Attachment_1_-_Mozambique_Agricultural_Value_Chain_Analysis.pdf

MOZAMBIQUE AGRICULTURAL

VALUE CHAIN ANALYSIS

LEO REPORT # 31

June 2016

This paper was produced for United States Agency for International Development review. It was prepared by

ACDI/VOCA with funding from USAID/E3’s Leveraging Economic Opportunities (LEO) project.

MOZAMBIQUE AGRICULTURAL

VALUE CHAIN ANALYSIS

LEO REPORT # 31

DISCLAIMER

The authors’ views expressed in this publication do not necessarily reflect the views of the United States Agency for In-ternational Development or the United States Government.

Mozambique Agricultural Value Chain Analysis ii

TABLE OF CONTENTS

TABLE OF CONTENTS ............................................................................. II

ABBREVIATIONS AND ACRONYMS .................................................... VI

EXECUTIVE SUMMARY

INTRODUCTION

METHODOLOGY

BACKGROUND

FARM SIZE AND STRUCTURE

FARM-LEVEL CONSTRAINTS

POST-FARM GATE CONSTRAINTS

GENDER

NUTRITION

VALUE CHAIN INTERVENTION CONSIDERATIONS

SOYBEAN

Relevance to USAID Objectives

Value chain structure and functions

End Markets

End Market Priorities and Constraints

Upgrading Strategies

SESAME

Mozambique Agricultural Value Chain Analysis iii

Relevance to USAID objectives

Value chain Structure and Functions

End Markets

End Market Priorities and Constraints

Upgrading Strategies

GROUNDNUT

Relevance to USAID Objectives

Value Chain Structure and Functions

End markets

End Market Priorities and Constraints

Upgrading Strategies

COMMON BEAN

Relevance to USAID Objectives

Value Chain Structure and Functions

End markets

End Market Priorities and Constraints

Upgrading Strategies

PIGEON PEA

Relevance to USAID Objectives

Value Chain Structure and Functions

End markets

End Market Priorities and Constraints

Mozambique Agricultural Value Chain Analysis iv

Upgrading Strategies

COWPEA

Relevance to USAID Objectives

Value Chain Structure and Functions

End Markets

End Market Priorities and Constraints

Upgrading Strategies

CASHEW

Relevance to USAID Objectives

Value Chain Structure and Functions

End Market Priorities and Constraints

Upgrading Strategies

BANANA

Relevance to USAID Objectives

Value Chain Structure and Functions

EndMarket Priorities and Constraints

Upgrading Strategies

VEGETABLES

Relevance to USAID Objectives

Value chain Structure and Functions

End Markets -Traditional Vegetables

End Markets - High Value Vegetables

Mozambique Agricultural Value Chain Analysis v

End Market Priorities and Constraints

Upgrading Strategies

CITATIONS

APPENDIX 1: VALUE CHAIN COMMODITY PRODUCTION

STATISTICS

Table 1: Common bean production in Mozambique

Table 2: Pigeon pea production in Mozambique

Table 3: Cowpea production in Mozambique

Table 4: Soy production in Mozambique (2014/15)

Table 5: Sesame production in Mozambique

Table 6: Groundnut production in Mozambique

Table 7: Cashew production in Mozambique

Table 8: Vegetable production in Mozambique

APPENDIX II MEETING LIST

Mozambique Agricultural Value Chain Analysis vi

ABBREVIATIONS AND ACRONYMS

ACB American Cotton Bollworm

ACI African Cashew Initiative

AIMS Agricultural Input Markets Strengthening, USAID Project

ASC Agribusiness Service Center

CEPAGRI Centro de Promoção da Agricultura

CFF Namialo Fruit Training Centre

DFAP Development Food Assistance Program

ETG Export Trading Group

EuroGAP European Good Agricultural Practice

FAO Food and Agriculture Organization

FO Farmer Organization

FOSC Farmer Owned Service Center

FTF Feed the Future

HACCP Hazard Analysis Critical Control Point

IIAM National Agricultural Research Institute

IITA International Institute of Tropical Agriculture

ITC International Trade Centre

MASA Ministério da Agricultura e Segurança Alimentar

MT Metric Ton

MZN Mozambican Metical

NGO Nongovernmental Organization

OPV Open-Pollinated Variety

PAPA Food Production Support Program

RCN Raw Cashew Nut

SDAE District Services for Economic Activities

SPEED Support Program for Economic and Enterprise Development

SPS Sanitary and Phytosanitary Measures

Mozambique Agricultural Value Chain Analysis vii

TIA Trabalho de Inquerito Agricola (Work of Agricultural Survey)

UAE United Arab Emirates

U.S. United States

USD United States Dollar

USDA United States Department of Agriculture

USG United States Government

VAT Value-Added Tax

VCA Value Chain Analysis

ZOI Zone of Influence

Mozambique Agricultural Value Chain Analysis 1

EXECUTIVE SUMMARY

USAID/Mozambique commissioned a value chain analysis (VCA) to prioritize and guide interventions within and across target value chains. The analysis targeted nine value chains, as summarized below:

1. Oilseeds: Soybean, sesame, groundnut

2. Pulses: Pigeon pea, common bean, cowpea

3. Banana

4. Cashew

5. Vegetables

The analysis validates the selection of each value chain on the basis of its contribution to USAID/Mozambique’s objec-tives of increasing smallholders’ incomes and offering nutri-tional benefits to rural households, while also taking into ac-count criteria such as its relevance to USAID target geogra-phy, impact on women farmers, market demand, and growth;

and opportunity to develop market-driven interventions that build upon recent and current donor and private sector in-vestments. The analysis also provides an overview of the structure and functions of each value chain, identifies priority end markets and constraints to realizing their benefits, and recommends potential value chain upgrading strat-egies. The results provide a foundation on which more detailed intervention strategies can be developed.

