Market Analysis and Business models for 2WTs in ZIMBABWE

Mid Term Review

9-13 February 2015

Presentation Structure

I. Objective 2 outline and Progress to-date

II.Market Analysis for Small Scale Mechanization-

Key Findings

III.Business Models-Key Findings

IV.Conclusion

V. Way Forward

Outline of Objective Two

No Output/Activities Milestones Outputs

Output

2.1

Country and site-specific market analysis of small scale mechanization

2.1.1 Country-level literature

review

Report on sector profile

and sector organization

Conducted

2.1.2 Interview of national

and local actors

Report of performance

and constrains of sector

Interviews with

actors and FGD

conducted

2.1.3 Multi-stakeholder

roundtable to identify

underlying causes for

market systems

weaknesses

Report on identification

of key services and

interventions

Recommendations on

strategies enhancing

markets and service

deliveries

A consolidated

report produced

on Market

Analysis of Small

Scale

Mechanization in

Zimbabwe

Objective Two Progress

No Output/Activities Milestones Outputs

Output

2.2.

New or upgraded business models designed and re-designed

2.2.1 Focus group discussions with each

actor to prioritize critical success

related to actor linkages and

supporting services

Prioritised list

of

interventions

Activity

incorporated in

business model

report *

2.2.2 Multi-stakeholder roundtables to

secure action plan on design of

new business models or upgrading

of new ones

Draft

agreements

To be conducted

2.2.3 Ex ante business study potential

impact of new/upgraded BM

Economic

analysis

Conducted-

Incorporated in

BM

2.2.4 Focus group discussions to

demonstrate incentive of economic

benefits

Reports of

FGD

To be done –in

this coming

quarter

2.2.5 Annual multi-stakeholder

roundtable in each IPP to evaluate

and refine new/upgraded BMs

Minutes of

roundtable

To be conducted

Market Analysis

Process

● Literature review

● Meetings with key experts/key informants

● Compilation of key market actors list

● Interviews with local market actors-local importers,

manufacturers, financial institutions, mechanics, government

institutions

● Focused group discussions with ox-drawn service providers

● Focused group discussions with farmers

● Key informant interviews at local level –local stakeholders

Market Analysis Small Scale Mechanization –Key Findings

Country Context

Classification of farming systems:-

● Communal (<3ha),

● A1 (5-6ha arable),

● A2 (>10ha arable)

● Large estates

Mechanization

● Country dominated by 4WT actors

● and limited 2WT actors

FI

Grownet

ATA

China, Japan, India Manufacturers

Importers

Local

manufacturers of

implements

Distributors Provincial Distributors

Hastt

Local retailers/hardware shops

Total Tractors

&Equipment /Bain

AgentHonda Centre

Small Scale farmers (communal , A1) and A2 farmers

2WT Market Actors

Retailers

Government -

RBZ

End users

ADMA

Mealie Brand

Services

Rule

Mechanics

Ministry of Agriculture, Mechanization and Irrigation Development; Ministry of

Industry and Commerce

2WT Importation Trends

Company Name Brand/

source

HP 2WT imports

last 5 years

Import

forecast

ATA (20 units/yr) China-

Changfa

diesel

16-20 100 20

RBZ once off - - 30

Bain New Holland

Agent-Total Tractor

and Equipment

China -

diesel

12-16 12 45

Honda Centre Honda-

petrol

7 3

Total units

imported/forecast

145 65

2WT Importers

● There are few importers of 2WTs in the country and manufacturers of 2WT implements

● Need for more importers of 2WTs critical to create competition and innovative solutions

● Current main player ATA, limited services offered to farmers in terms of after-sale and technical support services.

Mechanization-Gaps Identified

● Enabling environment - should promote viability and growth

of the businesses (importers/dealers, manufacturers and

end-users).

