PROGRESS REPORT

54 PROGRESS REPORT PROGRAM LEVEL PROGRESS REPORT 55
Systems
Key Success Areas
Input & Output Markets
Why is transformation needed in this program area?
The transformation of subsistence agricultural
production into a commercially oriented system
requires efficient and timely delivery of quality inputs
to farmers at competitive prices. It also requires
transparent output markets that provide signals to the
farmers, allowing them to make informed decisions on
what to produce and at what quality standards, as well
as where and when to sell their outputs.
Currently, the Ethiopian agricultural markets are
characterized by extended marketing chains between
producers and consumers, with each actor adding
costs (though some add only limited value to the
initial products produced by farmers). These elongated
marketing chains often result in lower farm gate prices
achieved by smallholders and increased retail prices
to consumers. In some commodities, such as specific
fruits and vegetables, the oligopolistic nature of the
market structure involves few intermediary buyers who
collude to control a significant aspect of the supply
chain, thus reaping the largest portion of the benefit.
Objectives of the GTP I Transformation Agenda Deliverables
The main objectives of the Input & Output Markets
Program during GTP I were to create greater
transparency and improve specific aspects of input
and output marketing for the benefit of smallholders
and consumers. More specifically, the program
aimed to: develop a transparent market information
system for price discovery; reduce market transaction
Overall Performance Summary
Of the five deliverables in this program area, 60%
are considered “Significantly Delayed,” 20% “Slightly
Delayed,” and the remaining deliverable is “On Track.”
In addition, due to an absence of widescale commodity
grading and standardization, price incentives related
to product quality are limited, resulting in low quality
outputs that do not attract premium prices in domestic
markets and make it difficult to access export
markets. This also results in high transaction costs
and limited transparency as market actors are forced
to negotiate with imperfect information. This usually
puts smallholder famers at a disadvantage, given their
limited economies of scale and sophistication when
dealing with large wholesale buyers.
In the absence of adequately remunerating and
competitive markets, merely focusing on the
production aspect of the agricultural value chain
has sometimes led to market price collapses and
discouraged farmers from using yield enhancing inputs.
Therefore, improving the efficiency of agricultural
markets, reducing transaction costs, and improving
market information transparency is a prerequisite for
broader agricultural transformation.
costs by facilitating structured trading through the
institutionalization of commodity grading and standards;
promote contractual farming arrangements between
organized smallholders, agro-processors, and large
institutional buyers; create an enabling environment
for enforcement of contracts; and improve access to
financial services by smallholder farmers.
From a thematic perspective, the deliverables in this
program are primarily focused in three areas: Policies/
Strategies/Regulations, Structures/Processes/Systems,
and Introduction of Innovative Ideas.
Of the five deliverables in the I/O Markets Program
area, only one (20%) is deemed to be “On Track.”
Deliverable 28 (Develop and Implement Key
Components of a Rural Financial Services (RFS)
Strategy) aims to address the critical shortfall in
financial services to Ethiopia’s rural sector, exhibited
by poor access to financial institutions and insufficient
liquidity to meet the credit demand of smallholder
farmers. Significant progress has been made under
this deliverable. A Rural Financial Services Strategy
has been developed and submitted to the Financial
Inclusion Council for endorsement.
Meanwhile, a number of the components of the
strategy are in the process of implementation. A
major component of the strategy is the Input Voucher
System (IVS) which aims to streamline an inefficient
input marketing system by shifting the credit and cash
handling from multi-purpose cooperatives to qualified
financial institutions (MFIs and RUSACCOs) through
voucher-based transactions. The system was piloted
in the Oromia and Amhara Regions in 2013 and 2014
and is currently being scaled-up in Amhara, with pilots
underway in Tigray and SNNP in 2015.
Encouraging results have been seen in this deliverable,
including: 1) the money from credit/cash fertilizer
sales is being collected and flows through the
system more efficiently; 2) farmers who want to buy
inputs on credit and who are credit worthy are able
to get sufficient credit to buy the whole package of
recommended technologies; 3) loans, especially in
Amhara, disbursed through ACSI have been collected
fully with zero default; 4) coops receive commissions
for the marketing of the inputs on time; and 5) financial
institutions (MFIs and RUSACCOs) are increasing their
membership and mobilizing a substantial amount of
savings from the rural areas.
For instance, in the Amhara Region during 2007 E.C
(2013/14), the Amhara Credit and Savings Institute
(ACSI) opened more than 50 new satellite offices in
five pilot woredas to implement the voucher system.
This resulted in more than 74,000 farmers opening new
savings accounts and depositing nearly 72 million ETB
in new savings in the satellite branches.
The voucher system was scaled-up to 73 woredas in
Amhara during 2008 E.C (2014/15) with ACIS opening
more than 800 new satellite branches and employing
more than 4,000 new staff members. By July 2015,
more than 1.76 million farmers in Amhara alone had
used the IVS to purchase 2.95 billion ETB worth of
inputs. In the piloted regions of Oromia, SNNP and
Tigray, 179 million ETB worth of fertilizer has been
distributed to approximately 84,000 farmers using this
new system.
On Track
Slightly Delayed
Significantly Delayed
20%
60% 20%
The only area of major progress in this program
has come in the last thematic area, through the
development and implementation of an innovative
input voucher system as part of the broader rural
financial strategy (RFS). This deliverable accounts
for roughly 16% of the smallholder farmers (more
than 1.6 million of the 9.7 million) reached through
the Transformation Agenda. In addition, the RFS and
contract farming deliverables have contributed to the
training of over 6,500 experts during the GTP I period.