The highest potential value chains, based on the above criteria, were soy, sesame, and pigeon pea. A second tier of value chains—groundnut, common bean, and cowpea—have high-potential benefits but lack the large-scale “demand drivers” that mobilize broad-based investment and uptake of productivity-enhancing technol-ogies and practices. The lowest tier of value chains—banana, vegetables, and cashew—present significant agroecological, market, and/or political constraints that limit potential gains, or have investment requirements that preclude broad-based inclusion of smallholder farmers. Major results are summarized for each value chain in turn, below.

Soy. Soy is a nutritious, but not traditionally consumed, crop in Mozambique. It is profitable for small- and medium-scale “emerging commercial” farmers, and there are examples of initiatives where women have been successfully integrated into different levels of the soybean value chain.

The domestic market for soy is estimated to be growing at about 60 percent per year, and about 60 percent of

Mozambique’s domestic demand for soy is currently met through imports. According to the International

Trade Centre’s (ITC) Trade Map, 2014 imports of soybean products totaled $28,281,000 of which 64 percent by value was soy bean oil (20,932 tons, mostly crude), 34 percent was soy cake (15,598 tons) and 2 percent was soybeans (715 tons).1 The primary target end market for soy is the domestic market for animal feed. Ani-mal feed producers are central demand drivers for the soy value chain. There is also also a domestic edible oil

1 In 2014, Mozambique imported $18.1 million worth of soy oil, $9.485 million worth of soy cake, and $696,000 of soy beans (ITC

Trade Map 2015).

VCA PROVINCES & DISTRICTS

1. Nampula: Angoche, Malema, Moma, Mogovolas, Murrupula, Monapo, Meconta, Mecuburi, Nampula

2. Zambezia: Alto Molocue, Gurué, Mocuba, Nicoadala, Gile

3. Manica: Gondola, Chimoio, Manica, Barué, Sussundenga, Mossurize

4. Tete: Angonia, Tsangano, Macanga

Mozambique Agricultural Value Chain Analysis 2 processing industry that utilizes the oil produced as a byproduct to feed production. More market research is needed, but there is a reported strong domestic market demand for edible soy oil.

Constraints include the relatively limited area of the country that is agroecologically suited for soy production, limited availability of quality seed, limited use of inputs such as inoculants, and weak farm management prac-tices, which limit yields. Strategies to develop the value chain should focus on linking farmers (via their pro-ducer organizations) to large commercial buyers, and evaluating and promoting (based on the results) small-and medium-scale production models that will allow a large base of suppliers to operate profitably and sus-tainably in the market.

Groundnuts. Groundnut production in Mozambique is dominated by smallholders, with women being very active in the value chain, including production. Groundnuts have high financial margins and are also highly nutritious, though high aflatoxin levels undermine their nutritional value. Despite the existence of unmet de-mand in export markets, high levels of aflatoxins mean that most of Mozambique’s groundnut crop is con-sumed domestically. In addition to aflatoxins, poor domestic quality and weak sanitary and phytosanitary measures (SPS) certification capacity within Mozambique limit exports, as does inadequate domestic supply due to low yields and high post-harvest losses. Addressing the aflatoxin problem is key to increasing the com-petiveness of the groundnut value chain. Additional upgrades include intensifying production and reducing post-harvest losses, promoting alternative shelling options, and facilitating aggregation models.

Pigeon pea. Development of the pigeon pea value chain offers strong potential for improving smallholders’ incomes and nutrition, particularly among women smallholders. The primary end market opportunity for pi-geon peas is seasonal (October–December) sales to India, as there are high seasonal price premiums during this market window. Indian demand for pigeon pea imports is expected to increase six fold by 2025. A two-pronged value chain development strategy is recommended, focused on increasing production of pigeon pea and farmers’ access to markets. It will also be important to ensure a supportive policy environment that pro-motes pigeon pea exports through the removal of tax and administrative barriers.

Common bean. Common beans are a profitable smallholder crop and a good source of protein and nutri-ents, and women are heavily involved in the value chain as producers, intermediaries, retailers, and end buy-ers. There is unmet demand for common beans to be sold domestically and to regional and overseas export markets. Constraints include the fragmented and informal nature of the value chain, which limits incentives for farmers to invest in yield-enhancing technologies and management practices. The intervention focus should be on a dual-pronged strategy aimed at increasing farm-level production while enhancing farmers’ ac-cess to markets.

Cowpea. Cowpeas are centrally important to smallholder nutrition and food security, and more than half of households planting cowpea are headed by women. The crop is largely used for household consumption, with fewer than one farmer in 10 selling any of their cowpea production.