● Access and uptake of viable and sustainable mechanization

inputs (2WT) and services amongst smallholder farmers and

service providers

● Capacity Building – in mechanization and management

● Access to Credit-for the actors along the supply chain

Business Models

Process of Business Models Identification

● Interviews conducted with the dealers/manufacturers to identify customers, critical success factors,

● Interviews conducted with farmers and potential service providers

● Mapping of business models, developing upgrading strategies

● Economic analysis of the models

● Roundtable meetings

Business Models Identified

Business Models identified

● Dealer led –Total Tractors and Equipment Company

● Importer/Dealer led- Bain New Holland

● Manufacturer led – Grownet

● Service Provider - led (Entrepreneur)

New Business Models

● Farmer led - Group of farmers (FACASI supported)

● Private Individual-led (Cash crop farmers, Agro-dealers/Entrepreneurs)

● Contractor led- Contract farming Alliance Cotton Ginnery

Business Models

Model

Potential

stakeholdersFunctions/

Services

Interventions for

upgrading

Model

1

Dealer/

agent

-Dealer

-Service

providers

- Financial

institutions

- Spare parts

stockist

- Imports

-Sells units to SPs

and farmers

- Provides service

support,

- Technical back-

up services

- Provision of spare

parts

-Manufacture

equipment

- Availability of finance

- Training of SPs

linked to the dealer

Model

2

Bain-

New

Holland

- Dealer

- Manufacturer

- Branches and

agents

- Service

providers

- Agro-dealers

- Finance

- Imports

- Supplies spare

parts

- manufacture

attachments

- dealership with

manufacturer

- Branding, dealership

agreements

- Training/certification

for SPs

- Manufacturing of

attachments

- Availability of finance

Business Models

Model

Potential

stakeholdersFunctions/

Services

Interventions for

upgrading

Model 3

Grownet

-Manufacturer

- Service provider

- Mechanics/

workshops

- Agro-dealers

- Financial

services

- Manufacture

spare parts

Manufacture

attachments

- Provides

support services

- Developing

linkages to SPs

- Manufacture

attachments

- Training of SPs

- Access to finance

Model 4

Service

Provider

- SP

- Importer/ dealer

- Mechanic

- Farmers

- Finance

- Offers

mechanization

services to

farmers and

2WT SPs

- Stocking spare

parts

- Training of SPs and

operators

- Access to finance

New Business Models

● Farmer led- Group of Farmers supported through FACASI

● Private Service Provider Led- Include agro-dealers, tobacco farmers, professionals within the locality

● Contractor led- Alliance Cotton Ginnery, works with smallholder farmers on contract basis. Provide inputs such as fertiliser, seed and chemicals. To provide mechanization as part of the inputs.

Economic Analysis -BM

● Importer Level- average profit margin 10%

● Service Provider Level- various attachments can be utilised or total package

● Farmer Level- beneficiaries of 2WT for the following services:-

Tillage –CA; single row planter/double row planter, 2BFG100, VMP

Top dressing

Spraying-boom sprayer

Harvesting-cutting of maize, cotton/soya-bean stalks

Water uplifting

Shelling/threshing

Transportation

Economic Analysis

Own farm operator

•

•

Own farm operator and

hiring

Custom Hiring only

•

Economic Analysis

Assumptions

● Work rates

● Farm types

● Constant yields –mechanization/conventional methods

● 2WT working hours based on the season lengths

● Custom hire charges

● Market Demand -45%

● Discount rate – determined by the bank lending rates

● Profitability index- present value of cash flows in relation to the initial investment

Economic Analysis

● Break Even analysis

ImplementPurchas

e price

Potential annual

use (h/yr)

Actual

hrs./ yr.

Break-even

point (h/yr)

Break-even

point (ha)

Ripping/ seeding

(single row)3,200 344 137.6 76.75 34

Ripping/ seeding

(double row)5,500 344 137.6 75.12 76

Seed drilling 3,500 344 153.6 39.22 17

Top dress fertilizer

application2450 384 153.6 35.60 31

Cutting bar 2,500 576 230.4 26.97 27

Water lifting 350 1440 153.6 27.44 82

Sheller (2WT

transported)3,200 576 230.4 68.41 41

Sheller/ thresher

(own power source)2,000 576 230.4 38.54 24

Transportation (to

market)3,800 864 345.6 94.96 -

Economic Analysis

Economic

Indicators

Shelle

r with

trailer

Sheller

without

trailer

Cutter

bar

Transpo

rtation

Seeder

double

row

Seeder

single

row

NPV @20%

discount rate

($) 3699.7 6223.1 1741.2 22996 2850 2205

B/C ratio 2.06 2.06 1.34 2.56 1.44 1.48

IRR 34% 48% 30% 73% 32% 35%

Profitability

Index (PI) 1.53 2.21 1.32 5.02 1.45 1.57

Ranking

based on PI 4 2 6 1 5 3

Economic Analysis

Analysis

● Transportation and shelling have high profitability index;

● Phasing-in of other attachments possible, will enhance the profitability of the business- provides competitive advantage for the full package (various attachments);

● The entry point for the 2WT based on profitability index is in post-production processes:-

transportation and

shelling.

