Alaotra , Eastern and Northern regions. In these three regions, about 134,000 ha of irrigated perimeters is affected or threatened by tavy expansion. More specifically, this problem is particularly acute in areas covered by the following six 6 GTDRs: 6. Diana, 7. Sava, 8. Toamasina, 9. Mangoro, 10. Atsimo-Atsinanana and 11. Alaotra. For instance, in Lake Alaotra it is estimated that the impact of tavy in the long run may reduce the effective irrigated area of these perimeters by 40,000 ha or 30%. This area reduction would lower annual paddy production by about 108,000 tons per year (withdraw from 30% of irrigated areas producing on average 2,7 T/ha). This reduction would exceed total paddy production of the actual 150,000 ha of rice grown under tavy conditions; estimated at 106,000 tons. This example demonstrates the importance of adopting a more comprehensive watershed management approach in these areas as a vehicle to address rice productivity problems.
25 2.2 RICE-BASED FARMING SYSTEMS31
2.2.1 FARMING SYSTEMS TYPOLOGY 64. With a net paddy production of 1,5 Ton (gross production minus losses and seeds), the average Malagasy rice producing household disposes of about one ton (1009 kg) of rice. About 310 kg of rice is sold, while 56 kg is designated as land tenure payments and gifts to friends and relatives. The remaining rice volume of 640 kg is subsequently supplemented with around 170 kg of purchased rice to cover annual rice household consumption of 811 kg. Based on a total of 6,4 family members (data from FAO UPDR Rice farmers' survey 1999), this puts average rice consumption at 127 kg/head. Using the INSTAT average rural size of households of 5,7 persons, this figure would be 142 kg/head. Total household monetary income is estimated at about 2,7 millions FMG. The contribution of rice sales is 19% or (504,000 FMG), while 49% is provided by other crops and livestock (1,300,000 FMG) and 33% by non-farm activities (888,000 FMG). Total economic household income is 5,200,000 FMG, with an average income per head of 831, 000 FMG (Source: ROR). However, this average profile hides significant variations in production and household strategies. For that purpose, it is useful to distinguish different rice-based farming systems.
65. Starting from the six identified rice cropping systems in the previous section, rice producing households apply these in different combinations and in association with other crops in potentially an infinite number of farming systems. Based on the FAO-UPDR rice survey conducted in 1999, a total of 18 rice-based farming systems could be differentiated that integrate in different combinations the six defined cropping systems (Table 16). A relatively accurate number of farmers per farming system (calculated from EAB32 1999 phase 1), allows to switch from micro-economic profiles to macro-figures.
66. In terms of cultivated area, the different rice-based farming systems show a relatively diversified picture, ranging from 0.45 ha for tavy dominated systems in the Eastern region (system no. 14) to 2.35 ha for combined irrigated and rainfed systems in Lake Alaotra (system no. 18). Most of rice farmers are cropping rice on very reduced areas, while completing resources with other crops. They are very few to be really monocropping rice producers in Madagascar, even on irrigated areas except for a few areas of concentration such as Lake Alaotra. There are only 5 of the 18 farming systems where the average rice area per farm exceeds 1 ha. About 22% of rice growing households grow more than 1 ha of rice. At the other extreme, 59% of farms are growing rice on less than 0,7 Ha, which resembles a situation close to « rice-gardening»; eight farming systems could be characterized in this sense. In terms of number of households, the most important rice-based farming systems include the simple irrigated systems with a 2nd season crop in the Hauts Plateaux Region, the simple irrigated systems in the Eastern Region, the simple irrigated systems in the North Western region and the combined simple irrigated and tavy systems in the Eastern region. These four rice-based farming systems account for 60% of all 1.72 million rice producing households in Madagascar.
31 Farming system: Combined agricultural activities managed by the farm household. Farming systems analysis improves global understanding of relations between production, consumption, income generation, labor management which characterize household economy and strategies
32 enquête Agricole de Base, phase 1 dénombrement: based on around 1000 villages with 100 HH/village quickly profiled
26 Table 16: Typology of Rice-Based Farming Systems
Irrigated Direct En foule SRA SRI Rainfed Tavy Rice Number seeding Area Rice /farm farms (ares)33 (ares) (ares) (ares) (ares) (ares) (Ha) (farms) Sys. 1 North Irrigated + tavy 1 22 0 0 0 41 0,64 26214 Sys. 2 North Irrigated + rainfed 38 24 0 0 39 0 1,00 93166 Sys. 3 North Double irrigated cropping 13 52 6 19 1 14 1,06 70371 Sys. 4 N -West Simple irrigated in lowlands 11 107 4 0 5 0 1,27 189018 Sys. 5 N -West Simple irrigated + vegetables 57 47 0 0 0 0 1,04 20513 Sys. 6 N- West Double irrigated cropping 11 93 33 0 0 0 1,37 5702 Sys. 7 C-West Simple irrigated cropping 1 56 3 1 0 0 0,61 72476 Sys. 8 C-West Double irrigated cropping 1 58 12 3 0 0 0,74 30432 Sys. 9 C-West Simple irrigated + rainfed 1 46 5 0 47 0 1,00 104573 Sys. 10 C-West Double irrigated + simple 3 91 21 4 16 0 1,35 59242 irrigated + rainfed Sys. 11 HP Simple irrigated (2nd season) 1 33 27 1 0 0 0,62 447782 Sys. 12 HP Simple irrigated (2nd season) 0 26 53 5 1 0 0,85 32450 + vegetables Sys. 13 HP Simple irrigated + rainfed 0 10 0 0 56 0 0,67 21733 Sys. 14 East Tavy dominant 0 3 0 0 0 42 0,45 78768 Sys. 15 East Simple irrigated + tavy 0 31 0 0 0 65 0,95 131587 Sys. 16 East Simple irrigated 4 38 1 0 1 0 0,45 261206 Sys. 17 La - Al Simple irrigated 41 114 13 0 0 17 1,85 60586 Sys. 18 La- Al Simple irrigated + rainfed 56 69 8 10 92 1 2,35 15431 Source: calculated from FAO UPDR survey data (1999-2000)
2.2.2 FARMING SYSTEMS PERFORMANCE 67. Production and market orientation of the different farming systems vary widely as demonstrated in Table 17. Production per household vary from only 317 kg for the tavy dominant system in the Eastern Region (System 14) up on average 4,873 kg for the simple irrigated and rainfed farming system in Lake Aloatra. Accordingly, the percentage of production sold on the market also fluctuates widely from as low as only 2% up to 65% of paddy production. Paddy production per day also differentiates significantly from as low as 5-8 kg per labor day for farming systems that include a significant paddy area under tavy conditions in the Easter Region as well as the Northern Region up to 60-64 kg per day for farming systems located in Lake Aloatra. Paddy production per labor day oscillates within a somewhat narrower band of 15-25 kg per day for all farming systems located in the North-West, Central West and the Haut Plateaux regions, representing about 60% of all rice farmers in the country.
68. There are seven farming systems, all, except one, in the Eastern and Northern region, where rice producing households purchase more rice (calculated in paddy equivalents) than they produce paddy. These farming systems represent a total of about 634,000 households or about 37% of all rice producing households. Everything equal, this means that an increase in the price of rice would have a direct negative impact on the purchasing power of these households.
33 Unit of area: 1 are = 100 square meters (1/100 ha).
27 Table 17: Paddy Production, sales, purchases, productivity and paddy net balance by farming system
size Product. Paddy Paddy Equiv. Paddy Paddy Rice sales - Ha Paddy/ consumpt Sales paddy produced sales - rice Farm ion Purchases / family day equiv.paddy purchases purchases ha kg kg Kg kg kg Kg paddy Fmg Farming syst.1 N. 0,64 746 992 26 272 8 -246 -378337 Farming sys. 2 N. 1,00 1 034 1 041 127 346 13 - 219 -387472 Farming sys. 3 N. 1,06 1 636 1 244 300 112 13 189 138164 Farming sys. 4 N-W 1,27 1 602 1 376 499 339 25 160 59514 Farming sys. 5 N-W 1,04 1073 997 225 236 25 -10 -93879 Farming sys. 6 N-W 1,37 1 764 966 791 41 26 750 818850 Farming sys. 7 C-W 0,61 1 092 870 333 144 23 188 91479 Farming sys. 8 C-W 0,74 1 438 555 944 87 23 857 706640 Farming sys . 9 C-W 1,00 1 486 1 038 414 6 18 409 349319 Farming sys. 10 C-W 1,35 2 502 1 391 1 057 75 22 982 822765 Farming sys. 11 HP 0,62 1 802 1 493 420 263 17 157 42137 Farming sys. 12 HP 0,85 2 765 1 858 1 015 207 20 808 692886 Farming sys. 13 HP 0,67 1 589 1 369 433 449 15 - 17 -200263 Farming sys. 14 E 0,45 317 855 8 539 5 - 531 -762139 Farming sys. 15 E 0,95 915 1 212 70 385 6 - 315 -480355 Farming sys. 16 E 0,45 751 930 92 281 10 - 189 -304901 Farming sys. 17 LA 1,85 4 327 1 056 2 943 183 60 2 760 2438479 Farming sys. 18 LA 2,35 4 873 1 438 3 049 230 64 2 819 2471044 Source: calculated from FAO UPDR rice survey data (1999-2000) 69. Production costs of paddy vary between US$48-US$177 per ton (Table 18). A comparison paddy production costs with those in Vietnam is interesting as it provides some sense of the competitiveness of Malagasy rice at the farm level because Vietnam’s rice market has been liberalized and the country is a major exporter of rice. With paddy production costs in Vietnam at US$79-126 per ton (LEBAILLY, DOGOT 1996), Table 18, indicates that there are six farming systems where paddy production costs exceed US$126/ton. These are: all systems in the Northern region (Systems 1, 2, and 3), and the tavy and rainfed dominant systems in the Hauts Plateaux (System 13) and Eastern Region (Systems 14, 15). They represent a total of about 422,000 or slightly less than 25% of all rice producing households in Madagascar.
70. In Vietnam, daily agricultural wages ranged from US$1,40- 2,20, while the Madagascar figure is from US$0.50-0.90 per day. Being less than 40% of Vietnamese levels, it is clear that the competitiveness of Malagasy rice production at the farm level as noted in the previous paragraph is driven by the low agricultural wages imputed in the calculation of paddy production costs.
28
Table 18: Paddy production economic performances in US$ per farming system Paddy Paddy Product. cost /ton ($) Product. cost35 /ton (excluding family (including family labor34) labor) Farming sys t.1 N. 148.6 43.6 Farming sys. 2 N. 128.8 60.0 Farming sys. 3 N. 141.1 63.7 Farming sys. 4 N-W 77.1 43.1 Farming sys. 5 N-W 98.7 50.9 Farming sys. 6 N-W 67.6 21.6 Farming sys. 7 C-W 74.5 49.1 Farming sys. 8 C-W 76.8 47.4 Farming sys. 9 C-W 64.6 26.4 Farming sys. 10 C-W 77.0 46.1 Farming sys. 11 HP 109.9 80.4 Farming sys. 12 HP 96.0 66.5 Farming sys. 13 HP 135.8 93.0 Farming sys. 14 E 177.3 84.8 Farming sys. 15 E 157.2 67.6 Farming sys. 16 E 91.0 27.3 Farming sys. 17 LA 65.7 55.0 Farming sys. 18 LA 48.1 36.9
2.2.3 TYPOLOGY OF FARMING SYSTEMS 71. Based on production management and household behaving strategies, the 18 different farming systems could be clustered into three categories. This first category includes highly vulnerable micro-producers. This category of rice producing households handle very limited capital and land. They face a heavily constrained production environment in terms of access to inputs, credit, market, extension, services) who have to target a rice micro-strategy of home-consumption. Highly vulnerable micro producers purchase more rice than they sell and have relatively low household incomes (Table 19). The second category includes rice-selling specialized producers who grow rice on more than 1.25 ha and sell over FMG 1.0 million worth of paddy. The third category are so-called multi-activity oriented self-sufficient producers who manage a diverse range of agricultural and non-farm income generating activities. Paddy production covers rice consumption needs for this category of households, while the diversified nature of their activities enable them to achieve a comparable income with rice selling specialized producers.
Table 19: Typology of rice-producing households Highly Multi-activity Rice-selling vulnerable oriented self- specialized micro- sufficient producers producers producers Number of farms (000) 591 737 393 Rice cropped area per farm (ha) 0,66 0,72 1,34 Average yield (t/ha) 1,2 2,4 1,9 Paddy Production / household (kg) 816 1.771 2.530 Labor Productivity (kg paddy/ day) 5,7 10,5 17,1 Eco. cost per kg of paddy produced 903 fmg 722 fmg 540 fmg Rice Income /day of family labor (Fmg) 4.900 8.400 20.000 Household annual Income (000 Fmg) 1.520 3.272 3.150 Rice Sales - rice Purchase (000 Fmg) - 374 + 115 + 1.341 Source: Bockel and Dabat, 2001.
34 Family work valued at an economic price equivalent to the level of local agricultural wages/day 35 cost: wages, food for workers, inputs, credit costs, taxes, renting of equipment, land rent (no processing cost)
29
a) Highly vulnerable micro-producers 72. Farming systems36 that are considered to represent highly vulnerable micro-producers produce on average 816 kg of paddy on a very limited average area of 0,66 ha. They sell less than 150 kg of paddy and on average face a negative monetary balance "rice sales - purchases" that amounts to FMG 374,000. In volume terms, highly vulnerable micro-producers buy 270 kg more rice than they sell. With only FMG 1.52 million per household per year, their gross income (rice, other crops, livestock, fishing, handicraft, salaries) is 42% lower than the national average of rice producers (FMG 2.6 million per year according to the 1999 FAOP-UPDR survey).
73. Five farming systems from the Northern and Eastern regions make up the category of highly vulnerable micro-producers, representing about 388,500 ha or 27% of the total cultivated area under rice in Madagascar. About 591,000 or 34% of all rice producing households farmers could be considered highly vulnerable micro-producers. They produce 482,000 tons of paddy, representing 17% of total national production. The average yield is 1,24 tons /ha, which is 35% below the national average (1.92 T/ha). The average economic income generated through rice production is FMG 416,000. The average economic cost of paddy production is 802 fmg/kg (including family labor at wages rate), which is relatively high, reflecting a challenging production environment.
74. Given the adverse production environment (tavy and rainfed conditions) that highly vulnerable rice producing households face as well as their limited resources both in terms of land and capital, there appears to be a premium on the generation of income diversification opportunities and possibly on the introduction of low risk rice productivity enhancing technologies as a mean to increase incomes of this category of rice producing households.
b) Rice-selling producers 75. There are seven farming systems37 with a significant positive rice balance as indicated by an average difference between paddy sales and rice purchase that amounts to FMG 1.3 million. This category of rice selling producers includes all farming systems from Lake Aloatra, and selected ones from the North-Western, Central-West and Hauts Plateaux regions. These more rice specialized and rice income dependent households are estimated at over 392,000 producers (23% of all rice producers) who produce over 994,000 tons of paddy production (36% of the whole production) on 527,000 ha of the total rice cultivated area (36%). This translates in an average rice cultivated area of 1.34 ha per producer, a production of 2.5 tons of paddy with an average yield of 1.9 tons/ha. They earn about a total of about FMG 3.4 million per household of which 37% is derived from paddy sales alone. Economic Cost of production is estimated at FMG 477 per kg of paddy, which despite the relatively modest yield/ha, is quite competitive. Since this category of farmers grows rice under relatively favorable conditions and is competitive, the challenge is to better integrate the underlying farming systems into the market so that yield enhancing external inputs are more readily available and conditions for competitive marketing of output are improved.
36 Highly vulnerable micro-producers, q Farming sys. N°1 North aquatic + tavy q Farming sys. N°2 North, aquatic + rainfed rice q Farming sys. N°14 East dominant ,Tavy q Farming sys. N°15 East,Simple aquatic + riz tavy q Farming sys. N°16 East,Simple aquatic
37 Farming systems of rice saling specialized producers q Farming system N°4 NW,Simple rice cropping azara on lowland q Farming system N°6 NW,Double rice cropping aquatic q Farming system N°8 CW,Double rice cropping aquatic q Farming system N°10 CW,Double rice cropping aquatic + simple aquatic + rainfed rice q Farming system N°12 HP,Simple rice cropping aquatic (2nd season) + other crops q Farming system N°17 LA,Simple rice cropping aquatic q Farming s ystem N°18 LA,Simple rice cropping aquatic + riz taney
30 This category of farmers would also benefit most in relative from an increase in rice import tariffs or stricter compliance measures concerning current rice pricing policy.
c) Multi -activity oriented self-sufficient producers 76. The multi-activity oriented self sufficient rice producers are the largest category in terms of number of households (730,000 or 43% of rice producing households), rice cultivated area (534,000 ha or 37% of total rice area) and production (1.3 million tons or 47% of total domestic production). This category of rice producing households includes a total of six farming systems, mainly located in the Hauts Plateaux and Center-West regions38. On average multi-activity oriented self-sufficient producers produce 1.77 tons of paddy per farm, although the average rice area is limited to 0.72 ha. On average This reflects that the primary purpose of rice production is self-consumption. They manage a volume of paddy annual production around 1,77 Tons per farm, although rice areas are reduced (0,72 ha). Yields are relatively high at an average of 2.4 tons/ha. Average income is FMG 3.27 million. However, rice only contributes between 5-20% as the majority is derived from other sources (cash crops, livestock, non-farm income). It reflects that the primary purpose for rice production is self-consumption. The rice balance is slightly positive in monetary terms (FMG 155,000), while gross economic income derived from rice amounts to FMG737,000. Economic unit cost of production amount to FMG 681/kg (including family labor). Given that multi-activity oriented self sufficient producers have the opportunity to derive income from other sources and taking into account that rice production is primarily to cover subsistence needs, it appears that labor saving technologies in rice production would be particularly attractive as it would enable households to shift family labor to other income generating sources.
2.2.4 RICE PRODUCTION RISK 77. Based on the ROR database (Réseau d'Observatoires Ruraux) from 2000 (8,500 households followed by 18 observatories) an attempt has been made to establish a multi-variable risk indicator of agricultural production by using the following variables: (i) rice harvest and post harvest losses, (ii) other food crops losses, (iii) occurrence of livestock problems, (iv) occurrence of land sales, (v) occurrence of land ownership disputes, (vi) occurrence of natural cataclysms (cyclone, dryness, flooding, crickets), (vii) civil insecurity feeling (viii) negative evolution of soils- water balance. Based on this variable a risk indicator was developed that varies from 0-20 with four modalities: RIS1= zero risk or reduced risk, RIS2= normal risk , RIS 3= high risk, RIS 4= very high risk.
78. Following this risk factor, a differentiation in paddy production per head from 1 to 2,6 between the most exposed group (108 kg/head) and the less exposed one (264 kg/head) could be observed (Table 20). Also gross income per head increases by 70% from the most to the less exposed group.
38 Multi -activity oriented rice selfsufficient producers q Farming system. N°3 North, Double rice aquatic cropping q Farming system. N°5 NW, Simple rice aquatic azara + vegetable gardening. q Farming system. N°7 CW, Simple aquatic rice q Farming system. N°9 CW, Simple aquatic rice+ rainfed rice q Farming system N°11 HP, Simple aquatic rice (2nd season) q Farming system N°13 HP, Simple aquatic rice + rain fed rice
31
Table 20: Effect of risk on the economic situation of rice producing households
Nb households Paddy Prod. Household Income./ Capital Concerned /head Expenses/ head insurance Nb % kg head 000 fmg risk39 000 fmg 000 fmg Global Average 6780 100% 184 310 831 418 Risk Factor Ris 1 2257 33% 264 362 1095 428 (ROR) Ris 2 2427 36% 205 307 831 509 Ris 3 952 14% 142 281 687 441 Ris 4 1144 17% 108 274 646 294 Ris 1+2 4684 69% 240 339 985 462 Ris 3+4 2096 31% 126 278 668 370
79. The risk factor is significantly negatively correlated with rice yield (Table 21), at -0,317 (correlation considered significant at the level of 0,01 (bilateral)). This degree of risk is very linked with spatial locations. Very high risk is linked to vulnerable areas and low performance cropping systems (tavy… ). Table 21: Degree of Risk and Paddy Yields
Degree of risk in farmers' activities Average paddy yield declared
RIS1 none -reduced 1835 kg/ha RIS2 normal risk 1490 kg/ha RIS3 high risk 1207 kg/ha RIS5 very high risk 629 kg/ha Source: enquête ROR 2000 80. Given the importance of rice grown under irrigated conditions, farmers had been asked to provide their own appreciation of the quality of water management in the plots where they grow rice in terms of good, medium and bad. Based on their responses, one could appreciate the effect of water management on paddy yields under irrigated conditions which appears to be highly significant. According to Table 22, improvement of water management increases paddy yields by 30-60%. Table 22: Effect of water management on paddy yields
Water management Lac Alaotra Center-West Hauts Plateaux North West (kg/ha) (kg/ha) (kg/ha) (kg/ha) Good 3282 2087 3535 1779 Medium 2490 1748 3424 1519 Bad 2139 1788 2740 971 Source: enquête ROR 2000
81. Asked about the degree of access to formal credit, it appears the paddy production per head of rice producing households who do so are 38% higher compared to those who do not. There is a very close correlation between access to formal credit and use of rice productivity enhancing inputs, particularly fertilizers. Access to credit is 2.3 times higher among rice farmers using organic and mineral fertilizers compared to those who do not apply fertilizers in rice production. Table 23: Effect of credit availability on paddy production
Nb households Paddy Prod. /head Concerned kg Nb % Average 6780 100% 184 Formal YES 239 3,5% 497 Credit NO 6541 96,5% 173
39 The Capital insurance- risk includes the cumul of goods easy to sell for facing risk (cattle…) and the social expenses (gifts) whose return is to be socially supported in a risk situation.