Overall, cowpea is not perceived as having dynamic market demand, and the private sector is generally luke-warm about investment in the sector given low demand and a weak and fragmented production base. While there are examples of donor-supported interventions (such as AgriFUTURO) that have engaged in the cow-pea market, the multitude of constraints combined with the lack of dynamic market demand and catalytic de-mand drivers argue for the exclusion or de-emphasis of cowpea as a priority value chain for any future mar-ket-driven initiatives.

Mozambique Agricultural Value Chain Analysis 3

Cashew. Cashew is a smallholder crop that plays a critical role in poor households’ livelihood strategies in

Nampula and Zambezia where its production is concentrated. There are opportunities to increase farmer in-comes from cashew production by addressing key constraints along the value chain; nonetheless, there are significant financial and political challenges to realization of these potential gains.

There is unmet demand for both unshelled and shelled cashew in overseas export markets; however, sales are limited by an unfavorable policy environment, inadequate production to meet demand, and difficulty meeting international market standards for shelled cashews. Other constraints include a lack of finance, particularly at the farm level; high costs along the value chain; and poor processing efficiency and quality.

A strategy to strengthen the cashew value chain should focus on improving the policy environment as well as increasing farm production of cashew by increasing smallholder access and utilization of inputs and services, and promoting medium-scale, block-style plantations. Complementary activities can be used to improve the availability of finance and upgrade industrial processors’ ability to comply with importing market require-ments.

Banana. Banana is a nutritious crop frequently produced by smallholders throughout Mozambique for home consumption or sales at local markets. Commercial activity in banana markets offers limited income potential for smallholder farmers. Domestic markets are easily glutted and have high price variability given the high perishability of bananas. Smallholder banana farmers are concentrated in Zambezia and Nampula where there is little irrigation and soils tend to be infertile. Banana plants extract high volumes of nutrients from the soil, making fertilization critical. Export markets—both regional and overseas—have quality standards that small-holders would have difficulty meeting without extensive and costly technology transfer.

Vegetables. Vegetables are a nutritious product that offers significant income potential to smallholder farm-ers; however, barriers to entry to profitable market channels are high. Vegetables are produced by a signifi-cant share of Mozambican farmers, though they typically sell relatively small shares of what they produce. Fe-male producers are under-represented in vegetable markets.

The most promising end-market opportunities are for fresh vegetables to substitute for imports in domestic markets and off-season production of traditional vegetables. Constraints to supplying these markets include limited availability of finance and farmers’ constrained liquidity given the capital-intensive nature of invest-ment to enter these markets; the need for irrigation; limited availability of quality seed; limited technical and management capacity among farmers; and lack of post-harvest facilities.

Interventions to develop the vegetable value chain should be directed to higher-capacity farmers who are lo-cated in proximity to their target markets, have access to water, and have the capacity to bear the significant financial risk and investment requirements entailed in producing for these markets. Interventions should be made in coordination with large-scale buyers of vegetables for the target markets and should be based on careful analysis of local market conditions and requirements. It is be critical that production increases are tightly coordinated to respond to demand in order to avoid local gluts that depress prices and exacerbate price fluctuations. Working through producer organizations can help to facilitate effective technology transfer as well as coordinating supply to avoid market gluts.

Mozambique Agricultural Value Chain Analysis 4

INTRODUCTION

To guide USAID/Mozambique’s agricultural and economic development programming, a VCA was commis-sioned to prioritize interventions and identify intervention points that provide leverage for competitive up-grades. Data collection took place October 4–November 7, 2015, with supplemental field research conducted during the first two quarters of 2016.

The analysis targeted nine value chains, as summarized below:

1. Oilseeds: Soybean, sesame, groundnut

2. Pulses: Common bean, cowpea, pigeon pea

3. Banana

4. Cashew

5. Vegetables

Following a discussion of the research methodology employed, the report addresses cross-cutting considera-tions that are common across each of the value chains. These include the structure of Mozambique’s farming sector, broad-based constraints affecting development of the agricultural sector in general, and characteriza-tion of major supply- and demand-oriented approaches to promoting smallholder-inclusive value chains.

The individual value chain analysis chapters are organized in five parts. First, the report validates the selection of each value chain on the basis of its contribution to critical Feed the Future (USAID) objectives. These ob-jectives include a value chain’s potential to increase smallholders’ incomes; potential to bring nutritional bene-fits to rural households; relevance to the target geography; impact on women farmers; strong market demand and potential for growth; and potential to develop market-driven interventions that build upon recent and current investments by U.S. government (USG) agencies, other donors, and the private sector

Second, the value chain structure and function section provides an overview of how each value chain is pre-sented, addressing the overarching characteristics of farm production, structure and organization of the value chain, and current end markets. Of critical importance to this aspect of the analysis is the degree to which smallholders in general, and women in particular, participate in production and marketing of the product; the predominant channels by which the product flows to market and the presence of alternative market channels that may offer improved prospects for smallholders; and the presence of major demand drivers (in particular, large-scale industrial buyers) whose activity in the market can help to motivate investment at scale by other market participants.

Third, the analysis identifies promising end markets for each value chain and identifies their specific require-ments, for example varieties sought, seasonal market windows, grades, and other product attributes.

Fourth, this analysis identifies fundamental constraints to smallholder and value chain performance in prom-ising end markets.

Fifth, overarching upgrading strategies for each value chain are presented, and current and recent initiatives that can be leveraged in carrying out these strategies are presented. Additionally, there are productivity-related statistics for each value chain located in the appendices section.

