Department of Agricultural EconomicsPurdue University

Measuring Profitability of On-Farm Storage Pest

Management in Developing Countries:

The case of PICS and Maize in Africa

Mike JonesCorinne AlexanderJess Lowenberg-

Deboer

April 2012

Will PICS be Profitable?

1. What are the returns to storage for PICS?

2. What are the competing storage technologies?

• Focus on marketing producers• Would need a different analysis for

producers who store for food security

Department of Agricultural EconomicsPurdue University

Returns to Storage1. Commodity price at harvest period

(P0)2. Quantity to store (Q0)3. Length of storage period (t)4. Price seasonality across the storage

period (x)5. Cost of storage technology (C)6. Dry Weight Loss: quantity lost to

insects (w)7. Price discount for damaged grains

(v)8. Opportunity Cost of Capital (OCC) (rt)

Department of Agricultural EconomicsPurdue University

Economic Model

Return to storage (R)

R

Department of Agricultural EconomicsPurdue University

𝑝𝑡𝑞𝑡=¿

Economics Model Cont.

R

Department of Agricultural EconomicsPurdue University

1) Financial rate of return to storage2) Opportunity cost of capital adjusted for storage time

• R>0: Storage profit greater than returns from other investments

• R<0: Other investments more profitable

Profitable to Store

Not Profitable to Store

Cowpeas in West Africa

Maize in Mal-awi

Maize in W. Keny

a

Department of Agricultural EconomicsPurdue University

0.0050.020

0.0400.060

0.0800.100

0.1200.140

0.1600.180

0.2000.220

0.2400.260

0.2800.300

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Comparing Profitability of Storage Technology:

8 mo, 50kg, OCC (r)=0.25

Subsidized Actellic Super, Malawi - 8.4% DWLSubsidized Actellic Super, Malawi - 6.3% DWLPICS Bags, Yearly Cost= $1PICS Bags, Yearly Cost= $2PICS Bags, Yearly Cost= $3

Harvest Price/kg (USD)

Pric

e In

crea

se R

equi

red

(%)

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OCCs

No Storage Technology

Sofa-grain

Actellic

Super

PICS Bags

High losses

Expected losses

Low losses

One Season

Two Seasons (ave.)

25% (44.7%) (27.9%) (6.0%) 9.2% (4.6%) 29.7% 44.7%35% (51.4%) (34.6%)

(12.6%) 2.5%

(11.2%) 23.1% 38.1%

45% (58.0%) (41.2%)(19.3%

) (4.1%)(17.9%

) 16.4% 31.4%55% (64.7%) (47.9%)

(26.0%)

(10.8%)

(24.6%) 9.7% 24.7%

Average Return on Storage for Mbeya, Tanzania 2003/04 to 2007/08, selling eight months after harvest

Department of Agricultural EconomicsPurdue University