32 82. When analyzing the constraint of land availability per farmer, it appears clearly that farmers with less than 0.3 ha have far lower paddy production per head (-65%) and income per head (-30%) than those who own more than 0.3 ha. Although this does not mean that they are necessarily less efficient, it points out that households with less land are more vulnerable from a food security perspective (Table 24).
Table 24: Effect of rice production area on paddy production
Nb households Paddy Prod. /head Concerned kg Nb % Global average 6780 100% 184 Rice area <0,3 2054 30% 69 Available 0,3-0,6 1496 22% 132 0,6-1 1389 21% 201 >1 1841 27% 343
2.2.5 RICE PRODUCTIVITY AND AGRICULTURAL WAGES
83. The level of agricultural salaries reflect different factors such as: (i) local rural labor supply; (ii) regional labor productivity; and (iii) range of available alternative income generating activities. Average agricultural wages are lowest in the Hauts Plateaux, Eastern Coast and Center-West regions, where they range from FMG 3,100 to FMG 3,800 per day, reflecting both abundant rural labor supply as well as relatively low labor productivity measured in paddy production/labor day. The multiplicity of alternative agricultural and non-farm income generating activities has resulted in higher agricultural wages in the North and North-Western region where agricultural laborers earn about FMG 5,500-5,600 per day. The availability of alternative income generating activities appears to be an important factor as demonstrated by the situation in the Lake Alotra region where, despite being the region with the highest labor productivity, agricultural wages are about FMG 4,700 per day, thereby being lower than in the North and North-Western regions (Table 25).
Table 25 : Comparison rice productivity and agricultural wages
Paddy production per day Agricultural salary /day (kg) North 9.2 5,400 Lake Alaotra 26.9 4,690 Hauts Plateaux 10.6 3,800 East 5.0 3,101 Source : Enquête FAO/UPDR 99
84. It is important to note that returns to family labor of growing rice under tavy conditions are particularly low, amounting to about FMG 2,200 –FMG 2,300 per day in the Eastern and Lake Alaotra regions. These returns are well below the on-going agricultural wages in these regions, particularly in the Lake Alaotra region.
85. Another low rewarding, yet very common practice, is manual paddy pounding done by female family labor. Manual pounding provides an economic return of 80-180 fmg/kg depending on the region, with an average of 140 fmg/kg. On the basis of 20 kg of paddy pounded per day, the return to labor is around FMG 2,800 fmg/day which is far below the on-going agricultural wage in any region. Based on 1.1 million ton of paddy manually pounded per year, it is estimated that this activity generates about 55 millions labor days, equivalent to 180 000 full time workers.
33 2.3 LINKING RICE SUPPLY AND MARKET DEMAND
2.3.1 NATIONAL SUPPLY AND IMPORTS
86. Domestic paddy production has more than doubled between 1962 and 1999. However, this increase has been driven by area expansion rather than productivity growth, with the former causing about 80% of the incremental production over this period and the latter about 20% (Table 26).
Table 26: Determinants of paddy production (1962-99)
Area (Ha) Yield (Tons) Paddy Production (tons) 1962 830,000 1.63 1,350,000 1999 1,448,945 1.92 2,778,391 Increase 75% 18% 106% Source: Atelier Mantasoa 1996 and rice survey UPDR 1999
87. Domestic production, growing at an average of 1.2% per year from 1972-99, has not kept up with demand for rice that has been growing at about 2.8% per year since the last twenty years. Rice imports which cover around 10% of national demand in 1999, play an important role to at least partly compensate the deficit. At the same time, one notices that rice consumption per head has steadily declined from 150 kg/year in 1980 to 130 kg/year 40 in 1990 and to 114 kg/year in 199941 (Figure 7). This decline reflects substitution of rice with other food sources, such as cassava, potato and maize. This substitution on the one hand reflects the relative growth of the urban population which might be driving changes in food preferences. On the other hand, the declining rice consumption per head might also reflect growing poverty levels that have been observed during most of the 1990s and that might be inducing increased demand for cheaper food alternatives such as cassava42.
Figure 5 : Rice production and availability in Madagascar (1962-99) 1 500 180
160 1 250 140
1 000 120
100 t 750 80
500 60
40 250 Disponibilités en kg / hab./ an Production et importations en 000 20
0 0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996
Production riz Importations Disponibilité / hab.
Source : Instat, Minagri
40 La Riziculture Malgache revisitée : Diagnostic et Perspectives 1993-1999 ; AFD ; Robert Hirsch ; Janvier 2000. 41 This estimation has been calculated based on a population figure of 15,1 millions (World Bank), and available rice supply of 1,9 million tons (Survey FAO-UPDR 99). 42 Cassava, second energy source in the Malagasy food balance after rice, has become essential for poor households. It replaces rice when food stocks decline and price of rice increases. Produced at low cost and historically neglected, cassava provides an alternative to cope with food crises effects (USAID, 1999, La filière manioc : amortisseur oublié des vulnérables).
34 2.3.2 RICE AND PADDY TRADE FLOWS
88. Domestic paddy production was estimated at around 2,8 millions tons in 1999. Taking into account harvest associated losses and seed provisions for the next crop, this provides an available net supply of 2,6 millions tons, which is equivalent to 1,7 millions tons of rice. A total of about 1.6 million tons of paddy or 62% of total production is used for home consumption. Out of the remaining 976,000 tons, a total of about 200,000 tons (or 6-7% of total paddy production) is used for payments in kind for land, labor, services and inputs as well as gifts. Hence, a total of 776,000 tons of paddy, amounting to 28% of the total domestic paddy production is effectively traded. This translates into a total of 523,000 tons of domestically traded rice. Taking into account annual rice imports of about 186,000 tons in 1999, the annual amount of rice traded in Madagascar is 709,000 tons. Imported rice accounted for 27% of all traded rice in Madagascar in 1999.
89. Traded rice transits through a series of operators before being sold through retailers to the consumers. It is estimated that out of the total of 709,000 tons of rice traded in 1999, 294,000 tons (41%) were consumed by rural households and 415,000 tons (59%) by urban households. With an urban population estimated at 3.5 million people, this would translate in a consumption of 118 kg/head. This figure is consistent with the 1999 results of urban consumers' survey managed by FAO/UPDR in Madagascar’s six major towns. If it is assumed that imported rice is overwhelmingly consumed in urban areas, it means that imported rice covers 45% of urban demand, while domestically produced rice cover 55%.
90. Losses associated with paddy production and rice handling are significant and would go a long way in reducing import requirements. Harvest losses (cutting, paddy transport, threshing) are estimated at about 60,000 tons of paddy, equivalent to 39,000 tons of rice. Post harvest losses (rice transport, rice storage) add another 3-5% loss, equivalent to 68,000 tons of rice. Hence, in 1999 losses stood at 107,000 tons or 57% of the amount of imported rice.
35 Figure 6: Physical paddy and rice flows (1999) Source: Etude FAO/UPDR Rice farmers PADDY PRODUCTION : 2.778.000 t
Seeds : 136.000 t/ Losses : 57.000 t
NET PRODUCTION SUPPLIED : 2.585.000 t
HOME CONSUMED GIFTS /LAND REMITTANCES 1.609.000 t 200.000 t
DIRECTLY TRADED PADDYPRODUCTION 776,000 t
SALES IN RICE SALES IN PADDY 149.000 t 654.000 t
87.000 91.000 624.000 58.000
ASSEMBLERS CONSUMERS 30 000 T HAND PROCESSING RICE MILLERS
95.000 177.000
176.000 353.000 RICE MILLERS 95.000
13.000 t WHOLESALERS 106.000 143.000
532.000 RETAILERS
186.000 685.000 5.000 24.000 WORLD PURCHASE OF CONSUMERS 702.000 t of rice and 5000 T paddy MARKET
imported rice Processing service Rice Sales Sales of paddy N.B. : average processing ratio 66% 2.3.3 RICE MARKETING
a) Processing and Trading 91. The processing of paddy into rice is predominantly managed by the producers themselves. They process about 1,76 millions tons, which is equivalent to 67% of the total production. In 1999 it was found that 61% of paddy remains processed manually through pounding by hand, while 39% was done with motorized rice processors. Regional disparities in paddy processing are profound. In the Eastern and Northern region, respectively 97% and 90% of all paddy remains hand processed43 . At the other extreme, there are three other regions, Lake Alaotra, Center West, Hauts Plateaux, where the multiplication of small private millers44 in villages has contributed to reduce manual pounding at the farmer level by producers themselves to respectively 30%, 44% and 47% of all processed paddy.
92. The average paddy volume managed by assemblers45 varies from 6 tons (East Coast) to 246 tons (Center –West). It is estimated that there are over 4,700 assemblers that operate in the country. They trade annually about 640,000 tons of paddy and 80,000 of rice. The major clients of the assemblers are the millers who take 63% of the collected quantity of paddy, wholesalers take 35%, while 2% is directly delivered to final consumers
93. There are about 2,100 small rice millers who handle between 212 tons (East) and 1,104 tons of paddy (Lake Alaotra) per year. They are very well organized with a network of assemblers in the North Western (82% of paddy delivered by assemblers), Hauts plateaux (79%) and Lake Alaotra (82%) regions. In other regions such as Center West and North wholesalers buying paddy from assemblers (77% in Center-West; 73% in the North) play a more important role in providing paddy to rice millers, which is most probably due to the lower concentration of small millers in these regions.
94. Depending on the region, the average retailer trades between 8 and 58 tons of rice per year, with daily sales of between 27 and 193 kg (on the basis of 300 trading days per year). It is estimated that there are about 23,800 rice retailers who handle a total of about 709,000 tons of rice (1999) including both domestic rice traded (523,000 tons) and imported rice.
b) Regional transfers and Import volumes
95. Out of the 523,000 tons of domestically traded rice, it is estimated that 349,000 tons (67%) are sold to final consumers in the same region. The remaining 174,000 tons are sold through interregional transfers from rice surplus to rice deficit regions. Net surplus regions are the Lake Aloatra region with about 125,000 tons and the Center West region with about 50,000 tons. Significant deficit regions are the Hauts Plateaux (52,000 tons); Eastern region (62,500 tons), the Northern region (39,000 tons) and the North Western region (23,000 tons).
43 Rice Hand pounding is more expensive per kg of processed paddy: 71 fmg/kg for mechanized processing vis-à-vis 107 fmg/ kg for hand pounding . However, paddy conversion ratio as well as rice quality are slightly better if pounded manually. 44 Small private rice millers play an active role in handling paddy processing activities. They typically own a motorized paddy small mill and either process paddy on a contract basis for farmers or traders or buys paddy for processing with subsequent sale of rice to wholesalers and detailers. 45 Assemblers collect rice and paddy from individual farms which is subsequently lumped and passed in volumes loads that are attractive to downstream operators (wholesalers, mills). Assemblers typically operate independently by trying to make a profit from the purchase-sale margin. Sometimes they also work for a specific wholesaler who provide advance funding for the purchase of paddy.
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96. The East and Hauts Plateaux complete local supply with imported rice rather than from other regions. It is the other way around for North and North West where Malagasy rice is purchased in bigger quantities by regional wholesalers, due to transport cost and more limited price differential between local and imported rice. Asiatic rice or non local rice are only very marginally and rarely consumed in surplus areas such as Lake Alaotra.
97. The Center-West region, which is self –sufficient, provides rice to other regions and at the same time buys imported rice for internal consumption. This practice is explained by the large size of the region and corresponding transport costs constraints, which results in a rather heterogeneous situation in which Tulear has a large rice deficit that is met by imports while other areas have a surplus that is shipped to other provinces.
2.3.4 RICE MARKET COMPETITIVENESS
a) Effects of market liberalization 98. Market liberalization in Madagascar is only progressing slowly in having an effect on competitiveness at the level of producers. Between 1992 and 1997, the percentage of agricultural households that reported to have a choice in traders for marketing outputs increased from 45% to 51%46. Therefore, 49% of all villages remain faced with a situation of permanent or occasional monopsonies.
99. The evolution of paddy prices for producers show a certain stability in real terms between 1980 and 1999 while the margin between producer price and consumer price has increased quite a lot (Figure 9). Feedback from relevant stakeholders suggest though that paddy prices have been affected very negatively by the relatively high levels of imports. According to downstream operators interviewed for this study (January 2002), “the rice subsector is completely disorganized and has been liberalized to an extend where only the law of the jungle rules”. Due to lack of enforcement of import tariff policy, the price of paddy has reportedly decreased to about FMG 500 per kg in certain regions in late 2001 (-46% compared to 1999-2000). Given the lack of enforcement of the current import tariff policy, the liberalization of the external market has de-facto progressed much rapidly than the integration of the domestic markets. This situation raises the question to what extend rice farmers have really benefited from the liberalization of rice markets. .
Figure 7 : Evolution or real prices to consumers (Prc) and to producers (Prp)
350
300
250
200 Consumer price index 150
100
50 Producer
Index 100= 1980 consumer price price index 0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 Years
Source : Instat-Minagri
46 Access to markets and agricultural prices, Research on food policies, IFPRI, USAID December 1997.
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100. The impact of liberalization appears be positive in terms of an observed reduction in the trade gross margins47 of downstream operators. Between 1996 48 and 1999 49, gross margin for paddy collectors has decreased from 19% to 13%, while wholesalers’ gross margins decreased from 14% to 10% and retailers’ gross margins from 10-16% down to 8% with heavy remaining disparities between regions due to access constraints. This reduction of gross margins is an illustration of increased competitiveness on local rice markets. However, the benefits of the reduced margins appear to have been passed on mainly to rice consumers. To the extent that rice producing households also purchase rice, this is not entirely negative for rice producers.
101. Market competitiveness, despite recent improvements, remains affected by the limited number of downstream operators and difficult access to many production areas. The latter complicates access to inputs (fertilizer, pesticides) and raises transport costs to transfer rice supply to urban markets. Furthermore, « market signals do not reach properly the producers, thereby failing to provide the right incentives to generate a supply response« (document UMB CED 1998). At the same time the price of rice appears to have a significant effect on future production decisions. Recent econometric tests50 show that the price of a particular crop in a given year is positively correlated with its cultivated area in the following production campaign.
102. The ratio between paddy farm-gate price and rice retail price varies per region. It is around 2,4 (value of 1 kg retail price equivalent to 2,4 kg of paddy) in high surplus areas such as Lake Alaotra and Center West, while it is lower (2- 2,2) in other regions (Figure 10). The average rice retail price is 5-9% lower in the Center-West and Hauts Plateaux regions. Globally rice retail prices in rural areas are 10-15% lower than the retail prices in the main urban centers (Antananarivo, Tulear, Mahajanga…), which stayed at around an average of FMG 2,400/kg in 1999 (Survey of 477 urban consumers, FAO UPDR 1999).
Figure 8: Comparison between rice retail price and paddy farm gate price in 1999
Comparison between rice retail price and paddy farm gate price
2500 2000 Rice local 1500 retail price 1000 Paddy prix en fmg/kg 500 farmgate price 0
Côte Est Nord-Ouest Lac Alaotra Région Nord Centre-Ouest Hauts Plateaux
103. Seasonal variations of rice prices are to be noticed. At the assembler (collector) level the rice price typically shows a seasonal variation from 18% to 41% in the same region.
47 (Sales – Purchases) / Sales. 48 Relation sociale des commerçants à Madagascar, enquête commerçants, Cahier de la recherche sur les politiques alimentaires, IFPRI USAID juillet 98. 49 Enquête FAO/UPDR. 50 Razafimandimby L., Thèse de doctorat
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Furthermore, there are also significant geographical variations. The rice collector price varied up to 62% between two different regions which indicates excessive market segmentation. For instance, the rice purchase price paid by assemblers varies from FMG 1,250 per kg in the Center West up to FMG 2,033 fmg per kg in the Eastern region in 1999.
Figure 9: Comparison of seasonal rice price fluctuations among collectors in 1999
Evolution of seasonal rice price at the level of the collector
3 000
2 500 Nord 2 000 Nord Ouest Centre Ouest 1 500 Haut Plateau 1 000 Est Lac Alaotra 500
- Trim 1 Trim 2 Trim 3 Trim 4
b) Enclave production areas : effects on prices and operator's margins 104. With only 9 km of paved roads and 60 km of secondary roads per 100 sq-km, Madagascar’s roads infrastructure is extremely poor. Due to delayed maintenance 80% of the network is now in a very precarious situation. In 1993 only 5,400 km out of the 35,000 of roads classified as paved were effectively paved and many remained unusable during the raining season (November- March). The situation has been aggravated by a series of recent cyclones. As a result, the access of producers to local markets presents a significant constraint. Depending on the region, the walking time to the nearest market equals 1 to 5 hours with distances ranging from 5 to 21 km, with an average distance of 10 km (IFPRI, 1997). Each additional km of distance to a main road decreases the producer price of rice by FMG 14 (IIFPRI FOFIFA). Villages located far from the roads are negotiating paddy prices that are 15-22% lower than villages with access to the road51. The Northern region contains areas where the transport of paddy is managed by human carrying with transactions being done in kind. Under these conditions, the price of paddy price may be as low as FMG 350/kg.
105. The subsequent isolated nature of rice production areas is one of the major challenges to improve the competitiveness of the rice sub-sector. With most of production areas constrained by difficult access, many producers are faced with very poor marketing conditions. On the contrary, the very good state of the main commercial road which joins Antananarivo with the country’s largest port in Tamatave, provides easy conditions to supply the major rice consumption urban areas with imported rice, thereby effectively disqualifying part of the existing rice growing areas as potential suppliers due to transport cost constraints.
106. The benefits of improved rural roads might be considerable. An example in Mahajanga shows that road rehabilitation induced an increase of the farm gate prices of food crops by 50%. In Bangladesh, a comparison between villages served and not served by
51 IFPRI, Access to markets and agricultural prices, Research papers on food policies, december 1997. "the walking time from the farm to the road is taking between 1 and 5 hours depending on the region with distances varying from 5 to 20 km (average 10 km)
Page 40 roads showed that productivity was 33% higher in villages having good access (AHMES et HOSSAIN 1990). An increase of 10% in rural road coverage in one region in the Philippines increased productivity by 3% (EVERSON 1986).
107. Rice sub-sector surveys in 1999 showed that farmers explained as the main reasons for not using fertilizers, their own ignorance as well as the excessive price of fertilizers. Both these factors are conditioned by the absence of deficient rural deficient rural roads network, which isolates the population by limiting the flow of goods and information.
108. Regional disparities in trade margins can be traced back to access constraints caused by the absence or poor state of rural roads. Margins tend to be higher in the North and Center West regions where the quality of the road infrastructure is far below national average. For instance, in the Morondava region there are only 0.8 km of paved roads per 100 sq-km52, in the Northern region this figure is 2.3 km per 100 sq-km, while the national figure is 6 km/ 100 sq-km. Under these conditions, collectors manage to keep margins in the 17-25% range, while they are down to 9% in the regions that are better served (Hauts Plateaux, North-West, Lac Alaotra). The same holds true for wholesaler margins (Table 27).
Table 27: Regional comparison of downstream operator margins
% (Sales - Collectors Wholesalers Retailers Purchases)/Sales NORTH 25,3% 10,6% 6,4% NORT-WEST 9,6% 7,7% 4,5% CENTER- WEST 17,1% 14,5% 6,7% HAUTS PLATEAUX 8,8% 12,1% 6,1% EAST 8,8% 6,3% 5,2% LAC ALAOTRA 8,9% 8,1% 16,7% Average 13,1% 9,9% 7,6% (FAO UPDR 1999)
c) Segmentation of rural markets 109. An analysis of consumers prices in different localities at different time intervals shows a strong segmentation which is caused by the extreme isolation of the different trading networks which inhibits the circulation of goods and information. The recent price collecting results provided by SIM (Système d'Information sur les Marchés), operating on rural markets allows to better illustrate with various products the degree of market segmentation in rural areas. For instance in the Northern region the retail price of rice was 55% higher in the most expensive market (Diego) compared to the cheapest market (Andapa) in the period immediately following the harvest of rice. This price difference reduced somewhat to 35% between these two market during the deficit period (Table 28).