Mozambique Agricultural Value Chain Analysis 5

METHODOLOGY

This value chain analysis considered the individual stages from production to end market of the target commodities in the

Nampula, Zambezia, Manica, and Tete provinces and their respective districts. The team traced production from the target districts to in-country end markets (including exporters), and consumption from in-country sources (production and imports) to the target districts. Additionally, the team assessed cross-cutting services, both sector-specific (inputs, extension) and cross-sector specific (finance); cross-cutting issues (gender and climate); and the enabling environment

(policies and norms).

Figure 1 depicts the USAID value chain analysis framework that the research team followed. The analysis combined secondary and primary (individual interviews and focus groups) research and used both qualitative and quantitative data. For a full list of organizations interviewed, see the meeting list in Appendix II.

STUDY AREA

The research was conducted in the Nampula, Zambezia, Manica, and Tete provinces, with a focus on 15 of the 23 districts in these prov-inces. Table 1 lists the provinces and districts, with bold type indicating those districts that the field team visited. Figure 2 depicts the ge-ography of the USAID zones of influence

(ZOI).

Figure 1: Value Chain Analysis Framework

Figure 2: USAID Zones of Influence, Mozambique

Mozambique Agricultural Value Chain Analysis 6

Table 1: Research Area, Provinces, and Districts

Province Districts

Nampula Angoche, Malema, Moma, Mogovolas, Murrupula, Monapo, Meconta, Mecuburi, Nampula

Zambezia Alto Molocue, Gurué, Mocuba, Nicoadala, Gile

Manica Gondola, Chimoio, Manica, Barué, Sussundenga, Mossurize

Tete Angonia, Tsangano, Macanga

RESEARCH PROCESS AND TEAM

Prior to fieldwork, the field research team and

ACDI/VOCA staff conferred with the USAID Mission and conducted desk research on the target commodities and regions. From early October through early

November 2015, a team of four researchers conducted the fieldwork. The fieldwork began in Maputo, and then the team split into two smaller teams to cover the

Nampula and Manica provinces in tandem. They conducted interviews with value chain actors and other key informants. Afterwards, one team proceeded to

Tete, with the other team transferring to Zambezia to continue fieldwork, which included daily writing and team debriefs. The team converged back in Maputo in the last week to focus on writing, undertake additional interviews and analysis, and then concluded with a debrief at the Mission.

Upon completion of the draft report, it was determined that additional field research with value chain actors and industry leaders was needed to collect and analyze information in order to expand on and validate findings.

Additional field research was conducted in

January/February and April of 2016, and the data was then incorporated into the final report.

RESEARCH AND ANALYSIS METHODS

The analysis involved the following research activities:

1. Desk research: Beginning prior to fieldwork and continuing through final report completion, the team undertook secondary research using pertinent studies and reports on the target value chains, focus re-gions, and cross-cutting services and issues; production and trade statistics databases; climate and meteor-ological databases; and government policy documents.

2. Key informant and value chain actor interviews: As noted in the box above, the team interviewed a diverse set of stakeholders along each value chain. These interviews utilized both quantitative and qualita-tive survey questions. The list of interviewees is included in Appendix II.

STAKEHOLDERS CONSULTED

Small-, medium-, and large-scale producers

Associations (producers, processors, mar-keting)

Processors

Traders

Wholesalers

Retailers

Consumers

NGOs

Bi- and multilateral donors

National, regional, and subregional agricul-tural and livestock officers

Senior ministerial agricultural and livestock representatives

Customs

Input providers

Equipment dealers

Financial institutions

Mozambique Agricultural Value Chain Analysis 7

3. Data analysis and interview synthesis: Team members synthesized interviews to identify and prioritize key constraints and issues (e.g., fertilizer and seed availability and affordability; access to finance; women’s participation and empowerment); characterize value chain dynamics; and evaluate economic, production, and demand data such as pricing at each level of the value chain, yields, consumption, and imports.

4. Mission briefings and report reviews: The team leader and senior researcher conducted a pre-field-work brief with USAID to align on initial commodities and a fieldwork plan. USAID identified some key contacts and issues to note in the field. The team lead and senior researcher conducted a brief with

USAID after the fieldwork to present initial findings and gather additional questions to address in the re-port. USAID provided comments on draft reports thereafter, with ACDI/VOCA collaborating with field researchers to finalize the report.

Mozambique Agricultural Value Chain Analysis 8

BACKGROUND

In this section, relevant background on Mozambique’s agricultural sector is presented, beginning with an overview of farm size and structure in Mozambique, and followed by an overview of farm- and market-level constraints in the development of market-oriented agricultural value chains with a brief summary of gender and nutrition issues.

FARM SIZE AND STRUCTURE

Mozambique’s Ministry of Agriculture characterizes farms as small, medium, or large scale on the basis of the area cultivated—small-scale farmers cultivate up to 10 ha and medium-scale farmers cultivate up to 50 ha, while large-scale farmers cultivate more than 50 ha (Ministério da Agricultura e Segurança Alimentar (MASA)

2014). As shown in Table 2, small-scale farmers represent nearly 99 percent of Mozambique’s farms, with me-dium-scale farmers only accounting for 1 percent and large commercial farms less than 0.02 percent.