Economic Analysis- Effect on farmer production

Gross Margin Analysis – for Makonde area based on 3ha arable (1 ha cotton, 1 ha maize and 1 ha soya-bean)

Crop Yield

levels(kg/t

ons/ha

Gross

Income($/

Ha)

TVC

($/Ha)

Gross

Margin

($/Ha)

Share of

Labour

Costs (%)Maize

Without

mechanization

3 tons 720 615 105 52

With

mechanization

3 tons 720 570 150 43

Co

tton

With

mechanization

1000kg 500 490 10.5 66

Without

mechanization

1000kg 500 391 110 45

So

ya

be

an

with

mechanization

1.5 tons 870 659 211 56

Without

mechanization

1.5 tons 870 474 396 29

Effect on farmer production

● Domboshava-

Crop Yield

levels(kg/ton

s/ha

Gross

Income($/

Ha)

TVC

($/Ha

)

Gross

Margi

n

($/Ha)

Share of

Labour

Costs

(%)Maize

Without

mechanization

3 tons 720 615 105 52

With mechanization 3 tons 720 603 117 46

Tomato

es

Without

mechanization

20,000kg 10,0000 3698 6302 61

With mechanization 20,000kg 10,0000 3426 6574 58

Leafy

Vegetab

les

Without

mechanization

8,000kg 8,000 2957 5043 58

With mechanization 8,000kg 8,000 2691 5309 55

Economic Analysis

GMA

● There is labour saving with 2WT compared to conventional.

● Plant Establishment Costs savings

● Conventional CA/Ripper/planter

● Ploughing ranges -$80-$110/ha $40.00 per hectare

● Discing - $70/ha

● Planting- $50-$60/ha

● Total Cost ≈ $210

● Saving of 80% in crop establishment

Service Providers

Service Providers - initially farmers operating in the project sites

Identified from the two sites:-

● Makonde ≈ 12 under A1 farming systems- tobacco farmers, some have own savings, require credit facility

● Domboshava ≈10 prefer payments through instalments-require credit facility.

● N.B the numbers will increase since more demonstrations will be carried out,

Implementation of BM-Approaches

The prospective Service Providers segmented into the following:-

● Cash Buyers- Buy over the counter mainly tobacco farmers (small number 2 or 3 of them mainly from Makonde)

● Linked to Importers- Able to raise the 70% deposit required by one of the importers and pay off balance on instalments

● Project Assistance-Category of Service Providers can utilise the 2WT through a soft loan or lease agreements. They will in turn spread awareness of the technology to other areas/farmers (50% of them)

Implementation of BM

Resources Required by the SPs

●Category Equipment Financial

Resources required

(USD)

Remarks

Tobacco

Farmers-

Makonde

2WT and

Double row

planter

$5,500/SP 3 farmers

interested

Importer-SP

linkages

2WT and

various

attachments

Ranges from

$2,800 to $5,500

Amount

varies

Project

supported

2WT and

various

attachments

Ranges from

$2,800 to $5,500

Amount

varies

Implementation of BM -Approaches

Support to manufacturers

● The credit availability affecting the manufacturers

● Expensive short term credit available not viable for the

sector

● Project support through provision of financial resources to

support manufacturing of implements in the form of soft

loans.

● Project support - funds may be channelled through local

banks to support the 2WT technology uptake.

● Funds to be administered as loan - to avoid market

distortions

● Administration costs to be covered by interests rates

Conclusion

Positive Effect of Mechanization on smallholder farmers

● Usage of mechanization services enhances crop margins compared to utilisation of) mechanization especially for rain-fed crops.

Business Model Implementation

● The new business models identified will be updated, supported and developed fully as the project implementation progresses. Women (including youths) entrepreneurs/service providers will be encouraged to venture into the business.

● Interest in the technology observed

Conclusion

Options

● From the economic analysis the options for introducing the 2WT are transportation shelling and single row ripper/planter with high profitability index. Other attachments can be phased in with time. Issue of seasonality should be considered.

Credit Requirements

● Provision of credit to enhance technology uptake is critical. Credit facilitation with local financial institution to be considered, although currently there are few favourable options.

● If the project is to provide funds they should be provided as revolving funds not grants to ensure sustainability and avoid market distortion

THANK YOU