Table 28 : Effect of spatial segmentation of markets in the Northern Region (retail price of rice in Fmg / kg on 3 markets) Diego Sambava Andapa After harvest 2.600 1.750 1.675 During deficit period 2.975 2.300 2.200 Source : enquête FAO / UPDR 99
110. The SIM indicates that the price of dry beans during February-April 2001 varied by 50% to 100% on the same day between two markets. The most expensive food markets were Sambava and Morondava at around FMG 5,000/kg while localities with the lowest
52 source: UPDR Regional monographies 2000 : (length of paved roads divided / geographic superficie)*100
Page 41 prices included Ihosy, Ambatodrazaka Miarinarivo, Manakara. The prices of potato varied by a factor 6 for a given week between the same markets.
111. Compared to these differences, the price of local rice (blanchi) presents a somewhat more reduced differential between localities ranging between 12% and 55% (difference between minimum and maximum at a given time). It appears that the price of imported rice price is slightly more stable than local rice when compared among rural markets with price differentials ranging between 1% up to 47%). However, the observed price differentials stay above the cost of transport between markets, thereby confirming the serious degree of segmentation.
112. Data provided by the "Réseau des Observatoires Ruraux (ROR)" also shows that prices of export agricultural products are affected by access and market segmentation. For instance, from 1999 to 2000, the price of clove increased from FMG 10,500 to FMG14,200 Antalaha (40%), from FMG 2,800 to FMG 13,600 in Fénérive Est (400%) and from FMG 2,200 to FMG 8,850 (400%) in Farafangana. d) Farmers' direct participation in output markets
113. Given the margins between average paddy and rice prices in the different regions (Table 29), it appears that farms could potentially increase revenues and net income by selling rice directly to consumers. An additional advantage is that the processing of paddy required by the marketing strategy generates byproducts that could be used in livestock activities (e.g. pig raising). However, for the marketing strategy to work a condition is that farmers have some paddy storage capacity. Based on the data from ROR surveys in 2000, it is estimated that 43% of farmers store paddy less than 5 months, while 36% of farmers do so over 6 months. The latter group produces twice more paddy per head (350 kg paddy /head) and has an income per head that exceed the average by almost 40%53.
Table 29 : Paddy price and rice price on local rural markets in 1999
North North- Center- Hauts Est Lac West West Plateaux Alaotra Paddy 1.220 1.350 1.050 1.100 1.050 1.040 Riz 1.940 1.680 1.820 1.920 2.210 1.710 Source : enquête FA0/UPDR 99
114. In some regions such as the North-East in Maroantsetra the "Greniers Communautaires Villageois" (GCV) improve rice producers' incomes by extending the paddy selling period to collectors, thereby benefiting from higher prices that normally occur during the deficit period. However individual storage is far more preferred since farmers remain reluctant to enter into collective arrangements due to their bad experience regarding cooperatives in the 1970s. However GCVs may progressively have an important role to play in improving farmers organizations' trading system and providing improved storing methods to farmers.
53 Source: Note "Strategies de sortie de la pauvreté chez les ménages ruraux malgaches et politiques de réduction de la pauvreté " UPDR (BOCKEL, RAKOTOVAO, 2001)
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2.4 DETAILED PROFILE OF DOWNSTREAM OPERATORS
2.4.1 PADDY/RICE COLLECTORS
115. According to the UPDR-FAO Rice Survey about 4,700 paddy/rice collectors were active in 1999. Their operational scale vary significantly. Operators for instance handle only six tons of paddy on average in the Eastern region, as compared to almost 250 tons in the Center-West region, reflecting the difference between rice deficit and rice surplus regions (Table 30). On average, paddy/rice collectors employ about five employees. Hence, total employment generated by paddy/rice collectors stands at about 22,000 jobs. Paddy/rice collectors operate relatively significant amounts of capital, invested mainly in trucks, at an average of about FMG62 million. Such investments translate an activity of the collectors whichg expands on other trading transportation. Total invested capital is estimated at FMG 292 billion.
116. Gross trade margins hover around 10% in most regions, with the exception of the Northern and Central-West region where they are 25% and 17% respectively, which is associated with the relatively poor condition of road infrastructure in these regions as referred to in paragraph 108. Most paddy/rice collectors also earn income from other sources; exceptions are the Center-West and Lake Alaotra regions where paddy/rice handling accounts for respectively 100% and 80% of total income. The Hauts Plateax region takes somewhat of a middle position with 50% of paddy’rice collectors’ incomes derived from paddy/rice handling. In absolute terms, total incomes of paddy/rice collectors vary from FMG 5-34 million per year. With FMG 4-6 million/year total incomes in the Lake Alaotra and North-Western regions are among the lowest, which is attributed to the relatively high number of operators in these regions.
Table 30: Regional comparison of paddy/rice collector profiles
Paddy/Rice collectors North North- Center Hauts East Alaotra West West Plat. Number of collectors 867 1 372 429 717 57 1 300 Average quantity of paddy collected (Tons) 33,2 73,4 246,7 234,2 6,1 169,7 Average quantity of rice collected (Tons) 3,7 1,4 79,2 57,3 53,3 2,5 Average quantity of paddy sold (Tons) 6,3 34,7 184,4 26,8 3,2 96,1 Average quantity of rice sold (Tons) 21,2 27,3 119,1 194,2 55,2 51,8 Trade gross margin (S-P)/S 25% 10% 17% 9% 9% 9% Paddy Gross margin (millions fmg) 14,2 9,1 66,9 31,2 10,6 16,0 Paddy Gross Income (millions fmg) per year 8,0 2,3 36,0 17,1 8,2 3,9 Weight of rice in collectors' activity 35% 40% 100% 50% 25% 80% Average Investment/collector (millions fmg) 61,7 87,7 37,1 55,8 60,5 46 Staff mobilized 4,5 5,4 12,6 2,8 1,5 2 Source: Survey of rice collectors (153 questionnaires) UPDR -FAO rice study sept.99
117. In order to get a more detailed idea about the paddy/rice collections business, an income statement of a typical operator in Lake Alaotra is provided in Table 31. This operator spends about FMG 160 million on paddy/rice purchases, with a gross trade margin of about FMG 20 million. About FMG 14 million is spent to cover a range of costs, of which operational costs mainly to cover fuel (FMG 1 million), insurance, reparation and handling expenses (bags etc.) take up the largest slice with about 48%. The relatively capital intensive nature of this business is reflected in the relatively high financing charges, representing about 38% of total costs as well as the relatively high share of depreciation costs as a percentage of gross income (39%).
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Table 31: Account of individual collector in Lake Alaotra
FINANCIAL ACCOUNT COLLECTOR LAC ALAOTRA CHARGES (FMG) PRODUCTS (FMG) Paddy/Rice Purchase Costs 159 957 447 Sales 179 781 888 Gross Trade Margin 19 824 441
Operational Costs 6 984 047 Labor Costs 1 520 400 Financing Charges 5 431 035 Taxes 490 909 Total Costs 14 426 391
Gross Income collectors 5 398 050 Of which depreciation 2 142 467 TOTAL USE OF REVENUES 179 781 888 TOTAL REVENUES 179 781 888 Source: survey of paddy/rice collectors (153 questionnaires) UPDR -FAO Rice Survey (sept.99)
2.4.2 PADDY PROCESSORS
118. There were about 2,300 small-scale paddy processing units in Madagascar in 1999. They process from about 200 to 1,100 tons of paddy per year (Table 32). Most units were concentrated in the Hauts Plateaux region (40%), followed by the Center-West (27%) and the North-Western region (18%). However, in terms of capacity, these units are somewhat on the lower end as reflected in an average investment of close to FMG 30 million. On the contrary, units in the Lake Alaotra and Northern regions, although fewer in numbers, tend to deploy larger capacities as indicated by an average investment of over FMG 50 million. This difference reflects the fact that paddy processors in the Haut Plateaux, Center-West, and somewhat to a lesser scale in the North-Western region provide their services directly to paddy producers. Paddy processors in Lake Alaotra and the Northern regions particularly provide their services to paddy/rice collectors and wholesalers. At the same time, paddy processors in the Lake Aloatra and North-Western regions are also pretty active in purchasing paddy from producers to subsequently process on their own account, which represents slightly over 20% of their business. Total investment in small-scale paddy processing plants represented about FMG 72 billion in 1999. They employed about 10,000 laborers in total.
Table 32: Regional Comparison of Small-scale Paddy Processors
Paddy processing operators North North- Center Hauts East Alaotra West West Plat. Annual Quantity processed (Tons) 516,0 392,0 428,0 554,0 212,0 1 104,0 Average investment (millions fmg) 50,8 20,0 27,5 32,1 31,8 53,5 Average operating time /day (hours) 5,3 5,3 5,3 5,3 5,3 5,3 Staff mobilized 3,1 3,2 3,6 3,4 3,0 5,9 Gross Income / operator (millions fmg) 45,9 33,3 20,4 28,0 13,1 91,0 Cost per ton processed (fmg/ton) 43 940 36 916 48 047 33 209 56 572 34 730 Ownership of paddy processed q Service to producers 36% 43% 64% 70% 98% 24% q Service to operators (collectors, 61% 34% 33% 29% 2% 54% wholesalers) q Own paddy purchased 3% 23% 4% 0% 0% 22% Nb of paddy processing operators 87 427 625 936 45 200 Source: survey of paddy/rice collectors (153 questionnaires) UPDR -FAO Rice Survey (sept.99)
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119. Small processing units have really sprung up after the liberalization of output markets in the 1990s and particularly since the mid-1990s represent tough competition for the traditional, large scale paddy processors. The difference in scale between these two type of processors is illustrated by the fact that a typical investment of a large scale processing unit is about FMG 30-40 billion per unit as compared to FMG 27-53 million for the small scale units. These traditional factories also dispose of large storage capacity in order to be able to keep processed rice up to the pre-harvest deficit period and capitalize on the higher prices during this period. However, small scale units are much more efficient with processing costs ranging from FMG33,000 to FMG57,000 per ton of paddy, as compared to FMG200,000 – 223,000 per ton of paddy for the large scale processors. The increased competition from small-scale paddy processors and the availability of very cheap imported rice has recently pushed the large-scale processors into the business of using their storage capacity for imported rice. This rice storing business is however not attractive for large-scale operators that are located in relatively remote areas due to transport costs.
120. In order to obtain a more detailed idea about the paddy/rice collections business, an income statement of a typical processor in Lake Alaotra is provided in Table 33. The processed paddy volume requires 5,9 employees per unit at a cost of FMG 3.1 million. Financial costs are substantial amounting to FMG 8.7 million due to required trade credit for purchasing paddy from operators and own accounts and capital investments in equipment. Operational costs included are petrol -electricity (FMG 7.5 million), maintenance costs (FMG 5.3 million), and transport (FMG 5.5 million). A typical small-scale unit in Lake Alaotra provided a gross income of FMG 91 million in 1999., which is 2-7 times more than in the other regions. Table 33: Account of small paddy processor in Lake Alaotra
FINANCIAL ACCOUNT SMALL PROCESSING OPERATOR LAC ALAOTRA CHARGES (FMG) PRODUCTS (FMG) TOTAL INTERMEDIARY COSTS 253 975 199 TOTAL PRODUCTS 357 620 396 ADDED VALUE Labor salaries 3 096 208 Financial Costs 8 706 955 Taxes 821 771 Gross Income collectors 91 020 264 including Inv. Amortization 5 376 371 TOTAL ADDED VALUE 103 645 197 TOTAL CHARGES 357 620 396 TOTAL PRODUCTS 357 620 396 Source: survey of downstream operators (134 quest.) UPDR FAO rice study (sept. 99) 2.4.3 PADDY/RICE WHOLE SALERS 121. 121. Wholesalers, who are usually located in urban areas, have an important role in linking regional supply and demand, facilitating interregional transfers of domestically produced rice and supplying the domestic market with imported rice. It is estimated that there are about 100 wholesalers who are involved in rice trading with an average of 5,000 – 10,000 tons of rice sales per wholesaler. Wholesalers fall into two categories. Those from rice surplus regions are more involved in networking with upstream collectors and operators, while those from rice deficit regions tend to be heavily involved in imported rice trading. However, recent trends show a growing involvement of wholesalers from surplus areas getting involved in trading of imported rice as these supplies are easier to manage.
122. Wholesalers usually are well equipped with transport and storage facilitities. A typical; wholesaler who handles 9,000 tons of rice in Lake Alaotra generated a gross trade margin of about FMG 1.5 billion or 8%. Total costs amount to about FMG 860 million (Table 34), which translates into approximately 96 FMG/kg. Financing costs represent the single
Page 45 largest cost ticket item at FMG 385 million or 45% of total costs (Table 34). Gross income amounts to around FMG 660 million. Net income (minus amortization of investment) is around FMG 512 million.
Table 34: Cost structure of wholesalers in Lake Alaotra
Global cost per wholesaler (54) Cost per ton of rice millions fmg (fmg) Annual Salaries 107,7 11 965,5 Taxes 94,3 10 475,3 Financial costs 384,7 42 742,0 Transport 73,4 8 152,4 Other costs 47,9 5 323,0 Amortization 151,7 16 861,1 TOTAL 859,7 95 519,3 Source: UPDR FAO survey data (1999)
123. The cost per kg of rice sold varies between FMG 42 per kg (East) and FMG 130 per kg, which is mainly a function of transportation costs and the importance of imported rice in the wholesale business. For instance, wholesalers in the Center West spend 6 times more in transportation cost than the ones from Lake Alaotra. There is a strong correlation between gross margin and wholesale handlings costs per kg of rice (Table 35)
Table 35: Regional comparison of costs and margins of wholesalers
Wholesalers North North- Center Hauts East Alaotra West West Plat. Trade Gross Margin (%) 11% 8% 15% 12% 6% 8% Average cost per ton of rice 125 191 97 049 130 367 52 153 42 978 95 519 Source: UPDR FAO survey data (1999) 2.4.4 RICE RETAILERS 124. Retailers in Madagascar sell yearly 710 000 tons of rice. With average rice sales per retailer varying from 8 to 58 tons per year, it is estimated that there are about 23,800 operators in the whole country, without considering informal micro-operators who may sometimes res ell very small rice quantities on local markets. The aggregate storage capacity at the retail level is estimated at around 56,000 tons. Invested capital is estimated at around FMG 106 billion. In Lake Alaotra, where most households only buy rice marginally, retailers are mostly selling other items, while in the Northern region most rural households are depending a lot on purchased rice. The relatively high margins in Lake Alaotra reflect that most rice sales occur during the short deficit period before the rice harvest, when prices tend to be high. Table 36: Regional comparison of costs and margins of retailers
Rice retailers North North- Center Hauts East Alaotra West West Plat. Rice sales per year (T) 58,4 24,1 28,1 32,0 39,5 7,8 Investment per retailer (000 fmg) 1 200 619,0 230,0 3 353,0 3 458,0 17 064,0 Storage capacity/ retailer (kg) 3 046 1 892,0 1 531,0 2 339,0 1 983,0 3 643,0 Total Value annual sales (000 fmg) 134 595 52 579 59 829 67 871 84 448 17 636 Trade gross margin (S-P/S) 8 603 2 388 4 028 4 130 4 376 2 937 Margin % 6% 5% 7% 6% 5% 17% Gross Income per retailer (000 fmg) 7 061 1 784 2 880 3 281 3 233 2 454 Number of retailers 1 270 4 074 2 208 8 604 4 328 3 354 source: survey on retailers, 332 quest., UPDR-FAO sept 99
54Assumption of volume of sales at 9000 Tons
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2.4.5 COMPARISON OF OPERATORS' MARGINS PER REGION 125. If the margins of paddy/rice collectors, wholesalers and retailers are accumulated that vary 30% in the Hauts Plateaux and Northern Western region up to 47% in the Northern and 44% in Center Western region. Accumulated margin reflects both the relative quality of the roads network and the number of operators which is sign of better concurrence. The accumulated margin in Lake Alaotra is relatively high, which is mainly caused by the high retail margins for reason spelled out earlier. Accumulated collector/whole-sale margins are lowest in surplus areas, ranging from 18-22% in Lake Alaotra, North West and Hauts Plateaux. The Center West is severely affected by the lack of access and a relatively limited number of operators which raises trade margins. Margins in the East region are favorably affected by relatively easy access of imported rice.
Table 37: Comparison of accumulated trade margins
North North- Center Hauts East Alaotra West West Plat. Gross Margin of Assemblers / collectors (A) 25% 10% 17% 9% 9% 9% Gross Margin of Wholesalers % (W) 11% 8% 15% 12% 6% 8% Gross Margin of retailers % ® 6% 5% 7% 6% 5% 17% Cumulated Gross Margin A+W 36% 18% 39% 21% 15% 17% Cumulated Gross Margin A+W+R 42% 23% 46% 27% 20% 34%
2.5 PRIVATE SECTOR INVESTMENTS
2.5.1 ON-FARM INVESTMENTS
126. Farmers typically own only small equipment such as sickle, spades etc. In the Hauts Plateaux region, the average equipment per farmer on the farming systems shows that many farmers have to share heavy equipment such as carts and ploughs , harrows, weeders and sprayers.
Table 38: Average Number of Pieces and Value of Equipment by farm in Hauts Plateaux
Sys.prod.11 Sys.prod.12 Sys.prod.13 Average. Price part of imported equip. 3% 3% 0% Fm g Cart 0,269 0,379 0,235 856 162 Plough 0,468 0,642 0,471 81 755 Harrow 0,444 0,632 0,471 44 373 Weeder 0,532 0,979 0,412 20 928 Sprayer 0,053 0,084 - 164 679 Spade/digger/ pinup 2,868 3,716 2,118 10 078 Sickle /coupe coupe 1,792 2,642 1,647 3 180 Investment Value 342 734 485 189 295 809 Amortization Value. 63 476 89 040 53 681
127. The value of equipment that is available on average is less than FMG 500,000 per farm (Figure 12). An exception is the Lake Alaotra region, where the average investment is about FMG 1.1 million. Based on ROR (2000), it is estimated that the average annual expense in investment in farm equipment equals FMG 118,000 which would translate into an aggregate amount of FMG 204 billion per year at national level.
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Level of invetsment per farmer
Alaotra
East
Hauts Plat.
Center West
North-West
North
0 0.2 0.4 0.6 0.8 1 1.2 millions fmg Figure 10: On-farm Equipment Investments
128. Annual investments to purchase land are estimated at FMG 102 billion (UPDR/ ROR survey 2000). The land market is particularly active in the Center-West region (FMG 47 billion) and the Lake Alaotra region (FMG 33 billion). This translates in about FMG 176,000 and FMG 437,000 per farm respectively or 18-120% of annual rice incomes. Farmers invest on average about FMG 10,000 in land improvements, totaling FMG 18 billion in the aggregate. Total investments in equipment, land and land improvements, therefore equals about FMG 324 billion (+/- US$ 50 million). This investment generates income on a range of non-farm activities, especially rural metal handicraft. With a rice sector figure of FMG 2,268 billion (Table 3), on-farm investments would account for about 14% of the value added of the average rice producer.
129. Less than 3% of all rice growing households have access to formal credit. The total amount of formal rural credit in 2000 is estimated at about FMG 500 million (Table 39). Since a significant share of this credit is used to finance emergency situations, it is probably fair to estimate that only about 1% of total investments of FMG324 billion are financed by using formal credit. Downstream operators are known to provide credit to farmers that is reimbursed at the time of the rice harvest. However, this credit is mainly used for the financing of inputs. Hence, the vast majority of on-farm investments appears to be financed by the farmers themselves.
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Table 39: Use of monetary credit by rural households (ROR 2000)
Aggregated % of credit amount volume (millions fmg) Purchase of PPN55 142,7 28% Unscheduled Treasury Requirements 63,1 13% Cattle purchase 15,5 3% On-Farm Production Expenses 161,2 32% Construction costs 18,5 4% Ceremonies 35,8 7% Agr. Products collecting 55,7 11% Others 10,4 2% Total 502,8 100% Source: Accès au capital, crédit, accès au foncier et pauvreté rurale à Madagascar, Note d'analyse UPDR 2001 Ony Rasoloarison, Jean Marie Rakotovao, Louis Bockel
2.5.2 INVESTMENTS OF DOWNSTREAM RICE OPERATORS
130. The total capital stock of the value chain is estimated at about FMG1,617 billion or 60% of total annual value-added. Only about 34% of this amount refers to capital stock at the farmer’s level. Hence, about two-third of the capital stock is invested down-stream in the value chain, most of it at the collectors and wholesalers level who account for all approximately 52% of all capital invested. This shows a heavy private financial involvement in the sector.