While large-scale farms are recognized as predominantly commercial enterprises, small- and medium-scale farms are recognized to include both subsistence-oriented producers (those who produce primarily for their own household needs using production systems that rely almost entirely on farm-source inputs such as recy-cled seed) and “emerging commercial” or “commercial” producers. “Emerging commercial” producers are characterized as small- or medium-scale farmers whose production is increasingly oriented to markets, with respect to both their choice of what crops to produce and how to produce those crops. Specifically, emerging commercial farmers choose to produce at least some of their crops on the basis of their perceived market po-tential, and seek out and use off-farm sourced inputs such as improved seed and fertilizers to some extent.

The term “emerging” reflects the perception that these farmers are undergoing a transition from subsistence to commercial production. Finally, commercial farmers are farmers of any scale whose production and mar-keting decisions are primarily driven by commercial considerations.

Table 2: Distribution of Mozambican Farms by Scale Small (up to 10 ha) Medium (up to 50 ha)

Large (over 50 ha) Total

Number ~4,200,000 45,320 626 ~4,300,000

Share 98.92% 1.06% 0.016% 100%

Source: MASA, 2014, p.7.

FARM-LEVEL CONSTRAINTS

Mozambique’s agricultural sector faces a number of constraints that limit farmers’ ability to expand output and take advantage of market opportunities. These are identified and briefly described below.

DEGRADED SOIL FERTILITY AND CROP GERMPLASM

A study of nutrient mining in Mozambique estimated that current farming practices are depleting 33 kg N, 6 kg P2O5, and 25 kg K2O per hectare per year (Folmer et al. 1998). To increase productivity without the environmentally destructive expansion of area under production, this trend can only be reversed through improved soil management and improved inputs, including synthetic fertilizer to replace lost nutrients, and improving seed stock to better utilize nutrients that are available. For Mozambique to achieve these goals, it will need to dramatically improve the reach of commercial input supply and extension advisory systems.

Mozambique Agricultural Value Chain Analysis 9

LACK OF APPROPRIATE VARIETIES AND QUALITY SEED

Most studies estimate that only one out of 10 food crop producers utilize improved seed, with the remaining using landrace seed recycled at the farm or village level (International Fertilizer Development Center 2015).

Most farmers using recycled seed are not using effective phenotypic selection or seed storage practices, leading to continuous decline in germination and yields season after season.

Most foundation seed originates from the National Agricultural Research Institute’s (IIAM) Basic Seed Pro-duction Unit; volumes from these seeds are typically too low for sufficient multiplication and wide-scale dis-tribution. Private sector companies are slowly expanding their own foundation seed development programs, though they complain of a lack of basic seed, capacity constraints, and delays in getting new varieties ap-proved for commercial sale. New varieties (or foreign varieties seeking entry into the Mozambican market) require two years of field trials to be submitted to the National Directorate of Agricultural Services (DSNA) for review and approval. Many seed producers are sourcing basic seed from Zimbabwe (SeedCo and Cymmit) or South Africa (Pannar), though regulatory hurdles for introduction of new varieties are steep (SDC 2011;

interviews).

There are also problems with the quality of seed that is sold through commercial channels, hurting farmer demand for commercial seed. This perception is driven by two factors. First, the weak breeding and multiplication capacity at IIAM and commercial companies leads to quality for even basic seed being often no better than landrace seed—respondents interviewed stated that it was common for basic seed from IIAM research facilities to achieve 40–60 percent germination rates at the multiplication stage. Second, most smallholder farmers’ only experience with improved varieties of any kind has been through the Ministry of

Agriculture’s Food Production Support Program (PAPA), the primary seed subsidy and distribution scheme.

Seed distributed through PAPA has consistently been poor quality and is often distributed without explanation of variety or with respect to farmers’ unique agroecological requirements or consumer taste preferences (SDC 2011). As a result, many interviewed respondents stated that demand for improved seed across value chains is very limited.

LIMITED USE OF FERTILIZER OR OTHER PRODUCTIVITY-ENHANCING INPUTS

Less than 4 percent of Mozambican farmers use fertilizer, and this use is virtually nonexistent outside of the context of commercial outgrower schemes. In 2010, total fertilizer consumption nationwide was 51,400 metric tons (MT), with 90 percent of that total applied to tobacco and sugarcane (International Food Policy

Research Institute (IFPRI2012). Limited use of fertilizer is attributed to its high cost, limited availability, and limited awareness among farmers. There is also extremely limited use of other productivity-enhancing inputs such as biological inoculants or pesticides.

LIMITED AND WEAK EXTENSION SERVICES

Farmer access to public sector extension services declined from 13.5 percent in 2002 to 8.3 percent in 2014 due to reductions in funding. Most funding for extension site visits is paid through donor-supported programming. NGO and other donor-funded programming provide a large percentage of public sector extension services by default, though objectives, crop focus, and quality of extension advice varies, and most programs have poor coordination in overlapping beneficiary groups.

Farmers also have limited access to private sector extension. Two types of private sector extension services exist—extension embedded in outgrower schemes and through input supply providers. In practice, most farmers seek out the nearest agroinput retail shop for extension advice related to input utilization, whether for

Mozambique Agricultural Value Chain Analysis 10 fertilizer or crop protection. Nonetheless, the quality of private sector extension from retailers tends to be poor, with many retailers providing counterfeit products or inaccurate application information.