Table 40: Global private investment stock in rice sub sector per region
Global Investment North North- Center Hauts East Alaotra Total In millions Fmg West West Plat. Farmers 70 967 112 060 92 745 175 644 20 800 83 422 555 638 Collectors 53 472 120 256 15 900 40 004 3 419 59 686 292 737 Wholesalers 69 837 60 521 111 976 112 134 65 077 135 463 555 009 Retailers 1 524 2 522 508 28 848 14 965 57 228 105 594 Small Processing operators 4 420 8 540 17 188 30 046 1 431 10 700 72 324 Rizeries 3 865 6 304 25 217 35 386 Total Private Investment 200 219 303 899 242 181 392 980 105 692 371 715 1 616 687 Equiv. In US$ millions 29 45 36 58 16 55 238 Source: Accès au capital, crédit, accès au foncier et pauvreté rurale à Madagascar, Note d'analyse UPDR 2001 Ony Rasoloarison, Jean Marie Rakotovao, Louis Bockel
2.6 INTERNATIONAL COMPARISON OF MALAGASY RICE COMPETITIVNESS
131. The average paddy yield per ha in Madagascar has been stagnating for the last forty years (Figure 13). In 1960, before the Green Revolution when yields where largely determined by natural factors, the average paddy yield in Madagascar was slightly higher than in Indonesia and significantly higher than in Mali, thereby indicating that conditions for rice cultivation are inherently favorable in Madagascar. However, yield enhancing technologies associated with the Green Revolution have never taken off in Madagascar which has resulted in a situation in 2000 with yields in Indonesia at about 4.5 tons/ha and yields in Mali at 2.3 tons/ha, thereby surpassing yields in Madagascar at 1.9 tons/ha.
55 PPN = produits de première nécessité (Primary basic food products )
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Figure 11 Paddy Yields in Madagascar, Mali and Indonesia (source; FAOSTAT)
Paddy Yield
5.00
4.50
4.00
3.50
3.00 Indonesia 2.50 Madagascar
T/ha Mali
2.00
1.50
1.00
0.50
0.00
1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 Year
132. With paddy production at 0.5 to 2.7 tons per worker (equivalent 150 MD/year) in 1999, productivity per worker in Madagascar was close to Thai levels in the 1970s (Table 41) Comparison of input use /ha between Indonesia and Madagascar emphasizes the very low level of intensification in Madagascar: fertilizer and pesticide use is respectively 29 and 10 times less. In Indonesia, labor intensity per ha has decreased from 178 to 119 labor days or 33% between 1981 and 1992. (Tahlim S. IRRI 1999). In Madagascar in 1999, labor intensity per ha of rice remained at around 163 labor days.
Table 41: Comparison of productivity indicators Madagascar - Asiatic countries
Madagascar Asia Production cost (without US$ 36 -126 / ton US$ 65 to 95 (Vietnam 94-96) family Labor) / paddy ton Production cost with US$ 67-199 /ton US$ 79-126 (Vietnam 94-96) family labor / paddy ton Mineral fertilizer/ ha 10 kg/ha 291 kg/ha (Indonesia 1998) 73 kg/ha (Bangladesh 1993) around 160 kg/ha (Vietnam 1996) Yield per worker 0,5-2,7 T/worker 0,8-3,3 T/worker (Thailand 1970) Agricultural salary/day 0,5-0,9 US$/day 1,4-2,2 US$ (Vietnam) Labor Intensity / ha 163 MD/ha 119 MD/Ha (Indonesia 98)
133. Since production cost per ton of paddy would be a good indicator of how Madagascar could potentially compete at the international market, it would be interesting to compare Malagasy production cost with those in Vietnam, a rice exporting country without major distortions in its domestic market. Depending on agro-ecological areas, production costs per
Page 50 ton of paddy (including family labor) in Vietnam varied between US$ 112 and US$ 126 in 1994, US$ 77-119 in 1995, and between US$ 84 and US$ 164 in 1996, with the lower range for the Mekong delta and the old alluvial terraces producing at the higher range.
134. In terms of average production cost per ton of paddy, the farming systems in Madagascar provide the following results: (i) 10 farming systems (Lake Alaotra, North West, Center West) produce at less than US$ 100/ ton ranging from US$ 67-99/ton; (ii) 3 farming systems in the Northern and Hauts Plateaux regions produce at between US$ 100 and 150; and (iii) 5 farming systems mainly in the North and Eastern regions produce at a cost over US$ 150 / ton (US$ 157-199). Hence, Malagasy farming systems appear to be very competitive at the farm gate level as compared to Vietnam's farming systems based on figures from 1994-96. Due to low labor costs, there were in fact six rice-based farming systems in Madagascar where production cost remained under the lowest regional production cost in Vietnam in 1996 (US$ 84 / ton).
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3 RICE PRODUCING HOUSEHOLDS AND RURAL POVERTY
3.1 RURAL POVERTY IN MADAGASCAR
135. Madagascar is among the poorest countries in the World. In 1999 it’s GDP/capita was ranked 160th out of 174 countries measured in parity of purchase power (UNDP 1999). As far as the country’s human development indicator (HDI) was concerned, which also takes in account the health and education status of populations in addition to GDP/capita, Madagascar’s was ranked 147th. Although somewhat better than its GDP rating, Madagascar’s HDI was however still below the average ranking of Sub-Saharan Africa as a group. Based on a poverty line of US$ 1 per capita (in purchase power parity of 1985 US$), 76% of the population would live below poverty line in 1993 and 79% in 1997 (Cogneau et alii, 2000). The incidence of poverty, measured based on household consumption per capita, was estimated at 70% of the population in 1993, increasing to 73.3% in 1997 and falling slightly to 71.3% in 1999 (Paternostro et al., 2001).
136. Poverty is particularly concentrated in rural areas with 76.7% consider poor as compared to 52.1% in urban areas. Also the observed decline in poverty incidence between 1997 and 1999 occurred exclusively in urban areas, with poverty levels in rural areas in fact increasing from 76.0% to 76.7%. Moreover, also the incidence of extreme poverty, measured based on ability to satisfy minimum food requirement, is very high in rural areas: 67% of the rural population in 1999 as compared to 43.2% in urban areas.
3.2 POVERTY PROFILE OF RICE PRODUCING HOUSEHOLDS
137. Based on 2000 data from the Malagasy Network of Rural Observatories (ROR56), this chapters aims to provide insights regarding the poverty situation of rice-producing households. By doing so, the approach does not only look at the monetary dimension of poverty, but also considers capabilities and opportunities to cope with and escape from poverty (SEN 1997). The central question is the analysis of cumulated constraints that push households down the poverty line and an analysis of endogenous and exogenous factors that might induce an upward movement over the poverty line. From this point of view, poverty in the ROR-exercise carried out in 2000 is looked at from four angles: (i) average gross incom e per head of rice producing households (FMG831,000); (ii) paddy production per head (184 kg/head); household expenses per head (FMG310,000); and (iv) risk coping capacity such as livestock and social capital as measured by ability to generate gifts (FMG418,000/capita). Based on this analysis, three categories of rice-producing households are considered: (i) structurally very poor households far below the poverty line, (ii) households that float around the poverty line; and (iii) rice-producing households that appear to dispose of cumulating positive factors enabling them to escape from the poverty line.
138. The poverty line based on an equivalent of purchasing power of US$ 1 per day has been estimated at FMG1,064,000 per capita per year in 2000. Measured at around FMG831,000/capita, the average income per head of rice producing households remains under US$1 per day. In fact, this line is only crossed by rice producing households in the highest two deciles (Figure 14). Hence, it implies that 80% of all rice producing households are poor. Given the importance of rice and the large number of rice growing households, it is not surprising that the incidence of poverty among rice producing households is close the average poverty percentage in rural areas as reported previously (77%). There is a very
56 annual household surveys conducted on 500 households in 18-20 observatories located in specific sites all over the country (2000: 8500 households surveyed)
Page 52 high disparity of average incomes per head among the different deciles: average income per head of the richest decile is 20 times higher than the poorest. The richest quintile (20% of households) takes home 53% of total income, while the poorest quintile is left with only 5.3%. The observed disparity of average incomes per head translates into a Gini coefficient of 0.64, which is relatively high. By comparison the average Gini coefficient is 0.47 for the whole group of sub - Saharan countries in the 1990s, varying from 0.29 in Rwanda to 0.63 in South Africa (DUBOIS, GUENARD, WINTER 2001). An analysis of the situation of rice producing households in the 10th decile shows that 72% of them are in a situation of reduced global risk, 82% of them have at least concluded primary school, 79% have developed non-farm activities, 70% have over 0,6 ha of rice field, 77% are land owners, while 59% are storing rice over 6 months.
Figure 12: Per capita Income of Rice Producing Households
Revenu par tête par décile de ménages riziculteurs sources: enquête ROR 2000
3500
3000
2500
2000
1500
seuil US$ 1/jour Revenu brut / tête (000 fmg) 1000
Revenu moyen/ tête
500
0 1 2 3 4 5 6 7 8 9 10 déciles
139. The magnitude of paddy sales, the ability to storage rice for a prolonged period, available capital stock and the degree of crop diversification roughly speaking have a positive impact on the set of poverty angles adopted by the 2000 ROR survey (Table 42).
Table 42: Effect of Farming Systems Characteristics on the Economic Situation of Rice Producing Households Nb Prod. paddy Household Gross Risk mgt. households /head expenses/ Income / capacity Concerned kg Head head 000 fmg Nb % 000 fmg 000 fmg Average households 6780 100% 184 310 831 418 Paddy sales =0 4338 64% 97 322 802 420 <400 kg 1602 24% 190 264 736 351 >400 kg 840 12% 624 329 1159 532 Paddy storage 0 1446 21% 37 361 599 485 Duration 1-5 months 2915 43% 120 306 722 352 6 months + 2419 36% 350 283 1101 456 Amount < 0,5 M 4059 60% 147 306 711 119 Invest per 0,5-1,2 M 480 7% 163 342 1024 317 farm57 1,2-2,4 M 1188 17% 233 306 912 687 > 2,4 M 1053 16% 289 314 1161 1380 Degree of Reduced 2262 34% 208 352 687 335 diversification Normal 2258 33% 155 256 622 397 of crops58 High 2260 33% 190 320 1184 521
57 includes declared investments + value of drought cattle (800 000 fmg/unit)
Page 53
140. Also the rice cropped area per household has a very strong effect on the different poverty indicators. For instance, comparing households cultivating less than 0.3 ha of rice with those that cultivate over 1.0 ha shows an increase in: (i) paddy production / head by a factor five; (ii) income per head by a factor 1.9; and (iii) risk coping capacity by 30%. It also illustrates the difficult situation of 30% of households with less than 0,3 ha of rice whose income per head is 30% lower than average and paddy production is three times below average.
Table 43: Effect of farm size on the Economic Situation of Rice-Producing Households
Nb Prod. paddy Household Gross Capit. -risk households /head expenses/ Income / mgt. Concerned kg Head head 000 fmg Nb % 000 fmg 000 fmg Average households 6780 100% 184 310 831 418 Available <0,3 2054 30% 69 284 581 392 rice 0,3-0,6 1496 22% 132 308 790 353 Cropped 0,6-1 1389 21% 201 323 872 391 area >1 1841 27% 343 329 1112 519
141. Based on the 2000 ROR data, the following factors also emerge as having a significant effect on poverty levels of rice producing households: (i) education: between analphabet household heads and the more educated ones (secondary school completed) one notices an increase in income per head by 72%, while expenses per head increase by 60%; (ii) risk: the global risk factor (see paragraph 2.2.4) generates a paddy production per head differential of 2,6 between the most risk exposed (108 kg/head) and the least exposed group (264 kg/head); gross income per head differential between the most and least exposed households is 70%; (iii) credit: paddy production per head of households with access to formal credit is three times higher, than households without access; similarly expenses/head and gross income are respectively 38% and 36% higher; (iv) organization: households that report to be members of farmers' organizations have gross incomes per head that on average are 26% higher compared to those households that not a member of such organizations. ROR data suggest that it is impossible to attribute the cause of poverty to a single factor; what emerges is a multi-dimensional picture with many factors impacting one way or the other on poverty.
142. With no relation with preceding 18 farming systems, combining qualitative (education level, level of risk, land tenure) and quantitative factors (area, off farm income, storage capacity...) we have differentiated household profiles representing households groups. then we worked out their situation in terms of income per capita, paddy production per capita, thereby enabling to locate their position vis-à-vis the poverty line (Figure 15).
58 pour l'étude filière riz employer "niveau de ventes d'autres produits agricoles" en distinguant bas si <200 000 fmg , moyen entre 200 et 500 000 fmg, élévé si > 500 000 fmg pour le ROR bas employer le revenus d'exploitation hors riz hors élevage et idstinguer 3 catég.
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Echelle de sortie de la pauvreté source: ROR 200
4000
3500 Gpe 17 3000 Gpe 16
2500 Gpe 15 Gpe 13 2000 Gpe 14 Gpe 10 Gpe 11 Gpe 9 Gpe 12 1500 Prod.paddy 1000 seuil US$ 1/jour /tête Gpe 8 Gpe 7 Revenu moyen/ tête
Revenu brut / tête (000 fmg) 500 Gpe 6 Gp 3 Gp 5 Gp 1Gp 2 Gp 4 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 -500 groupes de producteurs
Figure 13: Link between paddy production per capita and income per capita vis-à-vis the poverty line59
143. The five first poverty categories (1-5) constitute a set of rice farmers groups very vulnerable structurally under poverty line, very poor in term of education, production capital and mostly located in high risk vulnerable areas with natural climatic risk, insecurity, and no proper water management. With an average income/head of FMG700,000 they represent around 55-60% of rice farmers in the panel. These groups are to be targeted as priorities in any strategy of poverty reduction. They resemble all of the Highly vulnerable micro-producers characterized in the typology of rice farmers (chap 2.2) as well as multi-activity oriented producers at the lower end of the range.
144. The six following groups are both very involved and very dependent on rice production in terms of income (as indicated by the importance of paddy production per head illustrated on the figure by the size of the bubble in the graph). They are most closely related to the profiles of "rice-selling specialized producers" (chap 2.2). Their income/head ranges from FMG 856,000 and FMG1,56 million, thereby floating around the poverty line. These households represent around 30-35% of rice producing households, mostly located in areas in with relatively good climatic conditions. A strategy of rice intensification appears most appropriate to move these households out of poverty.
145. The six last groups of households really show evidence of at least a quasi-definitive exit from poverty. With an average gross income per head of over FMG1.5 million, they represent 10% of all households in the surveyed panel. The keys to success of these household categories include diversification, availability of non-farm incomes, education , availability of land, membership in producers' organization, efficient crop selling strategy. It shows the strategic importance of diversification and the development of non-farm activities to reduce poverty in rural areas. These categories resemble most the upper-range of "Multi- activity oriented rice self-sufficient producers" (chap. 2.2).
59 la taille des bulles du graphique correspond à la quantité moyenne de paddy produit par tête dans les ménages concernés, illustrant la capacité productive en riz et le degré d'implication des ménages dans la filière riz
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3.3 POVERTY IMPACT OF RICE PRICING POLICIES
3.3.1 RELATION BETWEEN PADDY PRICE AND PADDY PRODUCTION COSTS 146. The actual relation between paddy price and paddy production cost is presented in Table 44 according to different rice-based farming system in Chapter 2. The vast majority of different farming systems (16 systems out of 18 systems) provide a positive margin between production cost and local paddy price ranging from 4% to 66% in 1999. The two remaining systems with production costs higher than local paddy price, represent a situation where family labor is valued under prevailing local wages. These farming systems include approximately 210,000 rice producing households (12% of total). They are located in the Eastern Region.
Table 44: Comparison of paddy production cost and prices per kg
Year 1999 Production cost60 Production Cost Differential Paddy (without family (with fam.labor) Prod.Cost and price labor) price Farming syst.1 N. 284 966 4% 1 010 Farming sys. 2 N. 390 837 17% 1 010 Farming sys. 3 N. 414 917 9% 1 010 Farming sys. 4 N-W 280 501 55% 1 104 Farming sys. 5 N-W 331 641 42% 1 104 Farming sys. 6 N-W 140 439 60% 1 104 Farming sys. 7 C-W 319 484 44% 862 Farming sys. 8 C-W 308 499 42% 862 Farming sys. 9 C-W 172 420 51% 862 Farming sys. 10 C-W 300 500 42% 862 Farming sys. 11 HP 522 715 26% 964 Farming sys. 12 HP 432 624 35% 964 Farming sys. 13 HP 605 883 8% 964 Farming sys. 14 E 551 1,153 -17% 987 Farming sys. 15 E 439 1,022 -4% 987 Farming sys. 16 E 177 591 40% 987 Farming sys. 17 LA 358 427 54% 922 Farming sys. 18 LA 240 313 66% 922
147. Considering the preceding table which provides paddy production cost per kg including family labor valued with salary based opportunity cost, it appears that with a paddy price of around FMG500/kg, only 17% of all rice producers are economically viable in the sense that their production cost are lower than FMG500/kg, while 83% would produce rice with a labor return per day lower that would be lower than local agricultural salary wages. With a paddy price of 600 fmg, 46% of producers are economically viable. With a paddy price of FMG800, 75% of farmers are sustainable. At 900 Fmg/kg, 82% of farmers are sustainable while at 1000 fmg/kg, nbearly 90% are sustainable (Figure 16). It shows that the relationship between paddy farm gate price and the ability of rice producing households to obtain a labor return per day that is higher than the local wage rate is very sensitive over a range of between FMG700-900/kg.
60 with equipment amortization
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Figure 14: Part of viable farmers and paddy farm gate price
Part of viable farmers and paddy farmgate price
100% 90% 80% 70% 60% % of viable 50% farmers 40%
farmers 30% 20%
% of viable rice 10% 0% 400 500 600 700 800 900 1000 1100 1200 1300 Paddy price fmg/kg
3.3.2 IMMEDIATE EFFECT OF RIC E IMPORT TARIFF ON RICE RETAIL AND FARMGATE PRICE
148. A simulation model built on a step by step accumulation of cost and taxes from the port in Tamatave to retail sales in Antananarivo allows to assess the effect of different import tariffs on the price of rice. Furthermore, by calculating the retail price in Antananativo back to the paddy farm gate paddy by subtracting transport and operator costs, it is possible to evaluate at what price levels imported rice starts competing in rural areas. Results of the model are presented in Table 45.
149. The model shows the relation between the price of imported rice and domestic paddy in 1999 and 2000. For 2001, it provides two figures: one virtual case with 100% compliance to import tariffs and VAT taxes and one realistic scenario with only 50% compliance. With the import tariff at 5% and VAT at 0% in the farm gate price of rice stood at FMG885 per kg in 1999. According to Figure 16, over 80% of all rice producing households had cost of production that were lower than FMG885/kg. The farm gate price of paddy was relatively favorable, despite the low import tariff and absence of VAT, due to the relatively high world market price of rice. Although world market prices decreased considerably in 2000, the farm gate price of paddy in fact increased to FMG975/kg due to an increase of the import tariff to 15% and the introduction of the VAT at 20%. At FMG975/kg, about 90% of rice producing households have production costs that were lower than this figure. In 2001, world market prices reduced even further. With import tariffs and VAT unchanged, this should have reduced the farm gate price of paddy to about FMG815/kg in case of full compliance with these tariffs and taxes. At this price, about 75% of all rice producing households would still have been competitive. However, feedback from relevant stakeholders indicates that the effective import tariff and VAT rate was at the most 50% and most probably only 30% in 2001. Assuming a 50% compliance rate for the existing import tariff and VAT levels, would in effect reduce the farm gate price of paddy to FMG 687/kg. Given the sensitive relationship between farm gate price and production costs over the FMG700-900 range as indicated in Figure 16, it implies that only 49% of all rice producing households could produce at this price, thereby explaining the distressing signals that were received from the rural areas concerning rice prices in late 2001.
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150. Based on January 2002 world market price, the model indicates the following price levels at the retail as well as the farm gate level in relation to simulated increases of the import tariff to respectively 20%, 25% and 30%: q Assuming a 30% import tax and 20% VAT, paddy price would range around FMG1,000-1,050/kg, the price of rice would be FMG2,336/kg in Tana. Around 95% of all rice producing households would be competitive. q Assuming a 25% import tax and 20% VAT, the price of paddy would range around FMG950-1000/kg at the farm gate; the retail price in Tana would be FMG2,145/kg. Over 87% of all rice producing households would be competitive q Assuming a 20% import tax and 20% VAT, the price of paddy would range from FMG 900-950/kg; the rice price in Tana would be FMG1,982/kg. Over 82% of all rice producing households would be competitive at this price.
151. This simulation shows that an increase in rice import tariffs over the analyzed range would not have a dramatic effect on the retail price of rice. However, at the same time, it shows that an increase would not significantly increase the percentage of competitive rice producing households. Given the sensitivity of paddy farm gate price and competitiveness over the FMG600-900 range, the challenge is to effectuate an import tariff that keeps the farm gate price at the upper level of this range. This requires in the first place to put the conditions in place for an effective compliance of the official import tariffs and tax rates. Similarly, it requires close monitoring of the world market price in order to adjust the import tariff accordingly in case of a significant decrease so as to avoid an abrupt negative impact on the farm gate price of paddy in the sensitive range. Madagascar commitments with WTO will have to be considered in this respect.
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Table 45: Effect of rice import tariff on paddy farm gate price Recent historic Realistic Impact of simulated import tariffs Situation with rice import taxes paid figure 50% 2400 2200 2000 imports taxes déc-99 oct-00 sept-01 sept-01 sept-01 sept-01 sept-01 CAF Main types of rice imported US$/ton Riz Brisures FOB 155 135 122,5 122,5 122,5 122,5 122,5 Riz semi blanchi FOB 192 153 130 130 130 130 130 Riz 100% blanchi FOB 240 190 165 165 165 165 165
Coût CAF addit (US$) 28 28 28 28 28 28 28 Taux de change US$ 6800 6791 6480 6480 6480 6400 6400 Equiv prix en FMG/kg avant taxes Fmg/kg Riz Brisures 1 244 1 107 975 975 975 963 963 Riz semi blanchi 1 496 1 229 1 024 1 024 1 024 1 011 1 011 Riz 100% blanchi 1 822 1 480 1 251 1 251 1 251 1 235 1 235 Taxes Taxe importation 5% 15% 15% 8% 35% 23% 13% VAT 0% 20% 20% 10% 20% 20% 20% Equiv prix en fmg/kg avec Taxes Riz Brisures 1 307 1 528 1 346 1 153 1 574 1 422 1 305 Riz semi blanchi 1 571 1 696 1 413 1 211 1 653 1 493 1 371 Riz 100% blanchi 1 914 2 043 1 726 1 479 2 019 1 824 1 674 Tamat % vol. en riz brisures 10% 10% 10% 10% 10% 10% 10% ave % vol en riz semi-blanch 40% 40% 40% 40% 40% 40% 45% % enblanchi 50% 50% 50% 50% 50% 50% 45% Frais de déchargement 150 160 170 170 170 170 170 Marge commerciale cumulée 5% 5% 5% 5% 5% 5% 5% Valeur moyenne Tamatave 1 959 2 113 1 819 1 584 2 098 1 913 1 754 Trans Frais de chargement 30 30 30 30 30 30 30 port Coût de transport 130 140 140 140 140 140 140 Marge operateur 3% 3% 3% 3% 3% 3% 3% Tanan Equiv prix en fmg/kg avec Taxes fmg/kg arive rendu à Tana Valeur moyenne riz Tana 2 183 2 352 2 049 1 807 2 336 2 145 1 982
Cout de transport 120 120 120 120 120 120 120 Marge cumulée comm. 12% 12% 12% 12% 12% 12% 12% Equ. Prix achat Riz local 1 815 1 964 1 698 1 485 1 950 1 782 1 638 66% Coût de transformation 80 80 80 80 80 80 80 Coût transport 75 75 75 75 75 75 75 Autres coût (collecte...) 70 70 70 70 70 70 70 Marge collecte 9% 9% 9% 9% 9% 9% 9% Equiv farmgate Paddy price 885 975 815 687 966 866 779
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3.3.3 EFFECT OF INCREASED RICE PRICE ON HOUSEHOLDS MONETARY INCOMES AND PURCHASING POWE R 152. The relative price level of goods produced in urban areas versus those in rural areas is an important factor determining to what extent different population groups benefit from economic growth. Keeping prices of agricultural products low to keep urban salaries low in order generate an investment surplus has a negative impact on a large number of poor households who live in rural areas and derive a living from agricultural production. On the contrary, increasing the prices of agricultural products excessively would harm urban household by reducing real incomes and eventually backfire on the agricultural sector as they would reduce consumption. Given that rice production in Madagascar is insufficient to meet domestic demand, rice imports play a key role to meet urban demand and demand from rice deficit rural households. The question is how imported rice should be priced vis-à- vis domestically produced rice. A policy that would aim for low agricultural and food price to fight urban poverty may in fact cause overall domestic demand to increase, while discouraging local supply. Hence, although the lack of domestic supply may have its roots in structural causes, integrating the national with the international rice market at a pace that exceeds the integration of local and regional markets into the national market, may in fact provide disincentives to farmers to increase productivity, because of low output prices.
153. In terms of rice pricing policy, Vietnam could provide some lessons and insights for Madagascar. The farming community in Vietnam is dominated by small farmers, while at the same time the country has an important position on the international rice market as an exporter. The objective of Vietnam’s rice pricing policy has been to ensure to producers a paddy market price that is 30-40% higher than production cost (all costs included with family labor valued at local salary level). This policy implies that increases in domestic productivity generating a reduction in production costs per unit of rice would subsequently cause a gradual fall in market prices, forcing a gradual restructuring and consolidation of the sector with the most efficient producers eventually remaining active in the rice sector.
154. Since not all rice producing households are self sufficient in rice, an increase in the price of rice would not necessarily benefit all rural households. In fact, it is estimated that a 15% increase in the price of rice would increase purchasing power of 55% of all rice producing households, while 45% would lose purchasing power. Overall global income of rice producing households would increase by 2.8%. However, a simulation along these lines does not take into effect the indirect or second-round effects of the price increase. A more comprehensive simulation that includes the effect of the rice price increase on the price of other food crops (assumption of 5%); on agricultural wages which are often expressed in rice equivalent (assumed 12% increase); and on trade and service activities provided in rural areas shows that that 71% of the 1,7 millions of rice households would see an increase in purchasing power of 3,2% while 29% would face reduction in purchasing power by 1.7%. Globally rural income would increase by 5,22% (Table 46).
Table 46: First scenario: Effect of Rice Price Increase on Purchasing Power of Rice Producing Households
Number of % Income/HH Global PP % % increase House- (millions fmg) Increase of Income holds of PP Hholds with increasing purchase power 1 209 539 71% 3,45 4 173 193 3,2% 5,4% Hholds with decreasing purchase power 496 280 29% 1,21 599 166 -1,7% 4,3% Total 4 772 359 Global income before 4 651 856 Millions fmg Global income after increasing 4 894 791 Millions fmg 5,22% Millions US$ 844
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155. Nevertheless, the 1,2 million of households that would benefit from a price increase earn an average global income of FMG3.45 million as compared to only FMG1.21 million of the households that would not benefit from a rice price increase. Since 80% of all rice farmers are below poverty line and assuming that all non-poor households would gain from a price increase, one could calculate that 63% of all poor rice producing households would gain.
156. Considering the effects of rice price increase by farming system , 14 farm profiles increase purchasing power by 0,2% to 9,9% especially in Lake Alaotra, Center West, North West and Hauts Plateaux. In fact, there are only four rice-based farming systems that would see a reduction in purchasing power ranging from -0,9% to -3,6%. These farming systems are located in the Eastern and Northern region and are particularly dependent on slash and burn (tavy) production practices. Hence, although an increase in the price of rice would not benefit all rice producing households, it is important to note that the ones who would not benefit are particularly engaged in rice production practices with high environmental costs.
3.3.4 EFFECT OF INCREASED FERTILIZER USE
157. In 1999, about 14,500 tons of fertilizer were use in the the production of rice, which translated in an average of 10 kg of fertilizer per ha. Regional figures regarding fertilizer application per ha of rice area range between 0 and 31 kg/ha. Most fertilizers used for rice production are applied in three regions: Hauts Plateaux 31kg/ha, Center West 9 kg/ha and Lake Alaotra 13 kg/ha (FAO UPDR 1999 Rice Survey). Total volume of fertilizers has hardly increased since the mid 1980s (Table 47). A large part of fertilizers used in Madagascar originate from donations. Table 47: Use of Fertilizers in Madagascar
Imports Gifts Total Kg fertilizer (tons) (INSTAT) Volume per ha 1975-84 14,600 4,800 19,400 9,1 1985-90 10,300 11,700 22,000 9,8 1991-95 13,750 11,250 25,000 10,5 1996-99 11,150 8,363 19,513 8,2 2000 17,277 10,000 27,277 10,9
158. The dismally low use of fertilizers is attributed to a number of factors. First, financing is a problem as credit is not readily available. Second, the poor state of the rural roads networks poses a high implicit tax on the use of lumpy inputs such as fertilizers. Third, the availability of donated fertilizers generates price distortions in the fertilizer market, thereby hampering the development of proper distribution channels.
159. When switching from transplanting "en foule" to "SRA cropping", each kg of incremental fertilizer generates 4.5 kg paddy in the Hauts Plateaux region and 15,8 kg of paddy in Lake Alaotra (with equivalent levels of organic manure and based on averages surveyed in 1999 by cropping system). The average price of fertilizers (urea) at the farm gate was FMG2,564 per kg, while the average price of paddy was FMG968 per kg. This means that each kg of applied fertilizer should at least generate 2.7 kg of paddy. Since this figure is lower than the observed paddy yield increase mentioned above, the benefits of increased fertilizer application potentially outweigh increased production costs. However, with the paddy price down to FMG650 per kg in 2001, the minimum return per kg of urea has to be around 4 kg of paddy, thereby reducing significantly the attractiveness of increased fertilizer application in the Hauts Plateaux region. This example also shows that the negative
Page 61 effect on the price of paddy caused by the non-compliance of the import tariff and tax policy reduces the ability of farmers to adopt potentially productivity enhancing technologies.
160. In Vietnam one additional US$ of intermediary expenses (IE) at the producer’s level in rice production generated about US$ 2-3 of value added in 1996. In Madagascar, this ratio was 3.8 in 1999. The ration ranges between 8,8 in the less intensive regions (where main input is labor) and 2,3 in Hauts Plateaux the most intensive region. This finding is in line with MINTEN and RANDRIANARISOA61 who report that an increase of FMG 1 in modern inputs leads to increased outputs in the amount of FMG3.20; this ration increases to 6:1 for the poorest quintile. Hence, the use of modern input shows to have potentially high pay-offs, especially for the poorest households. It means that a strategy of productivity increase through intensification is potentially feasible in Madagascar.
Table 48: Ratio of value added/ Intermediary expenses
North N-West C-West H-P East L.Alaotra National Ratio VA/IE 4,1 8,8 3,6 2,3 5,9 6,4 3,8 VA 188 089 330 851 100 799 624 675 289 530 269 218 1 803 162 IE 45 437 37 779 27 820 271 821 49 065 42 016 473 938
161. Hence, the situation regarding fertilizer use in rice production is Madagascar represents a paradox. On the one hand, there exists powerful constraints that impede increased adoption at the farm level (financing, cost, distribution, paddy price risk). On the other hand, increased fertilizer application is inherently attractive, especially for the poorest rice producing households. In essence, a continuation of this paradox represents: (i) a significant foregone opportunity to increase rice productivity through production intensification; and (ii) a prolongation of area expansion, with inherent significant environmental costs, as the driving force for rice production increases. Consequently, it appears that resolving this paradox would a key challenge to unleash productivity increases in rice production in Madagascar. Since, resolving the paradox would come with a positive environmental externality attached to it, it means that the public sector could adopt a bold approach in pursuing this challenge, which should include at least three elements: (i) ensure effective demand for fertilizers at the farm level that input distributors could respond through for instance input vouchers; (ii) ensure a relatively stable price of paddy by ensuring at least compliance with existing import tariff and tax policies; and (iii) improve the rural roads network in order to reduce transaction costs associated with the use of lumpy inputs.
61 Ref: MINTEN B., RANDRIANARISOA JC, Agricultural production; agricultural land and rural poverty in Madagascar, FOFIFA Cornell University, 2001
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4 RICE CHAIN AND POVERTY REDUCTION STRATEGY: POLICY IMPLICATIONS
4.1 RICE PRODUCTION SCENARIOS TOWARDS 2015
4.1.1 PROJECTION OF CURRENT TRENDS
162. The question at stake is how Madagascar would be able to satisfy demand for rice in 2015 under a scenario of current production growth, estimated at 0.2% per year. With population growing at 2.47% per year (according to INSTAT population scenario) and rice consumption per capita declining from 136 kg to 125 in rural areas and from 111.8 kg to 105 kg in urban areas, national demand is expected to grow from about 1.9 million tons in 1999 to 2.5 million tons in 2015 or 1.9% per year (Table 49). With domestic production growing at 0.2% per year, demand for imported rice will grow from about 175,000 tons in 1999 to about 765,000 tons in 2015. Based on 1999 prices, the imported rice bill is expected to grow from about US$54 million in 1999 to US$235 million in 2015.
Table 49: Rice production scenario based on current trends
Assumption of stagnation 0,2% /year 1999 Growth rate/ year 2015 Urban population Inhabitant 3 714 4,7% 7742 Rice Consum/urban Kg/inhabitant 111,8 -0,4% 105,0 Rural Pop Inhabitant 10863 1,5% 13806 Rice Consum/rural kg/inhabitant 136,0 -0,5% 125,0 Total Pop Inhabitant 14 577 2,47% 21548,0 Avg Consum/inhabit kg/inhabitant 129,8 -0,6% 117,8 National Demand Tons 1 892 603 1,9% 2 538 660 Production available Tons 1 717 605 0,2% 1 773 401 Incremental Vol. Rice Imports Tons 174 998 590 261 765 259 Import cost (US$ millions) 53,85 181,62 235
4.1.2 PRODUCTIVION GROWTH SCENARIO
163. At the other end of the spectrum, the question would be by how much domestic production would have to grow so that in 2015 Madagascar could essentially meet rice demand without relying on imports. Using the same assumptions, except that under a growth scenario consumption per capita is likely to fall somewhat less rapidly from 136 kg down to 132 kg per capita, it turns out that consumption is expected to grow by 2.1% up to 2.6 million tons. In order to meet this demand, domestic production will have to grow by 2.8% per year, thereby generating a small surplus of about 36,000 tons (Table 50).
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Table 50: Growth scenario
Stimulated scenario 2,8% /year 1999 Growth / year 2015 Urban population Inhabitant 3 714 4,7% 7742 Rice Consum/urban kg/inhabitant 111,8 -0,4% 105,0 Rural Pop Inhabitant 10863 1,5% 13806 Rice Consum/rural kg/inhabitant 136,0 -0,2% 132,0 Total Pop Inhabitant 14 577 2,47% 21548,0 Avg Consum/inhab kg/inhabitant 129,8 -0,4% 122,3 National Demand Tons 1 892 603 2,1% 2 635 302 Production available Tons 1 717 605 2,8% 2 671 857 Increment.Vol. Rice Imports Tons 174 998 - 211 553 - 36 555 Import cost (US$ millions) 53,85 - 65,09 - 11
164. The rural income effect of rice production growth along these lines is very significant, representing around FMG1,200 billion of incremental economic income for rice farmers (US$ 184 millions per year) and about FMG1,700 billion for the whole chain (US$ 261 millions) without accounting indirect effects. With a 25-27% increase in the number of farmers (1,5% per year) and a 68% of increase of income between 1999 and 2015, rice income increase per farmer is estimated around 32%. Taking into account multiplier effects in the order of a factor two as might typically be expected from rural sector growth, it is estimated that this rice growth scenario could boost GDP by US$522 million per year.
165. In order to achieve 2.8% production growth per year, yields of both irrigated and rainfed rice have to increase, cropping intensity of irrigated rice and tavy has to increase, and area under rainfed rice has to increase (Table 51). The biggest driver though is yields which have to grow at about 2% per year. Taking into account (the lack of) rice productivity increases in the past, 2% productivity growth represents a major challenge. However, cross- country comparison leans that it would not be out of the ordinary
Table 51: Contributing factors to rice production growth scenario
Aquatic Rainfed rice Tavy Yield increase 2,0% 2,0% 1,8% Rice cropped Area growth 0,7% 2,1% 0,0% Physical area growth 0,0% 2,1% -1,0% Cropping intensity growth 0,7% 0,0% 1,0%
166. By 2015, paddy yields under irrigated conditions would have increased from 2,150 kg/ha to 2,950 kg/ha; under rainfed conditions paddy yields would increase from 12,50 kg/ha to about 1,700 kg/ha. Overall rice cropped area will have increased by 13,2% between 1999 and 2015, mainly due to increased cropping intensity.
Table 52: Evolution of areas and paddy yields by 2015 under a production growth scenario 1999 2015 Cropped area Aver. yield Production Cropped area Aver. yield Production (ha) (kg) (tons) (ha) (kg) (tons) Total 1 448 945 1 918 2 778 391 1 639 950 2 626 4 307 162 Annual Evolution 0,8% 2,0% 2,8% Aquatic 1 163 269 2 149 2 500 231 1 300 624 2 951 3 837 553 Rainfed 136 003 1 254 170 487 189 653 1 721 326 366 Tavy 149 673 719 107 673 149 673 957 143 243 Evolution % 13,2% 37,0% 55,0%
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4.2 PRIVATE SECTOR PROPOSALS
167. Given the overall orientation of public policy in Madagascar centered around the concept of “désengagement de l’état” with a strong emphasis on private sector led growth, an informal round table discussion with private sector operators that are active in the rice value chain was organized in January 2002 to obtain their views on the major constraints, challenges and opportunities regarding rice in Madagascar. It is important to know these views as they reflect a perception of the investment climate by the private sector and therefore one way or the other affect investment decisions and ultimately production growth of the sub-sector. The results of the discussion with the private sector could be grouped in two main categories: (i) lack of capacity or unwillingness to enforce existing policies, particularly regarding import tariffs and taxes; and (ii) lack of institutional capacity to address those structural problems of the rice value chain that require public intervention.
4.2.1 IMPORT TARIFFS AND TAXES 168. It was pointed out that the Government of Madagascar does not have a clear objective regarding its rice pricing policy as effectuated through import tariffs and indirect taxes. There is an impression that decisions are being driven by political rather than economic motivations, which generates a lack of transparency and direction. In general there is consensus that rice production in Madagascar is inherently competitive. The price of rice on the world market is being seen as distorted since it is in effect a surplus market with traded volumes amounting to only 5-6% of world rice production. For instance, in 1999 total internationally traded volume was 21.8 million tons as compared to a total production of rice amounting to 390 million tons. Furthermore, many exporting countries subsidize rice exports which puts a downward bias on the international price of rice. At the same time, most large Asian, European and North American countries protect their own rice production from the world market, thereby denying opportunities to countries that are relatively efficient. Hence, in light of the fact that the world market is distorted, Madagascar should not base its rice import policy on the assumption of a perfect world market and set tariffs at a level that would allow farmers and private operators to make the investments that are needed to set the stage for productivity growth in the sector. Unfortunately, this view is blurred by a bias to keep prices low for urban consumers, especially during election times, as well as forces that seek to avoid payment of existing tariffs and taxes, with the resulting rents channeled back into the election campaign.
169. It is estimated that in 2000 and 2001, the Government collected at the most 50% (and most probably only 30%) of the import tariff and indirect tax proceeds that it should have collected based on the volumes of imported rice that entered the domestic market during these years. Politically connected rice importers particularly benefit, leaving well-established processors and wholesalers in the cold as, given the existing import tariff of 15% and VAT of 20%, it effectively provides an advantage of about 40% to those importers who do not pay. The timing of rice imports is also a point of criticism. It is generally believed that imports during the rice harvest season should be avoided and that they should be targeted to enter the domestic market at the time of the “soudure”, the lean period prior to the next harvest. In addition, the management of rice donations by the Ministry of Agriculture is not considered appropriate as it does not exclude the monetization of these donations at the same price of paddy during the harvest season. Last but not least, the levy of taxes on large-scale wholesalers and processors, while small processing units are effectively exempt because of weak revenue collection capacity, also contributes to unfair competition in the downstream activities of the rice value chain. Although wholesalers and large scale rice processors claim to have a relatively important role in providing credit to farmers (through advances), their capacity to do so has been eroded due to the unfair competition from imported rice and small-scale processors.
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170. Given the situation in the world market, the private sector that is active in the rice value chain supports the idea that the price of domestically produced paddy should be at a level that provides to the farmers a relatively comfortable margin over production costs, which encourages investments to increase productivity through the intensification of production systems. In 2001, that price level at the farmgate was believed to be FMG 900- 950/kg as this price would allow about 85% of all rice producing households to cover production costs, including family labor valued at the local agricultural wage rate. In order to ensure a farmgate price of paddy at this level, the import tariff should have been 15-20%, with a VAT of 20%. The effective application of this rate would make imported rice available in Antananarivo at a retail price of FMG2,180/kg. This price is not considered out of reach of poor urban consumers.