WEAK AGROINPUT SYSTEM

There is currently one agrodealer for every 20,000–25,000 farmers, as compared to one agrodealer to 2,800 in

Tanzania; one to 1,500 in Malawi; and one to 1,400 in Zambia (USAID AIMS III Impact Assessment). While the total number of agroinput retail shops remains small relative to population, the numbers of shops has increased over the past decade from 150 in 2006 to between 750 and 1,000 in 2015 (USAID AIMS III Impact

Assessment). This has been driven primarily by donor investment in expanding the agroinput sector, mainly through technical assistance and material support to strengthen existing dealers and establish new dealers.

LIMITED ACCESS TO MECHANIZATION SERVICES

Smallholders lack access to mechanized services, making planting and post-harvest processing very labor in-tensive. Mechanized tillage is utilized by only 1.55 percent of small and medium farms in the Beira and Nacala corridors. John Deere and several other mechanization companies have established distributor operations in the greater Maputo area, primarily focused on commercial farmers in southern provinces. Due to the challenges of north-south transportation logistics, the majority of commercial operations have sourced tractors from the closest border, either Zimbabwe or Malawi in the Beira and Nacala corridors, respectively.

Commercial operations, particularly in Nampula and Zambezia, reported significant challenges in tractor service and repair, with delays of up to 60 days between ordering a part and its arrival. This lack of a local support system for mechanization leads to significant risk from costs due to transport and production delays for any scheme.

Limited availability of mechanization services also limits expansion of agricultural land. Mozambique has ex-tensive unused land that can only be farmed with mechanization, and some regions have a hard pan under the soils that must be broken with a mechanized plow to allow roots to penetrate (Abt Associates 2015).

POST-FARM GATE CONSTRAINTS

A number of post-farm gate constraints affect the development of demand-driven value chains. Several of these are addressed below.

WEAK INFRASTRUCTURE

Support to infrastructure, particularly all-weather roads, is an ongoing need across all value chains and must underpin any “extensification” strategy aimed at developing a value chain by increasing the number of pro-ducers or areas produced of a commodity.

Mozambican farmers, particularly in northern provinces, have limited access to major transportation routes compared to farmers in neighboring countries. This limits their access to markets for inputs, goods, and services, and curtails the reach of commodity buyers. Only 27 percent of Mozambicans live within 2 km of a year-round passable roadway, compared with 38 percent in Malawi and Tanzania; 64 percent in Zambia; and

65 percent in Zimbabwe.2 Several respondents cited transportation costs and limited knowledge of what farmers in their areas would purchase in terms of inputs as key reasons they do not actively attempt to expand their market catchment.

2 World Bank Rural Access Index data.

Mozambique Agricultural Value Chain Analysis 11

Port inefficiency is also a major issue, as described in the section on bananas and as detailed in the Nacala and

Beira port efficiency studies commissioned by AgriFUTURO (Abt Associates 2015).

LACK OF TESTING AND CERTIFICATION CAPABILITIES

Sales to relatively demanding export markets are curtailed by the limited availability and high cost of SPS test-ing and certification. For example, groundnuts must be tested for Salmonella and E. coli before export to the

European Union or the United States. In order to complete these tests, exporters must incur the cost of send-ing (and obtaining export approval for) a 30 kg sample to South Africa for testing and certification (Reynosa, personal communication 2016).

Testing and certification is also a critical issue for addressing aflatoxins. AgriFUTURO funded a lab capable of testing for aflatoxins at the Lurio University in Nampula. At the time of project closeout, the laboratory was beginning the process of obtaining certification of its testing capabilities (Abt Associates 2015). Further development of these capabilities will be critical to effectively address aflatoxins as a critical constraint to do-mestic health and exports.

FINANCE

Finance is a constraint throughout the Mozambican economy, including in the target value chains. Various projects, including AgriFUTURO and FINAGRO, for example, have attempted to facilitate agricultural value chain players’ access to finance, with mixed results. AgriFUTURO had limited success working with USAID’s

Development Credit Authority to increase smallholder producers’ and processors access to financial services.

While the initiative did increase access to working capital and increase liquidity of small and intermediate value chain players, it failed to make inroads on smallholder lending due to “excessive delinquency.” This fur-ther led the participating banks, Banco de Oportunidade de Moçambique and Banco Terra, to try to protect themselves through increasingly cumbersome bureaucratic checks (Abt Associates 2015).

The AgroCredito program was a separate AgriFUTURO initiative that worked to increase the liquidity of pri-mary buyers for commercial and emerging smallholders (small and medium traders; cooperatives and pro-ducer associations; retailers, and large “anchor” farms) and banks through activities to develop mutual trust that would provide a foundation for sustainable lending relationships. This program leveraged these value chain players’ critical roles as intermediaries between banks (from which they were able to obtain financing to buy produce from farmers) and producers (who were able to obtain some financing for inputs and have a se-cure market). AgriFUTURO reflects, in its final report, that “the project did find a viable short-term alterna-tive in getting buyers to provide advances so that FOSCs [farmer owned service centers] could purchase and agglomerate members’ production. It also encouraged short-term financing for agricultural inputs by agribusi-ness service centers and vendors, but even these were somewhat constrained during the first quarter of FY

2015 due to producer delinquency in previous years.” (Abt Associates 2015). USAID’s FinAgro program complemented the AgriFUTURO grants program and is scheduled for completion in late 2016.