171. In order to ensure effective compliance with the existing import tariff and tax regime, the private sector favors the idea of import licenses that would restrict the number of companies that would be allowed to import rice. These licenses should be allocated on a competitive basis. At the same time, it should be for a limited period (three years). A system of licenses with a limited number of companies would be better in line with the existing capacity of the Customs to enforce compliance. Given the competitive nature of the license allocation process, the risk of a license being revoked in case of non-compliance by a rice importer would in itself be an incentive to comply with the existing tariff and tax regime.
4.2.2 STRUCTURAL PROBLEMS
172. Water Management. It is argued that the withdrawal of the state from the irrigation sector has been too quick, leaving a serious institutional capacity gap to deal with operation and maintenance problems. Farmers have not been able to manage a transition from being total dependent on public support to being total autonomous. There is also a technical capacity gap as there is an apparent shortage of polyvalent water management technicians who could provide services to farmers. Some operators effectively question whether it is realistic to assume that maintenance of large perimeters could be managed locally, especially since many of these systems face water shortages on a periodic basis and do not provide conditions for reliable water management at the farm level. Therefore a number of private operators consider that "it appears urgent to stimulate alternatives of micro-irrigation private investments in order to install pumping capacities that would complement actual perimeters, thereby providing the means to resolve temporary water deficiencies".
173. Rural Roads. Since high transportation costs due to the poor rural roads network imply a heavy tax on the use of productivity enhancing inputs as well as the marketing of output, public sector investments in the rural roads networks are considered of the highest priority. There are four roads that are particularly deemed imported by private operators, including: (i) RN44 Moramanga - Lac Alaotra, (ii) Tulear - Morombe, (iii) Sofia - Bealanana access road, (iv) Mainiarivo access in Middle East It was mentioned that the RN44 was not paved in 1960-70 to protect train development. Since 1982, four presidents have successively promised to pave RN44, but up-to-date these promises have not materialized. It is felt that if the RN44 would not be paved quickly, one should seriously question the credibility of the Government’s rural infrastructure policy and strategy.
174. Input Use. The importance of inputs to increase rice productivity was widely recognized. In order to facilitate the use of inputs on a large scale, there is a need to simultaneously resolve problems and constraints associated with input availability, distribution, extension and financing. Since resolving these problems and constraints also involve public goods, there is a need for a close collaboration between the private and public sector in this field. The network of 12 Trade and Agriculture Chambers could play a useful
Page 66 role in bringing together the private and public sector. Resolving constraints and problems associated with the use of inputs would require investments in the establishment and strengthening of farmers’ organizations that would set the stage for a group approach to the provision of inputs. It would also require a mechanism that would allow farmers and downstream operators effective access to credit provided by the formal financial sector. For this purpose a Guarantee Fund is proposed. Financing of such Fund should come from rice import tariffs revenues, collected taxes and other fees that are levied on the rice value chain. Particularly, resolving the credit issue is important, as internal financing mechanisms are reportedly seriously affected by imported rice entering the domestic market without paying tariffs and taxes.
4.3 RURAL POLICY FRAMEWORK
175. "The strategy of the Government is to empower poor households in taking the process of development in their own hands by generating opportunities and enabling conditions for skills development, employment creation and productivity improvement. In order to do so, primary education and basic health services are emphasized as well as actions aimed at: - Improving access of poor households to infrastructure (roads, transport, rural markets, GCV62, communication, energy); - Increasing productivity in the agricultural sector, especially small scale farming; - Promoting diversification of production systems through better availability of micro-credit, micro enterprise development, and promotion of income generating secondary activities such as small livestock (short cycle) and handicraft; - Stimulating employment through support to labor intensive activities "(DSRP-I 2000)
176. As far as the rural sector is concerned, it is stated that "actual performance fall significantly short of its potential and that in order to achieve the Millennium goals of halving poverty by 2015, the rural sector should grow at a rate of 4% annually”. Given the economic importance of the rice chain in the rural sector, the rural development policy of the GOM as embedded in the Letter of Rural Development Policy (LPDR) acknowledges that it would be difficult to see how this target could be achieved without paying due attention towards improving rice productivity.
177. The importance of an integrated approach towards improving rural productivity by focusing on the chain as a whole is reflected in the emphasis that is also paid to the role of private downstream agro-industries in the DRSP (Section 3.1.2.: Synergy ville-campagnes et agriculture-industrie) which states that: "the agro-food and agro-industrial sector, located both in rural and urban areas, is an important employment generator and constitutes an important mean to increase value-added in the rural sector. The sector could play a role in generating employment by absorbing part of the rural labor." ). The LPDR similarly acknowledges that a better vertical integration of the chain by linking agricultural production with local processing industries "requires to be supported with adequate infrastructure investments (roads, energy supply, water, communication."
178. The notion of empowerment translates itself in the LPDR through proposed support to the strengthening of decentralized capacities, including GTDRs at the regional level as well as farmers’ organizations at the local level. In addition, the importance of the development of local service providers (ONGs, professional associations) is recognized in the LPDR.
179. As far as the technology dimension of agricultural productivity is concerned, the LPDR stresses the importance of competent technical staff to support knowledge transfer
62 grenier collectif villageois
Page 67 with an important role for the private sector as far as service delivery is concerned. In line with this orientation, it is proposed to strengthen the professional technical education system. The LDPR also proposes the preparation of an agricultural mechanization policy.
180. As far as infrastructure is concerned, the rural development policy as embedded in the LPDR envisages the establishment of locally managed financing mechanisms for public investments as well as locally managed maintenance capabilities, as underlined also by private rice operators. Among the actions that are proposed in the LPDR, there is the creation of an intervention fund for large-scale irrigation infrastructure, new facilities to mobilize FER for local communes, PTMR implementation, creation of a productive fund for farmers’ organizations. In addition, watershed management oriented actions are envisaged, including rehabilitation works, forest fire control measures etc. Also the need to take action on the land tenure front is highlighted with provisions for the preparation of a National Land Program and National Land Plan.
181. An important aspect of the LPDR is the distinction between so-called “high potential production poles” and “less-favored vulnerable zones” by stating that: "stimulating productivity growth in high potential production poles through targeted actions is essential to be able to respond to growing national food demands as well as to provide agricultural supply for export markets; the absorption of a growing labor surplus should be the key orientation of policies and investments aimed at less favored, vulnerable zones”. As far as the high potential production poles are concerned, this overall orientation is translated in the following actions: (i) modernize production systems with appropriate technologies; (ii) promote development of regional inter-professional structures inside the main agricultural production segments; (iii) improve performance of downstream operators; (iv) development and organization of markets; (v) development of agricultural product sub-chain dynamics for better product valuing. This LPDR policy will encourage the rice cropping specialization trend in rice high potential zones while reinforcing linkages with downstream operators and local industries.
182. In so-called less favored, vulnerable zones, the LPDR aims to promote secondary income generating activities (handicraft, wild plant-fruit picking63, tourism, fishery, seasonal migration) and to invest in forestry and natural resources management through reforestation schemes embedded in an overall watershed management approach and stabilization of hill- side cropping systems through adequate technologies. It is also foreseen that production poles and region-based industrial urban sector (textile, agro industry) will progressively attract active labor and households from less favored areas. Proposed actions focus on the following issues: (i) diversify income through the development of non-farm activities; (ii) develop adequate agro-ecological production techniques for fragile environments (direct seeding on vegetable coverage); (iii) improve environment preservation and rational management of rural spaces; (iv) promote diversification of food production systems; and (v) develop capacity for disaster preparedness and quick response.
63 plantes médicinales, huiles essentielles, raphia, champignons…
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4.4 IMPLICATIONS OF THE OVERALL POVERTY REDUCTION STR ATEGY AND RURAL DEVELOPMENT POLICY FOR THE RICE SUBSECTOR
4.4.1 SPATIAL TARGETS
a) High Potential Production Poles
183. There exist a total of 51 high potential rice production poles. These poles cover a total of 373,000 ha of irrigated lands divided into 91 sites of irrigated perimeters (SIP) that are highly suitable for the production of rice. The average size of the identified high potential production pole is 7,300 ha ranging from 1,200 to 38,000 ha; the average SIP is 4,100 ha ranging from 800 to 20,700 ha.
184. In terms of the so-called Regional Rural Development Platforms (GTDRs), there are 8 GTDRs that could be considered rice surplus poles. These 8 GTDRs (out of 20) encompass 80% of irrigated areas with an average of 37,500 Ha / GTDR and cover 21 out of the 51 different high potential production poles. These GTDRs are 1. Marovoay; 4. Melaky; 6. Diana; 11. Alaotra; 12. Atsimo-Andrefana; 13. Menabe; 15. Vakinankaratra; and 16. Imerina Centrale (see Table 53).
185. Seven GTDRs are structurally deficit in rice production with an average of 2,300 of irrigated lands per GTDR, representing a total of only 4% of the total existing irrigated area. These GTDRs include: 2. Betsiboka; 5. Mahajanga; 7. Sava; 10. Atsimo-Atsinanana; 18. Horombe; 19. Amorin’i Mania; and 20. Tolanaro. Five GTDRs are intermediary with around 11,400 ha / GTDR and 15% of the total national irrigated area. These GTDRs include 3. Sofia; 8. Toamasina; 9. Mangoro; 14. Itasy; and 17. Haute Matsiatra
Table 53: Inventory of potential pre-identified production poles
Rice GTDR Province Main Production poles Irrigated Sites of Irrigated Perimeters (SIP) Region Area (in irrigated ha) (Ha) 1. Marovoay Mahajan- 1. Marovoay 22 642 Ambalabe : 1 500 Bekarara : 3 000 ga Manaratsandry : 2 324 Marovoay Karambo : 14 000 2. Ambato Boeni 4 920 Madirovalo 3 000 Anjiajia : 1200 North- 2. Betsiboka Maha- 3. Maeavatanana 2 040 Madirotelo : 1 000 West janga 3. Sofia Maha- 4. Antsohihy 1 205 janga 5. Befandriana 2 290 6. Mandritsara 4 375 7. Bealanana 1 300 Ankaizina : 900 4. Melaky Maha- 8. Maintirano 9 150 Betanatana : 2 500 janga Kingalahy : 1 500 9. Antsalova ( plaine 22 200 Bemamba : 7 000 Sakomba : 3 000 de Bemaraha) Andranolava : 2 000 Ampamoty : 1 500 Mangorisabora : 2 000 10. Besalampy 5 965 Ankasakasa Tsiribay :1 500 5. Mahajanga Maha- 11. Basse Mahajamba 1 400 janga North 6. Diana Antsi- 12. Ambilobe 8 000 Mahavavy : 8000 ranana 13. Ambanja 14 067 Bas Sambirano : 13 500 Andranofanjava : 800 14. Antsiranana II 4 227 Mahavanona :1 080 7. Sava Antsira- 15. Cuvette d’Andapa 2 500 nana
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Rice GTDR Province Main Production poles Irrigated Sites of Irrigated Perimeters (SIP) Region Area (in irrigated ha) (Ha) East 8. Toamasina Toama- 16. Maroantsetra 10 095 Mahavelona : 815 Ankofa : 1 200 sina Ankorefo : 1 445 17. Soanierana Ivongo 2 330 Manjato : 850 18. Vavatenina 1 655 Iazafo Nord : 1 270 19. Brickaville 3 265 Ambalahasina : 900 9. Mangoro Toama- 20. Moramanga 7 382 Nonoriana-Lanihay : 700 sina Amparihibe I : 1 000 21. Mahanoro 3 530 Betsizaraina : 800 10. Atsimo- Fiana- 22. Manakara 2 950 Ambila/Marofarihy : 830 Atsinanana rantsoa Alaotra 11. Alaotra Toama- 23. Ambatondrazaka 29 575 Anony : 13 000 Didy : 3 000 sina PC15 : 4 000 , Andrangorona : 1 000 Nanamontana : 1 050 24. Amparafaravola 38 446 PC23 : 20700 PC 23 hors maille : 1 090 Sahamaloto : 8 513 Voditany : 2 000 Imamba-Ivavaka : 2 750 25. Andilamena 5 235 Andilamena : 2 885 Dihizana-Andrano : 1 450 Center 12. Atsimo- Toliara 26. Ampanihy 3 100 Andranomilitsy : 1 000 West Andrefana 27. Beroroha 2 400 Bevolo-Fanjakana : 1 400 Beavoha : 1 500 28. Betioky 17 925 Ambohimavelona : 900 Belamoty : 1 200 Betakilotsy : 900 Bezaha : 800 Taheza : 8 000 Taheza rive gauche : 1 350 Maromandry : 1 000 Bas-Fiherenana : 4 500 29. Sakaraha 2 670 Manombo-Andoharano : 8 000 30. Toliara II 20 160 Manombo-Ranozaza : 2 500 Ranozaza aval : 2 500 13. Menabe Toliara 31. Belo/Tsiribihana 9 650 Bemarivo : 4 000 Bevolo : 800 32. Mahabo 11 410 Ankilizato : 900 Dabara :10 000 33. Manja 2 790 Vondrove : 1 000 34. Morondava 4 630 Hellot : 3 000 14. Itasy Antana- 35. Arivonimamo 4 440 Basse-Andromba : 1 000 narivo Manalalondo : 980 36. Miarinarivo 3 517 Ifanja Nord : 1 000 Hauts 15. Vakinankaratra Antana- 37. Antanifotsy 8 956 Ambatomiady : 2 000 Plat. narivo Angodana : 1000 Sahanamalona : 1 000 38. Antsirabe 10 162 Ambohibary : 2 620 Manandona : 1 190 Andranotobaka : 1 000 Nanohazana : 800 39. Betafo 4 520 Iandratsay : 1 270 Ipongo : 950 40. Faratsiho 3 903 Ambatofotsy : 1 350 Vinaninony : 1 375 16. Imerina Centrale Antana- 41. Ambatolampy 3 675 Ambatolampy : 965 narivo 42. Ambohidratrimo 6 092 Merimandroso : 1 400 43. Andramasina 4 491 Anosibe : 1 500 44. Anjorobe 8 753 Ambohitsinjorano : 2 500 Amparantanjona : 1 900 45. Tana Avaradrano 2 000 Alasoara : 1 100 46. Manjakandriana 6 084 Mantasoa : 800 47. Tana Banlieue 2 578 Ambatofotsy : 800 17. Haute Matsiatra Fianaran- 48. Ambalavao 5 095 Antsely : 1000 Manambolo : 800 tsoa Mananantanana : 960 49. Ambohimasoa 6 482 Vatoraraka : 1600 Haute Ankona : 1 560 18. Horombe Fianaran- tsoa 19. Amorin’i Mania Fianaran- 50. Ambatofinandrahan 2 798 Soavina : 1 200 tsoa a South 20. Tolanaro Toliara 51. Amboasary 4 160 Behara : 800
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b) Less Favored Vulnerable Zones 186. The delimitation of less favored vulnerable areas, characterized by lack of economic opportunities, wide slash and burn expansion (tavy, hatsake, tetiky), enclaves with reduced access and food supply deficit, leads to the identification of the following zones: (i) the whole area located north on the Eastern Coast up to Sambava; (ii) Maromandia, Mananara up to Fénérive Est; (iii) Moramanga, Beforona (RN2) Lakato, Marolambo , Ampasinambo; (iv) the area of Ifanadiana (RN12) –Ikongo; (v) the areas of Vondrozo-Befotaka; (vi) the area around Ankarafantsika / Mahajanga Ouest; (vii) areas around Parc Ranomafana / Fianarantsoa. The identified problems in these areas (enclave, degradation of road network, isolation, insecurity, lack of agricultural services etc.) underline the main issues that need to be resolved in order to allow economic development and to fight ecological degradation and rural poverty.
4.4.2 PRODUCTION TARGETS 187. Based on an overall scenario of rice productivity growth of 2,8% per year (chapter 4.1.2.), while taking into account identified high potential production poles and less favored vulnerable zones, projected productivity increases could be specified per region (Table 54). The annual increase of irrigated yields ranges from only 1,4% in the Eastern region to 2,5% in the Northern region. Higher yielding regions remain Hauts Plateaux, Lake Alaotra, Center West. Intensification of production systems requires increases use of modern seed varieties by 70% (7400 t of additional improved seeds used); fertilizer use will have to be multiplied by 5,7 (annual volume of mineral fertilizers: 82000T), manure use will have to increase by 40%, and pesticide use will have to be multiplied by 4,2. The overall production is growing by 55% over a 15 year period, driven by an overall increase in yields by about 37%. The remaining area increase is driven by an extension of double cropping in the irrigated lowlands areas (116 000 incremental aquatic cropped area) as well as an expansion of rainfed rice (incremental area of 82 000 Ha).
Table 54: Regional targets towards 2015 under a rice productivity growth scenario
North North- Center- Hauts East Lake NATIONAL West West Plateaux Alaotra Average yield 99 (T/ha) 1,34 1,35 1,78 3,16 1,29 2,43 1,92 Average aquatic Yield 99 (T/ha) 1,5 1,37 1,96 3,18 1,73 2,64 2,15 Avg Rainfed yield 99 (T/ha) 0,79 0,75 1,17 2,56 1,65 1,96 1,25 Production 1999 (Tons) 248 000 362 000 445 000 1 010 000 357 000 360 900 2 778 000 Avg yield 2015 (T/ha) 1,95 1,88 2,40 4,35 1,64 3,21 2,62 Avg. Aquatic yield 2015 (T/ha) 2,22 1,92 2,81 4,44 2,16 3,53 2,98 Avg Rainfed yield 2015 (T/ha) 1,40 1,30 1,60 2,89 2,00 2,20 1,73 % Growth on average yield 45,2% 39,2% 34,6% 37,5% 27,0% 32,0% 36,5% % growth aquatic yield 47,8% 39,8% 43,5% 39,5% 24,7% 33,7% 38,6% % growth Rainfed Yield 78,3% 72,4% 36,3% 13,0% 21,0% 12,4% 38,3% growth per year of yield 2,4% 2,1% 1,9% 2,0% 1,5% 1,8% 2,0% Growth per year aquatic Yield 2,5% 2,1% 2,3% 2,1% 1,4% 1,8% 2,1% Growth per year Rainfed yield 3,7% 3,5% 2,0% 0,8% 1,2% 0,7% 2,0% Prod. 2015 (Tons) 423 000 521 000 718 000 1 581 000 509 000 536 000 4 291 000 % Growth production 1999-2015 70,6% 43,9% 61,3% 56,5% 42,6% 48,5% 54,5% Yearly production growth rate 3,4% 2,3% 3,0% 2,8% 2,2% 2,5% 2,8% Incremental Production 175 000 159 000 273 000 571 000 152 000 175 100 1 513 000 Increm. Vol. of improved seeds (T) 919 1 118 478 482 273 4 146 7 416 Increm. mineral fertilizer (T) 8 765 11 389 12 007 21 143 6 909 8 560 68 773 Increm. Manure (T) 15 914 14 723 89 617 147 800 - 21 044 289 099 Increm. Pesticide (T) 330 322 128 449 350 71 1 651 Increm. labor (equiv. Jobs) 21 653 5 030 33 081 69 484 76 598 18 435 236 000 Increm. aquatic area cropped (ha) 24 060 2 594 5 270 36 978 22 915 24 060 115 878 Increm. SRA and SRI cropped (ha) 22 780 35 138 5 270 48 828 22 915 38 211 173 142 Increm. Rainfed area (ha) 9 009 6 414 43 729 9 016 9 979 3 801 81 948
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188. The yield increase of 2,1% per year under irrigated conditions is driven by production intensification (increased input use/ha) and improved water management which allows to switch from traditional transplanting to SRA and SRI. Incremental SRI and SRA areas represent 173 000 ha. The capacity to increase double cropping on an additional 116,000 ha of irrigated rice requires improvement of water management through additional irrigation investments; such action will also contribute to switching production from traditional irrigation to to SRI and SRA (Table 55).