Likewise, input suppliers and wholesalers as well as retail agrodealers cited high repayment failure rates as the primary reason they do not offer credit to their customers (retailers or farmers, respectively).

POLICY

A number of policy and enabling-environment issues affect development of demand-driven value chains. Sali-ent issues identified during key informant interviews include lobbying by some large industrial players for ex-port taxes on unprocessed pigeon peas and the application of value-added tax (VAT) to domestic sales made along agricultural value chains; competing imported agricultural commodities are exempt from these taxes.

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GENDER

Women are an important focus of agricultural development initiatives due to their central roles in the produc-tion and consumption ends of the household economy, as well as their generally disadvantaged status in soci-ety.

Women are heavily involved as producers in agriculture in Mozambique: they account for the majority (up to

95.3 percent) of unskilled laborers in agriculture and the informal economy (Tvedten 2011). In female-headed households in particular, which comprise 24 percent of Mozambican households, (MASA 2012), women are more likely to undertake all relevant agricultural tasks—from clearing and preparing land for planting, to seeding, weeding, harvest, and post-harvest activities (Tvedten 2011). In general, regardless of the household structure, women typically have a heavier workload than men. In addition to agriculture activities, they also cook, fetch water, collect firewood, clean, process food, and care for children as well as sick and elderly family members.

Recent analysis shows that gender-integrated, household-based approaches to behavior change are critical to bringing about lasting change in gender relationships (Abt Associates 2015). Women—whether in female- or male-headed households—tend to dedicate their agricultural production to household consumption and so tend to have lower participation in markets than men do. There are opportunities to improve women’s well-being through value chain interventions that introduce technologies and practices that reduce women’s labor:

for example, mechanized peanut shellers (Abt Associates 2015). Likewise, there are opportunities for women to benefit through participation in member-based organizations such as farmer associations. An assessment of gender-oriented results of USAID-funded agribusiness programming in Mozambique showed that farmer organizations (FO) were a particularly effective means to incorporate women into value chains and facilitate their access to credit. The assessment also showed that women-only groups are more beneficial to women than mixed-gender groups (Hackenberg et al. 2013).

NUTRITION

Smallholders and their families are not consuming sufficient micronutrients. Mozambique has a dietary diver-sity index score of 21 percent: nearly 48 percent of women are anemic, and 69 percent of preschool children are vitamin A deficient (Food and Agriculture Organization (FAO) 2011). Improving and increasing house-hold production and local sale and consumption of traditional vegetables, as well as protein- and nutrient-rich pulses and oilseeds has significant potential to increase incomes and reduce nutritional deficiencies. Given the prevalence of groundnuts in traditional Mozambican diets and high aflatoxin levels in Mozambican ground-nuts, aflatoxin is a pressing nutritional issue facing Mozambique.

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VALUE CHAIN INTERVENTION

CONSIDERATIONS

Benefica et al. (2014) finds strong correlation between market participation and productivity—that is, greater market access is associated with higher farm-level productivity. Nonetheless, they point out that, in most re-spects, uptake of productivity-enhancing, farm-level inputs (such as improved seed, fertilizer, and mechaniza-tion, and with the noted exception of hired labor) is still low. The study emphasized that it is important to also promote productivity improvements at the farm level along with improved market access.

For most of the value chains analyzed in this document, the movement of product from smallholder farmer to industrial buyers or end users traditionally begins with sales to a local trader at the farm gate. Movement continues through successive aggregations until a large-scale trader delivers the product to a wholesale market for retail distribution or to a large industrial buyer that will process or export it. This traditional value chain structure tends to be fragmented and informal, and it dampens the transmission of incentives and infor-mation that allows farmers to confidently respond to market opportunities. Thus, development of demand-driven value chains requires alternative organizational approaches that emphasize direct communication be-tween buyers and suppliers. Due to their scales of operation, large-scale industrial buyers can play a critical role in the development of such “demand-driven” value chains. FOs are an important but under-utilized plat-form for interventions aiming to reach many smallholder beneficiaries in an effective manner. FOs could help facilitate the economies of scale and the aggregation needed for price bargaining.

Three major models are used to enable smallholder-inclusive, demand-driven value chain development in

Mozambique: contract farming, agribusiness service centers, and FOs.

CONTRACT FARMING

Under contract farming, buyers and farmers enter into an agreement for farmers to provide their output to the buyer. Typically the buyer then provides financing (monetary or in-kind) to enable farmers to access in-puts (improved seed, fertilizers, etc.) and services (mechanization). In some cases, such as with AgriFU-

TURO, project support can also enable these buyers to provide services such as mechanized land preparation or extension to contracted farmers.

Heavy competition for output at harvest, combined with farmers’ limited liquidity and the presence of inde-pendent traders in major production areas at harvest, commonly give rise to “side-selling” in which farmers sell their output to local traders who are offering cash payments at attractive prices. Farmers sometimes en-gage in side-selling rather than adhering to their contracts, which may involve lower cash payments (either because the value of production financing is to be subtracted or because negotiated prices are lower) or de-layed payments.