Table 55: Evolution of areas and yields per type of cropping system
1999 2015 % increase % increase Cropped area Yield Cropped area Yield of areas of yields (ha) (T/ha) (ha) (T/ha) Semis direct 128 767 1,37 145 303 1,85 13% 34% Foule 822 702 2,02 739 684 2,57 -10% 27% SRA 188 555 3,11 322 813 4,034 71% 30% SRI 23 246 3,13 62 130 5,042 167% 61% Pluvial 136 003 1,25 217 951 1,73 60% 38% Tavy 149 673 0,72 149 673 0,86 0% 19% TOTAL 1 448 945 1,92 1 637 554 2,62 13% 36%
189. Given the very low current yields and actual very marginal use of inputs, there exists considerable potential to increase rice yields. The rice productivity growth scenario requires progressive use of inputs by switching from 10kg of mineral fertilizer/ha to 51 kg/ha, from 0,4 kg of pesticides to 1,3 kg/ ha etc. This, however, requires easy access to inputs at a sustainable cost. Under this scenario, additional agricultural labor demand will be equivalent to 224 000 jobs. The volume of labor mobilized by the rice sub -sector under this scenario will grow by 21% by 2015; such growth is higher than the actual agricultural population growth. Labor intensity will increase from 186 MD/ha to 199 MD/ha. This may nevertheless be overestimated since it does not take in account the effect of wide use of chemical weeding and equipment investment at farmers' level. Labor productivity in terms of kg of paddy per day of labor will jump from 12 kg to 15,3 kg (+27%) with indirect positive effects on the agricultural wage rate.
4.5 INTERNATIONAL COMPARISON OF RURAL POLICY FRAMEWORKS
4.5.1 LESSONS LEARNED FROM A COMPARATIVE ANALYSIS OF RICE POLICIES
190. The very poor performance of the rice subsector in Madagascar suggests that lessons from other countries which have been more successful in increasing rice productivity might be of particular relevance. For this purpose, Table 56 presents an assessment of rural development policies in Vietnam, Thailand, Indonesia, Bangladesh, Mali and Guinea and their impact on the performance of the rice subsector in these countries. Aspects of rural development policy that are particularly looked at include: (i) investments in road infrastructure, (ii) level of irrigation investments, (iii) degree of liberalization policies, (iv) credit access policies, (v) level inputs subsidies, (vi) existence of price support policies, (vii) existence of mechanization policy and support, (viii) degree of land tenure security and scope of redistributive land reform, (ix) quality of extension services, (xi) level of support to downstream operators (quality management, transport facilities, investment support).
191. What is noted is that, contrary to the situation in Madagascar, in all these countries rice yields have increased significantly since 1970. Yields continued to increase at very healthy levels in the 1990s in Vietnam, Indonesia and Mali. Vietnam maintains an export oriented strategy, while Indonesia has to manage a supply response to cope with strong
Page 72 increasing urban demand as the urban population grew from 22% in 1980 to 40% in the late 1990s. Mali has been able to establish itself as a rice exporter to other Sahel countries that are far relatively far away from harbors facilities, while maintaining a national food security strategy aimed at targeting cereal deficit areas in the country. Annual rice production growth has been far lower in Thailand and Bangladesh in the 1990s (less than 2% per year on 1990- 99), but rice yields in these countries have increased by 60-70% since 1970. Bothe Bangladesh and Thailand have been able to maintain a rice productivity growth rate which permits them to stay self-sufficient while at the same time diversifying their economy.
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Table 56: Empirical Comparison of Rural Development Policies and their impact on rice sub sector performances
Madagascar Vietnam Thailand Indonesia Bangladesh Mali Guinée Conakry
Average yield 1970 1,99 T 2,10 T 1,40 T 1,8 T 1,7 T/ha (1960) Average yield1990 2,00 T 3,45 T 1,80 T 4,0 T (84-86) 2,7 T/ha (1990) 1,5 T/ha (86) Actual yield (1998-99) 1,90 T 4,00 T 2,36 T (96) 4,6 T (1997) 2,80 T (96) 2,3 T/ha (99) Paddy Production (1990) 2,4 millionsT 19,2 millions T 20,4 millions T 34,1millionsT Paddy Production (98-99) 2,7 millions T 27,6 millionsT (97) 19 millions T 46,6 millionsT 575 700 T 700 000 T en 98 Yield annual growth (90-99) -0,6% 1,6% 1,5% 2,1% (85-96) 4,6% (85-2000) (85-96) Annual growth rate of rice 2,1% 4,1% -0,7% -0,3% (85-96) 3% (85-2000) cropped areas (85-96) Annual production growth 1,32% 5,8% 0,8% 4% 1,8% (85-96) 9% 5-6% rate b(90-99) (1985-96) (70-99) Productivity / worker 0,5-2,7 1,8 T/worker (86-91) T paddy T/worker (1999) (0,8-4,5 T/worker Paddy Prod /Man day 12 kg (5-27 kg) 19-68 kg 38,6 kg (1997) Production cost/ ton US$ 67-199/ha 96: US$ 84 - 164 Fertilizer employed /ha 10 kg/ha 291 kg/ha (1998) Labor Intensity /ha 186 HJ/ha 116-134 HJ/ha 119 HJ/Ha (98) investment in road LL ☺☺ Growth /y10% 70-90 ☺☺ infrastructure ☺☺☺ Investment in irrigation ☺☺ ☺☺☺ Very high 70-90 $400 mill/yr: 20 yrs Subv. invest. Privé Invest. Imp. PPI K ☺☺ ☺☺☺ ☺☺ ☺☺ Liberalization ☺☺ ☺☺☺ ☺☺ ☺☺ K ☺☺ Credit access policy LL LL ☺☺☺ K K Caisses d'Ep micro-crédit 1975-> X20: 10 ans Et de crédit ☺☺ Input subsidy policies LL ☺ Subsidy on transport 40-60% subsidy Subvent. depuis Amél. de la K ☺☺☺ 1983 ☺☺ distribution Price policy and production LL ☺ ☺☺ CPN>35% 91-94 Taxation riz import Dévaluation 94 SIM price support ☺☺☺ ☺☺ ☺☺☺ ☺ Equipment support policy L K K 85: Tarif réduit K K ☺☺☺ Land Redistribution LL ☺☺☺ K K K K K Extension, technological ☺ ☺☺☺ K ☺☺ K ☺☺ K Transfer Support to mechanization LL K Appui important Motoculteurs x40 K K K ☺☺ ☺☺☺ Support to downstream ☺ ☺ K K ☺☺ ☺☺ ☺☺ operators LEGENDE: ☺☺☺ very performing ☺☺ good ☺ relatively good K no comment L deficient support LLvery deficient, negative impact confirmed Page 74
192. Indonesia. With similar rice productivity indicators in the 1960s, a comparison between Madagascar and Indonesia clearly shows how different sector policies may have affected the evolution of the rice subsector in these countries. By the late 1990s, yields in Indonesia were 230% higher than in Madagascar and with rice production being 35% more labor intensive, labor productivity in Madagascar stood at only about 30% of labor productivity in Indonesia. This considerable difference in performance can be traced back to significant public support to the rice subsector in Indonesia from 1970-1990. To a large extent this support was financed from oil export revenues. If the Malagasy rice farmer would have received the same level of support as her Indonesian colleague, this would have implied the following budget allocations for the rice subsector in Madagascar: q 18 years of continuous public investments in irrigation infrastructure at a level of US$ 28-29 millions / year; q existence of fertilizer subsidies at a rate of 230 billions fmg/year (US$35 million); q protection of local rice at a tariff of 35% for 10 years; q availability of extension services with an annual budget of: US$ 1,2 million; q agricultural research support for the rice subsector with an annual budget of US$ 0,7 million;
193. As far as the situation in Ma dagascar is concerned, a recent inventory of irrigation projects shows that international donors have invested around 280 millions Euros over the last 15 years, which is equivalent to an annual investment of 18,6 millions Euros/year (114 billions fmg) or 59% of the corresponding annual investment level in Indonesia. Neither an input subsidy nor local rice protection have been provided in Madagascar for a sustainable period. The recent rice protection policies have remained limited in time and implementation efficiency while they would have needed to be sustained at least 5 years to have any impact. Extension support provided through the PNVA framework ended in 2000 and has been largely ineffective as externally financed support was mostly absorbed by the public sector with limited field impact due to target issues, limited technical capability of extension staff and little relevance of transferred technical messages. It should also be noted that the percentage of the Malagasy public budget that is effectively allocated to agricultural sector remains far below the share of agricultural sector in GDP.
194. The Indonesian experience is a case of coexistence of rapid urban expansion and industrial growth accompanied by a quick modernization of the rice sub sector which has been able to both provide jobs and food security in rural areas. The lesson of the Indonesian experience is that Madagascar has to step up its irrigation investments and start supporting the use of productivity enhancing inputs by subsidizing fertilizers and pesticides for a limited period of 3 years. This subsidy could be financed from rice import tariff and tax revenues.
195. Bangladesh. Bangladesh is closer to Madagascar in terms of: (i) the prevalence of poverty, (ii) agricultural labor productivity, (iii) degree of analphabetism, (iv) average farm size, (v) the importance of the rice sub sector in terms of employment and share of GDP. The experience of Bangladesh demonstrates how continuous rice productivity growth at over 2% per year could be maintained over a long period (1985-96) by: (i) an adequate strategy of investments in irrigation systems (increase of 83% of irrigated areas), (ii) an increase of 70-80% in the use of productivity enhancing inputs through subsidies and protection of domestic rice. As a result, agricultural labor productivity has increased continuously translating into a significant reduction in the percentage of rural households below the poverty line. The Bangladesh experience confirms the positive effect of irrigation investments on rice productivity, labor productivity and poverty reduction.
196. Vietnam. With annual population growth at 2,1% per year (90-99) and GDP/ inhabitant growing at 2,9% per year (1999), Vietnam has succeeded in reducing the prevalence of poverty from 58% to 37% between 1993 and 1998. A study realized by a working group on poverty considers that the agrarian reforms of the 1980s have provided major enabling conditions for subsequent poverty reduction (WORLD BANK 2001). While the proportion of landless farmers stays typically around 20% of the rural population in other Asiatic countries, it has been reduced to 2% in Vietnam. The growth potential that has been generated following the liberalization of Page 75 agricultural markets would not have been realized if other physical and institutional conditions would not have been met. In the case of the Vietnamese rice sub sector, the most pertaining conditions are the existence of well-performing irrigation and extension systems. The Government of Vietnam has heavily invested in irrigated infrastructure construction and rehabilitation, even before implementing liberalization measures. The existence of a very educated labor force, with a significantly higher degree of literacy than many other countries whose level of development is similar, has certainly contributed to a quick dissemination of agricultural techniques (MINOT, GOLETTI IFPRI 2000). Hence, the following enabling conditions for stimulating growth in Vietnam are: (i) land redistribution efforts in 80ies that contributed to reduce inequality; (ii) massive investment in education (100% of inscription in primary in 1997, 55% in secondary); (iii) opening of the economy to export (degree of openness64 of Vietnam's economy is 93% compared with 36% for Madagascar); and (iv) massive public investments (domestic investment equivalent to 29% of GDP in 1999 compared to 12% in Madagascar) especially in infrastructure (roads65, irrigation).
197. Guinea. The experience of Guinea Conakry shows the dramatic cumulated impact of: (i) investments in rural roads infrastructure; (ii) support to research-extension; (iii) the establishment of a well-functioning market information system (SIM); (iv) the existence of an appropriate rural credit system. In addition, a policy supporting the multiplication of downstream operators has reduced margins and has improved local rice competitiveness on the country’s output markets.
198. Mali. The rice subsector of Mali is presented as one of the few success stories of African agriculture (ELENI, GABRE-MAHDIN, HAGGBLADE, 2001 IFPRI). With production having more than tripled since 1985, this experience shows the significant potential of a well managed sector policy. In Mali, policy reforms in trade and processing have provided significant opportunities for downstream operators while keeping producer prices for at least 15 years at a level that provides incentives to continuously explore productivity improvements. This has been done by implementing support to inputs supply, by multiplying small-scale irrigation schemes, by supporting micro- enterprises (access to credit, support advice on paddy processing equipment), by providing an efficient market information system, and by promoting diversification of irrigated rice farming systems in order to multiply income sources and to optimize the use of irrigated schemes and rice sub -products (vegetable gardening, small livestock etc.).
4.5.2 LESSONS LEARNED FROM AN INTERNATIONAL COMPARISON OF RURAL POVERTY REDUCTION STRATEGIES
199. Based on macro-economic and sector growth trends and effects, a comparative assessment for rural poverty reduction in Madagascar, Vietnam, Thailand, Indonesia, Bangladesh, Mali and Guinea is presented in Table 57. This assessment is based on two aggregated qualitative indicators:
q The efficiency of past policies on poverty (EPPP) in terms of poverty and inequality assesses countries on a range from 1 to 4 regarding: (i) Level of increase of GDP/ inhabitant over the last 20 years (since 1980), which merges demographic and economic trends; it acts as a rough assessment of past policies; (ii) The % of population under poverty line; (iii) % of poor households in rural areas; (iv) Gini coefficient which translates income inequality and provides a good assessment on impact of redistribution policies (land reform,…)
q The Potential of Rural Poverty Reduction (RPR) which assigns scores (1-4) to three specific indicators: (i) degree of convergence between rural-urban dynamics and agriculture- industry trends; convergence is considered high when the economy shows a
64 valeur agrégée des importations et des exportations / PIB 65 25,1% des routes revétues en 1997 contre 11,6% à Madagascar Page 76
demographic differential of urban growth which reduces the share of the rural and agricultural population which is accompanied by significant growth of secondary and tertiary sectors in the GDP so as to generate adequate inter- sectoral employment transfers; (ii) actual growth dynamics which is considered high if the country shows high economic growth while keeping sector growth equilibrated, especially as far as the agricultural sector is concerned in order to ensure adequate rural income growth; (iii) labor productivity potential assesses the capacity to increase labor productivity based on an assessment of education (% of analphabets) as well as agricultural labor productivity (labor remuneration and productivity increase potential through innovation and adaptation capacity of workers).
200. Based on this framework and given the analyzed time frame, the efficiency of Madagascar’s past poverty reduction policies is not favorable (Table 57), reflecting the dire straits of its economy in most of the 1980s and early 1990s, with signs of recovery only emerging after 1996. In that sense, Madagascar is closer to the African countries than to the Asian countries as far as the efficiency of past poverty reduction policies is concerned. Nevertheless the assessment of the Potential of Rural Poverty Reduction (PRPR) places Madagascar closer to Asiatic countries. This is in fact shows the coexistence in Madagascar of a heavy inheritance of structural poverty and inequality on the one hand and high development potential on the other hand.
201. In Thailand, the actual process of transfer of workers from agriculture towards industry and services generated by dramatic growth differential of the industrial sector combined with modernization of rice sub sector, shows very positive results as far as poverty reduction and income growth are concerned (2,9% of growth of GDP /inhabitant from 1990 to 1999). The Thailand examples might illustrate a possible strategy for Madagascar which is close to the situation that persisted in Thailand in the seventies, as far as rice production and productivity are concerned. Therefore, there appears to exist high similarity between policy choices made by Thailand and the ones which are open to Madagascar.
202. Public policies are essential to provide an adequate environment for market based agricultural development. ROZENGRANT et HAZELL (2000) confirm that the experience of the last three decades in most Asiatic countries demonstrates the crucial importance of public investments on critical areas such as agricultural research, rural infrastructure, education. Agricultural and rural growth has been closely correlated with: q public investment in research and extension generating productivity-oriented technologies that increase incomes; q public investment in the expansion of irrigated areas and rural infrastructure; q improvement of land tenure security.
203. In order to promote sustained economic growth and to address poverty reduction and environmental issues, Asian policy decision makers will need to apply appropriate methods for agricultural intensification both in high and low potential areas. This dual strategy will constitute a difficult challenge if public investment budgets dedicated to agriculture and rural sector remain severely limited. It will be essential to find the right equilibrium for investments between irrigated regions and rainfed regions with high or low potential. While migratory phenomena and economic diversification will become crucial in low agricultural potential areas, agricultural intensification may often provide the only option viable to improve incomes and create local jobs with significant impact in the near future " (ROSEGRANT, HAZELL 2000). This dual strategy is very close to the actual Rural Development Policy as defined by Malagasy Government (LPDR 2001) which integrates a spatial approach and a logic of high potential poles and vulnerable areas.
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Table 57: Comparative assessment of macro-economic and sector growth dynamics effects on rural poverty reduction
Madagascar Vietnam Thailand Indonesia Bangladesh Mali Guinea Conakry Average economic growth rate 1990-99 1,7% 8,1% 4,7% 4,7% 4,8% 3,6% 4,2% Economic growth rate 98-99 5,5% 4,2% 4,9% 1,9% 5% 5,8% 3,2% Average population growth rate (90-99) 2,4% 1,8% 1,2% 1,7% 1,6% 2,8% 2,6% Growth rate GDP/inhabitant (1998-99) 2,3% 2,9% 4,1% 0,3% 3,3% 2,7% 0,9% Agricultural labor Productivity 1996-9866 186 230 932 749 276 271 271 Agricultural growth rate 90-99 1,5% 4,9% 2,7% 2,6% 2,3% 2,8% 4,5% Industrial growth rate 90-99 1,9% 13% 6,7% 7,8% 3,9% 6,4% 4,5% GDP/ inhabit. 1999 US$ 250 370 1960 580 370 240 510 Evolution of agricultural sector in GDP (90-99) 32% -> 30% 37%-> 12% -> 19% -> 20% 28% -> 21% 46% -> 47% 24% -> 23% 26% 13% Evolution of industry share in GDP 90-99 14%->14% 23% -> 37% -> 39% -> 45% 24% -> 27% 16% -> 17% 33% -> 36% 33% 40% Evolution of urban population 80-99 18% -> 29% 19% -> 17% -> 22% -> 40% 14% -> 24% 19% -> 29% 19% -> 32% 20% 21% Adult Analphabetism H 18% H 5% H 3% H 9% H 49% H 54% ? Men and Women F 29% F 9% F 7% F 20% F 71% F 69% GLOBAL INDICATORS Evolution of GDP/head on 20 years (1980 - 1999) -23% 119% 139% 96% 59% -9% ? Gini Coefficient 46 (1993) 36,1 (1998) 41,4 (1998) 36,5 (1996) 33,6 (1996) 50,5 (1994) 40,3 (1994) % population under poverty line 70% en 93 51% en 93 13% en 98 20,3% en 99 35% en 96 ? 40% en 94 % of poverty in rural areas 77% 57% 15% 22% 39,8% ? ? EFFICIENCY OF PAST POLICIES ON POVERTY (EPPP) 1 2-3 4 4 3 1 2 (1-4) 1= VERY NEGATIVE 4= VERY POSITIVE Degree of convergence of dynamics rural-> urban 3 3 2 3 4 2 3 and Agriculture -> industry (1-4) Dynamics of actual growth (1-4) 2-3 4 3 2 3 3 2 1= reduced 4= high Labor productivity Potential 2 3 4 3 1 1 1 1= reduced 4= high POTENTIAL OF RURAL POVERTY REDUCTION (RPR) 7-8 10 9 8 8 6 6 (3-12) Sources: Rapport sur le développement dans le Monde 2000-2001 (Banque Mondiale)
66 Added Value per agricultural worker in Dollars from 1995 Page 79
5 CONCLUSION AND RECOMMENDATIONS
Dynamic Rice Sub-Sector as Key Ingredient for Economic Growth and Poverty Reduction
204. Rice cultivation is the single most important economic activity in Madagascar. Consequently, acceleration of economic growth in the rural sector as envisaged under the PRSP would be difficult to envisage without setting the stage for productivity gains in the rice sub-sector. Both the large number of rice producing households in Madagascar as well as the fact that the vast majority of the value-added in the rice value chain goes to rice producers in the form of net income and to salaries of agricultural workers point in the direction that the benefits of any rice productivity increase most likely would be widely distributed and would directly support the bottom-line of many rural households. Therefore in a strategy aimed at setting the stage for more inclusive economic growth as mean to reduce poverty, such as the PRSP, it appears that efforts aimed at increasing rice productivity would potentially have a high pay-off in strengthening the link between poverty reduction and economic growth in Madagascar. The high distributive potential of the benefits associated with productivity growth in the rice sub-sector also suggest the likelihood of significant multiplier effects as most of the increase in net incomes of rice producing households would be translated into increased consumption demand for products and services generated by an expanding secondary and tertiary sector in urban areas.
205. High population growth rate coupled with the projected shift in the demographic composition of Madagascar’s population and labor-force imply that the market demand for basic food stuffs, of which rice is an important component, would rise significantly between 2000 and 2015. It is difficult to imagine that all of the increased demand could be met without increasing agricultural productivity. Given that a large share of agricultural output is currently produced in a subsistence context, the structural change in the composition of the population and labor force also puts a premium on improving the integration of markets to effectively link food supply and demand. In the absence of increased agricultural productivity, demand for imported rice in 2015 is expected to soar to more than fourfold 1999 levels, with a corresponding price tag of US$235 million (compared to about US$54 million in 1999).