The prevalence of side-selling has undermined numerous contract farming arrangements. As a result, it is common for buyers to argue that there is a need for “concessions” in which a buyer is authorized as the sole authorized buyer in a geographically defined area, thereby precluding opportunities for farmers to sell to com-peting buyers. Historically, the tobacco and cotton value chains have operated on a concessionary basis, and this arrangement is broadly seen as advantageous to many buyers.

Mozambique Agricultural Value Chain Analysis 14

There are also opportunities for organizational structures to be tweaked to reduce the prevalence of side-sell-ing, as well as for development projects to play a role in reducing side-selling. For example, a report by Kleijn et al. discusses how a SNV/Export Trading Group (ETG) contract farming initiative in the sesame value chain was able to mitigate side-selling by organizing farmers in “trust groups”; these groups leveraged peer pressure as a means of reducing individual farmers from acting against the group’s interests. Likewise, allow-ing FOs to serve as intermediating players can reduce side-selling if the organizations are better able to moni-tor and influence member farmers than the buyers would be. Finally, development projects have had some success in reducing side-selling through activities such as helping to mediate contracts so that farmers feel more empowered and thus have greater commitment to their agreements, as well as through trainings and communications that emphasize the long-term gains of successful contracts.

AGRIBUSINESS SERVICE CENTERS

Agribusiness service centers (ASC) leverage outgrower relationships between large commercial farmers and nearby smallholder farmers that serve as outgrowers to increase the availability of inputs and services to the smallholders. ASCs were used under AgriFUTURO as a means of increasing the availability of services to

“emerging commercial” farmers by targeting anchor farms as recipients of project grants and services that enable it to provide services (such as machinery services for land preparation) and inputs (such as improved seed and fertilizers) to farmers.

FARMER ORGANIZATIONS

FOs are a means of organizing smallholder farmers and enabling them to collectively access markets (through joint sales), inputs, and services. FOs were largely set up as extension delivery mechanisms under previous

NGO-led programs, and they continue to be a leading source of extension knowledge for a large minority of farmers. As of 2008, 7.2 percent of all producers were members of producer groups (MASA 2012).

Under AgriFUTURO, for example, FOs (called FOSCs under AgriFUTURO) became the locus of purchase contracts with large industrial buyers. These contracts detailed stipulations such as price, delivery date, quality parameters, and volumes, and they enabled compliance with the traceability requirements of more demanding export markets. They also served as conduits for value chain financing that enabled farmers to access the in-puts and services that allowed them to respond to the contracts.

Overall, in discussing lessons learned in its final project report, AgriFUTURO reflected on the central role that project-supported FOSCs played in linking smallholder farmers to markets and enabling their success in these markets. They also reflected on the tendency for FOSCs to successfully integrate women into commer-cial farming arrangements.

Both AgriFUTURO and an independent evaluation, however, emphasize that the leadership and management capacity of FOSCs tends to be low; they also noted the importance of ongoing investments to develop this capacity and to enable transparency and accountability in management, if gains achieved by FOSCs are to be sustained (Easterling et al. 2013; Abt Associates 2015).

The following two additional models are oriented to farm-level productivity enhancement and do not rely on market opportunities to drive uptake of yield-enhancing inputs and management practices.

TOBACCO AND COTTON CONCESSION COMPANIES

As part of their social responsibility, tobacco and cotton concession companies provide farmers with pack-ages allowing for production of grain and pulses. This way, rainfed and some near-to-floodplain production

Mozambique Agricultural Value Chain Analysis 15 plots in upper Tete, lower Nampula, and upper Zambezi, as well as intensive production plots in Cabo Del-gado and Niassa, benefit from improved seeds and fertilizers, which could improve the quality of soil and transform these areas into very productive land for smallholder farmers. These activities are associated with increases in use of yield-enhancing inputs on some crops, such as application of fertilizer to cowpeas, in some areas.

DEVELOPMENT FOOD ASSISTANCE PROGRAMS

USAID-funded Development Food Assistance Programs (DFAP) (formerly known as Multi-Year Assistance

Programs) are implemented by nongovernmental organizations (NGO) in specific geographic areas of Mozam-bique. They undertake farm-level interventions aimed at improving uptake of beneficial agricultural practices, strengthening nutrition practices, and improving integration between agriculture and nutrition. DFAP activity has been instrumental in increasing use of productivity-enhancing inputs in many of the target value chains, particularly those with important food security and nutritional roles.

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SOYBEAN

RELEVANCE TO USAID OBJECTIVES

Soy is a nutritious, but not traditionally consumed, crop in Mozambique. It is profitable for small- and me-dium-scale “emerging commercial” farmers with gross margins averaging from $306 to $371 (Payongayong

2012). Additionally, women have been successfully increasing their involvement in different levels of the soy-bean value chain. The domestic market for soy is estimated to be growing at about 60 percent per year, and about 60 percent of Mozambique’s domestic demand for soy is currently met through imports. There is a rel-atively limited geographic area suitable for soy production—this area is largely limited to highlands in central and northern Mozambique, with only 5–10 districts perceived to have “high potential” for sustainable and profitable production given current and anticipated world prices that mediate local competitiveness (Walker

2016b). Several current and recent donor-funded initiatives offer rich examples of promising interventions and opportunities to develop the supply base and expand the competitiveness of the value chain.

VALUE CHAIN STRUCTURE AND FUNCTIONS

A map of the…