Need to Increase Productivity and Improve Market Integration Simultaneously
206. The importance of the rice sub-sector for overall economic growth and poverty reduction along with the on-going structural changes in the economy imply that the roots of a more dynamic sub-sector are to be found by combining enabling conditions for increased productivity and improved market integration. From a historical perspective, the dismal record of the rice sub- sector implies that policies and investments that would be able to successfully put in place these enabling conditions represent nothing less than a break away from existing trends. During the last twenty years, domestic rice production has not kept up with the growing demand for rice. Consequently, Madagascar, that used to export rice, has come to rely on imports to at least partly compensate the deficit. At the same time, rice consumption per capita has steadily declined, reflecting on the one hand possible changes in food preferences associated with on-going urbanization and on the other hand growing poverty levels which might have induced substitution of rice with cheaper alternatives such as cassava. Rice yields in Madagascar have effectively stagnated over the last forty years or so. Observed increases in total rice production have effectively been achieved through area expansion rather than productivity growth.
207. Given the heterogeneity of the rice sub-sector in Madagascar, there are a number of relevant dimensions to differentiate suggested policies and investments that are necessary to put in place enabling conditions for increasing productivity and improving market integration. First, from a geographical perspective, rice cultivation takes place in six different regions. Two regions are considered to produce a surplus relative to regional consumption (Lac Alaotra and Center- West) while four run a rice deficit (North, North-West, Hauts Plateaux and East). Second, from a
Page 80 production perspective, rice cultivation takes place in six distinct production systems. Four of these are irrigation-based production systems (lowland transplantation, lowland semi-direct, improved, intensive) and two are rain-fed based production systems (upland rice, hillside slash- and-burn). Third, from a farm household perspective, a total of 18 rice-based farming systems could be differentiated. Based on production management and household behaving strategies, these farming systems could be clustered into three categories: (i) highly vulnerable micro- producers; (ii) rice-selling specialized producers; and (iii) multi-activity oriented self-sufficient producers. Highly vulnerable micro-producers grow rice under a heavily constrained production environment in terms of access to land, water and capital. They represent about 34% of all rice producing households and do not produce sufficient rice to meet subsistence needs. Highly vulnerable micro-producers are particularly concentrated in the rain-fed and slash-and burn dominated rice-based farming systems in the Northern and Eastern regions. The average cost of paddy production is FMG 802/kg, which is relatively high. Rice-selling specialized producers grow rice under relatively favorable conditions that allow for double cropping. Access to land and capital is also favorable, albeit in relative terms. This category of farmers represents 23% of all rice producing households and can be found in Lake Alaotra, and selected areas in the North-Western, Central-West, and Hauts-Plateaux regions. They are highly competitive with average cost of paddy production amounting to FMG 477/kg. Multi-activity oriented self-sufficient producers have a slightly positive rice balance, reflecting that rice is grown primarily for self-consumption in otherwise diversified farming systems. They represent 43% of all rice producing households and can particularly be found in the Hauts Plateaux and Center-West regions. Multi-activity oriented self-sufficient producers are moderately competitive with average cost of paddy production estimated at FMG 681/kg. Fourth, from a poverty perspective, the vast majority (>80%) of rice- producing households are in essence poor based on a poverty line that equals US$ 1 of purchasing power per day. Rice producing households that show evidence of at least a quasi exit from poverty are particularly found within the category of multi-activity oriented self-sufficient producers. This indicates the importance of diversification and the development of non-farm activities to reduce poverty in rural areas once food security in rice is assured.
208. Taking into account these dimensions, the results of the study point towards a number of concrete policies and investments that could be considered to set the stage for a more dynamic rice sub-sector. As far as the productivity objective is concerned, the challenge is to unleash existing potential of rice production systems intensification through: (i) the development of locally adapted productivity enhancing technologies, (ii) the creation of an enabling environment to induce technological innovations at the farm level; and (iii) the establishment of productive on-farm infrastructure. Given a fixed farm-size, successful rice production systems intensification would subsequently lower the threshold for production diversification as rice producing households would need less land to meet their food security needs. As far as the market integration objective is concerned, the challenge is to synchronize the pace of liberalization of external trade with the pace of integration of domestic so as to set an incentive structure that would enable rice producing households to capitalize on the intrinsic competitiveness of rice production at the farm level. This would entail: (i) putting in place an appropriate rice import policy; (ii) generating conditions for increased competition among downstream operators of the rice chain; and (iii) increasing the capacity of rice storage at the local level through GCVs.
Rice Production Systems Intensification
209. Failure of Area Expansion. Although domestic paddy production has more than doubled between 1962 and 1999, the increase has been driven by area expansion rather than productivity growth, with the former causing about 80% of the incremental production over this period and the latter about 20%. The limits of increasing production through area expansion are many. It has not prevented the rural population falling deeper into poverty. It has led to widespread deforestation, thereby foregoing income-generating opportunities associated with standing forests. And it has caused massive soil degradation with significant off-site erosion effects severely reducing the production potential of irrigation schemes in the Lac Alaotra, Eastern and Northern Regions. The actual environmental costs associated with a strategy based on area expansion implies that a shift
Page 81 towards a strategy based on systems intensification would potentially generate positive externalities with corresponding justification for public action to facilitate such shift.
210. Productivity Enhancing Technologies. As far as irrigated rice is concerned, the results of the study indicate the potential yield enhancing effects of in essence Green Revolution type technologies based on improved seed and fertilizer application. Given the currently very low use of modern inputs, particularly chemical fertilizers (<10 kg/ha), the potential yield response associated with even a modest increase in fertilizer use is most likely substantial. Evidence suggests that each kg of fertilizer application increases paddy yields over a range of 4.5-15 kg. The success of Green Revolution type technologies in other rice producing countries suggest ample availability of “off-the-shelf” technological opportunities that could be adapted to local conditions through applied research in close collaboration with the international agricultural research system and strategic bi- lateral partners. Taking into consideration that Green Revolution type technologies are particularly suited for irrigated areas and sensitive to proper water management, there is a corresponding need to emphasize the software dimension of irrigation investments so as to ensure that the quality of water management is up to standards. Given that over 80% of Madagascar’s rice is grown under irrigated conditions, the application of Green Revolution type technologies in association with an accepted level of water management should be considered the key driving force for successful systems intensification in Madagascar.
211. As far as rain-fed rice is concerned, the results of the study suggest that there is a premium for technologies that offer some degree of: (i) drought resistance in order to reduce the effects of climatic risks; and (ii) natural weeds control in order to reduce the very high labor requirements of weeds control under rain-fed conditions due to the absence of controlling weeds through submersions as is the case under irrigated conditions. In this context, the development of NERICAs (New Rice for Africa) for upland rice production systems in West-Africa might be relevant and offer interesting opportunities for Madagascar.
212. As far as slash-and-burn systems are concerned, the results of the study suggest that there is a need for an effective carrot-and-stick approach that on the one hand introduces ways and means to maintain soil fertility and on the other hand put in place better controls to prevent further opening of the agricultural frontier through forest conversion. As far as the carrot dimension is concerned, ANAE’s experience with the application of soil conservation technologies is highly relevant. As far as the stick dimension is concerned, the transfer of natural resources management to local communities through GELOSE contracts that stipulate the use of sustainable management techniques offers a possible way to arrest or at least slow down the further expansion of the agricultural frontier through improved social control at the community level.
213. Tailoring the type of productivity enhancing technologies to the particular needs of the three differentiated clusters of rice-based farming systems generates the following picture. First, given the adverse production environment as well as extremely limited access to land and capital, there appears to be a premium on the generation of income diversification opportunities (including off- farm) as well as the development of low external input/low risk rice productivity enhancing technologies as a means to increase incomes of vulnerable micro-producers. Second, as far as rice selling producers are concerned, the challenge would be to better integrate the underlying farming systems into the market so that yield enhancing external inputs, associated with Green Revolution technologies, would be more readily available and conditions for competitive marketing of outputs would be improved. Third, given that multi-activity oriented self sufficient producers have the opportunity to derive income from other sources and taking into account that rice production is primarily to cover subsistence needs, it appears that labor saving technologies in rice production would be particularly attractive to this category of farmers, as it would enable households to shift family labor from rice to other income generating sources. In this context, there is a need to further explore the feasibility of expanding the use of direct seeding techniques that are currently practiced on about 75,000 ha.
214. The required technology directions should be integrated in the country’s agricultural research agenda. At the same time, there is a need to strengthen capacity of adaptive research in Page 82 order to assess viability and relevance of proposed technological innovations at the farm level. To better tap into the advances of strategic research elsewhere, FOFIFA should continue to strengthen its alliances with the international agricultural research community. However, as the experience of some rice producing countries might be more relevant for Madagascar than others, the establishment of a strategic partnership at the bilateral level in a south-south context (e.g. Vietnam) might be seriously considered. Last but no least, linkages between the research community and the extension services have to be strengthened. Extension services play a particularly important role as far as low-external input technologies are concerned, which tend to be highly knowledge intensive. For this reason, there is also a need to improve and expand farmers’ training centers as well as increase the number of practical technicians through reinforcement of existing basic agricultural education capacity.
215. Innovating Inducing Enabling Environment. As far as irrigated rice is concerned, the situation regarding use of modern inputs represents a powerful paradox. On the one hand, use of modern inputs is inherently attractive. On the other hand, actual use of modern inputs is dismally low due to a range of constraints that impede widespread adoption at the farm level. The overwhelming majority of rice producing households (>95%) do not have access to credit to finance yield enhancing inputs. At the same time, access to credit is reportedly 2.3 times higher among farmers who do apply fertilizers compared to those who do not. The farm-gate price of fertilizers is relatively high due to high transportation costs and a poor distribution network of input suppliers; input suppliers also have to deal with distortions in the fertilizer market due to availability of fertilizer donations. The considerable variation of the paddy farm-gate price is perhaps the most pressing constraint as it significantly affects the returns to fertilizer application to the extent that farmers run the risk of not being able to recuperate fertilizer costs, despite the relatively high marginal product of fertilizer application on paddy production. For instance, with the marginal product of fertilizer application on paddy production amounting to 5.0 and given a farm-gate price of fertilizers of FMG 2,500/kg, the farm-gate price of paddy should be at least FMG 500/kg to recover fertilizer costs. In 2001, the farm-gate price of paddy hovered around FMG 500/kg, rendering the use of fertilizers a loss-making proposition. If it is assumed that the ratio of the marginal product of fertilizer application to the ratio of the farm-gate price of fertilizer over the farm- gate of price of paddy should at least amount to 2.0, the farm-gate price of paddy in 2001 should have been FMG 1,000 per kg67. Alternatively, to generate the same result, the price of fertilizer should drop from FMG2,500 to FMG1,250 in case the farm-gate price of paddy stays at FMG 500/kg. This example shows that the establishment of an acceptable ratio of the farm-gate price of fertilizers to the farm-gate price of paddy relative to the marginal product of fertilizer application on paddy production would be a necessary condition to significantly increase fertilizer use in irrigated rice production in Madagascar. Establishing such ratio could either be achieved by ensuring an acceptable minimum farm-gate price of paddy through import tariffs or by ensuring an acceptable maximum farm-gate price of fertilizer through a fertilizer subsidy or through a combination of both measures. Since there is an upper limit beyond which the farm-gate price of paddy can not be raised since a higher consumer price of rice would have a negative impact on real incomes of the urban poor and rice deficient rural poor, a tax exemption of imported fertilizers would subsequently be the lower limit of the required subsidy to ensure that the indicated ratio is within the acceptable range.
216. Ensuring access to means of financing the purchase of agricultural inputs by rice producing households is another crucial element of an innovation inducing enabling environment. Taking into account existing credit constraints for the vast majority of asset-deprived rice producing households, there is a need to scale-up the positive experience of “Greniers Communautaires Villageois” (GCVs) under which micro-finance institutions provide credit secured by paddy stored at the local level (see paragraph 223 for further details). Given the very limited exposure of the vast majority of rice producing households with the application of yield enhancing inputs, a case could also be made to provide them with a limited amount of inputs that would allow them to experiment with these inputs in their own fields. In order to do so one could think of setting-up an input
67 Let MPfp be the marginal product of fertilizer application on paddy production; Pf =farm-gate price of fertilizer per kg; and Pp= farm-gate price of paddy. If MPfp/(Pf/Pp) =2; MPfp=5; and Pf=FMG2,500/kg; then Pp is FMG1,000. Page 83 voucher scheme for a limited period of time in the context a research outreach program. Such scheme would have the additional advantage of putting effective demand for yield enhancing inputs in the hands of rice producing households, thereby contributing to the development of the currently poorly developed input distribution network. In order to deal directly with the poor input distribution network, additional actions to improve access by potential new entrants could be considered. These could include the availability of credit facilities and an installation subsidy for newly established private input suppliers in the context of initiatives aimed at promoting private sector development in rural areas.
217. On-Farm Productive Infrastructure. An important condition for successful systems intensification is adequate water management. The results of the study indicate significant effects of good water management on paddy yields. In this context, there is a need to stop the deterioration of irrigation infrastructure caused by eroded soil and sand silting in canals. At the national level, there are about 700 000 ha of lowlands affected by poor water management conditions. This situation exists against the background of apparent ineffective public investments that have been made in the past, which focused particularly on hardware requirements of large- scale irrigation schemes. Consequently, there is a need for irrigation related investments to improve and rehabilitate Madagascar’s most important productive asset, which is its irrigation infrastructure (second-largest in Africa). Since 80% of all irrigation infrastructure is concentrated in eight (out of 20) existing agro-ecological regions, these investments should be particularly concentrated in the Marovoay, Melaky, Diana, Alaotra, Atsimo-Andrefana, Menabe, Vakinankaratra and Imerina Central regions. In light of the fact that past irrigation investments have not generated expected results, irrigation related investments should be incorporated into a watershed management approach under which investments in irrigation infrastructure, environmental protection measures, local capacity building, and technology transfer should be adequately balanced.
Market Integration
218. Rice Import Policy. The results of the study show a very sensitive relationship between the paddy farm gate price and the ability of rice producing households to obtain a labor return per day that is higher than the local wage rate over a range of between FMG600-900/kg: at a paddy price of around FMG600/kg, only 46% of all rice producers are able to do so; at a paddy price of over FMG 900/kg over 82% are able to do so. Given that the vast majority of rice producing households are poor and given that about two-thirds of them produce a surplus in quantitative terms, there is a need to ensure that the farm-gate price of paddy does not fall below the FMG 700-900/kg range, so as to avoid pushing a large number of rural households further into poverty. In order to establish an effective paddy farm-gate price floor, the challenge is to effectuate an import tariff that keeps the farm gate price at the upper level of the FMG700-900 range. The results of the study show that rather to increase existing tariffs, this would require effective compliance of actual import tariffs and taxes by rice importers. This should be ensured through a more aggressive approach in resolving the actual governance issues that are currently surrounding the collection of import tariffs and taxes. Since lack of compliance with the current import tariff and tax structure is among other caused by the manipulation of invoices, there is a need to at least temporarily replace the current transaction based collection system with one that applies tariffs and taxes based on a reference price linked to the international market. This requires close monitoring of the world market price in order to adjust the import tariff accordingly in case of a significant decrease so as to avoid an abrupt negative impact on the farm gate price of paddy in the sensitive range. Another temporary measure would be to adequately balance the currently limited institutional capacity of Customs with the number of firms that are entitled to import rice, while maintaining a minimally acceptable level of competition among them. This would call for a system of competitively allocated rice import licenses to 10-12 firms for a period of three years. The competitive allocation system of the license would inherently generate incentives of the licensed firms to comply with the existing import tariff and tax regime as in the absence of it they run the risk of losing their licenses.
219. Ensuring a farm-gate price of paddy that would fall somewhere in the FMG 700-900 range would translate into a consumer price of rice of about FMG2,000 per kg, which given historic price Page 84 levels would not be considered excessive. The effect of better enforcement of tariffs and taxes on the price of imported rice might be particularly felt in the Eastern and Hauts Plateaux regions as these are the major destinations of imported rice, accounting for over 80% of all imports in 1999. However, in relative terms these regions are also the least poverty-stricken (draft PRSP, October 2001). Rural households that run the risk to loose out from a paddy farm-gate floor price in the FMG700-900 range would be those that do not produce enough rice to meet self-consumption needs. These households represent the category of so-called vulnerable micro-producers who particularly depend on slash-and-burn based farming systems in the Eastern and Northern region. Since these farming systems produce rice at high environmental costs, the effect of a higher price of imported rice on the real incomes of rice producing households engaged in these practices could be considered part of the stick dimension of the carrot-and stick approach that is being propagated to arrest further expansion of slash-and-burn systems. At the same time, the second- round effects of a guaranteed farmgate paddy floor price in the FMG700-900 range would offer opportunities for rural households with actual rice deficits through increased agricultural wages and an expansion of employment opportunities in the rural off-farm sector (trade and services).
220. Increasing Competition among Downstream Operators. A total of 523,000 tons of domestically produced rice or 28% of total domestic production is effectively traded. Taking into account annual rice imports of about 186,000 tons (1999), imported rice accounts for about 27% of all traded rice in Madagascar. To collect paddy and rice from rural households, there are over 4,700 assemblers that operate in the country. The major clients of the assemblers are the millers who take 63% of the collected quantity, wholesalers purchase 35%, while 2% is directly delivered to final consumers. There are about 2,100 small rice millers who handle between 212 tons (East) and 1,104 tons of paddy (Lake Alaotra) per year. Wholesalers, who are usually located in urban areas, have an important role in linking regional supply and demand, facilitating interregional transfers of domestically produced rice and supplying the domestic market with imported rice. It is estimated that there are about 100 wholesalers who are involved in rice trading with an average of 5,000 – 10,000 tons of rice sales per wholesaler. Wholesalers fall into two categories. Those from rice surplus regions are more involved in networking with upstream collectors and operators, while those from rice deficit regions tend to be heavily involved in imported rice trading. However, recent trends show a growing involvement of wholesalers from surplus areas getting involved in trading of imported rice as these supplies are easier to manage. Retailers in Madagascar sell yearly 710 000 tons of rice. With average rice sales per retailer varying from 8 to 58 tons per year, it is estimated that there are about 23,800 retailers in the whole country. The aggregate storage capacity at the retail level is estimated at around 56,000 tons, which appears low compared to the total turnover of 710,000 tons.
221. Results of the study show that the on-going liberalization of the rice market is effectively reducing trade margins of collectors and wholesalers, reflecting increased competitiveness of local rice markets. However, lack of market integration continues to cause wide geographical and seasonal price fluctuations due to a variety of reasons. First, the process of market liberalization is only progressing slowly as almost 50% of rice producing households still remain faced with a situation of permanent or occasional monopsonies. Second, the dismal status of the rural roads network implies excessive transportation costs, thereby significantly increasing transaction costs of arbitrage. Third, market information and intelligence is poor, thereby hampering the identification of opportunities of arbitrage in the first place.
222. To increase competition in the market place requires a number of actions on different fronts. First, there is an urgent need to accelerate improvement and expansion of the roads infrastructure in rural areas. Feedback from downstream operators learns that the rice subsector would particularly benefit from improving the following connections: (i) RN44 Moramanga - Lac Alaotra, (ii) Tulear - Morombe, (iii) Sofia - Bealanana access road, (iv) Mainiarivo access. Second, there is a need to facilitate entrance of new downstream operators in the market. With lack of credit to finance working capital being a major constraint for potential new entrants, the establishment of a Guarantee Fund should be considered in order to facilitate access to bank credit. Third, to improve availability of market information and intelligence, there is a need to significantly strengthen and expand existing information collection and dissemination capacity. Page 85
Fourth, enforcement of tariffs and taxes on imported rice, with its corresponding impact on relative prices of domestic and imported rice, will provide incentives to wholesalers to refocus their operations on domestic rice, thereby contributing to increased competitiveness of the domestic market.
223. Local Storage Capacity. As market integration is progressing only slowly and will take considerable time to be fully achieved taking into account the significant challenge as far as the improvement and expansion of the rural roads network is concerned, there is a need to equip farmers to better deal with the current reality of imperfect markets and position them to take advantage of the observed significant rice price fluctuations. In this context, the experience of the so-called “Greniers Communautaires Villageois” (GCVs) appears to be highly relevant. Under these communal storage schemes farmers are enabled to extend the paddy selling period to collectors, thereby benefiting from higher prices that normally occur in the lean period. By doing so, they could typically boost sales revenues by about 30%. At the same time, credit provided by rural micro-finance institutions secured by stored paddy, allows farmers to meet immediate consumption needs as well as finance working capital for the next production campaign, thereby contributing to addressing the existing credit constraint in rural areas. Currently, GCVs cover about 24,000 tons of paddy or less than 5% of the existing paddy trade flow in the country. Taking into account GCV’s capacity to simultaneously contribute in dealing with two critical constraints in rice production (ease impact of imperfect markets, enable access to credit), there is a need to expand the application of the concept in the country. This would require investments to establish paddy storage capacity at the community level; something which perhaps could be pursued more aggressively under the implementation of the Rural Development Action Plan through the Bank- financed Rural Development Support Project.
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