International Food Policy Research Institute (IFPRI) and Ethiopian Development Research Institute (EDRI) seminar series: October 09, 2012

1. ETHIOPIAN DEVELOPMENT
RESEARCH INSTITUTE
The last mile(s) in modern input distribution:
Evidence from remote areas in Amhara
Bart Minten, Bethlehem Koro,
and David Stifel
IFPRI ESSP-II
EDRI
October 9, 2012
Addis Ababa
1

2. The last mile(s) in modern
input distribution
1. Introduction
2. Background
3. Data
4. Modern inputs and perceived constraints
5. Transaction costs
6. Pricing and profitability
7. Adoption
8. External validity constraints
9. Conclusions
2

3. 1. Introduction
- Agricultural productivity increases and modern
input use high on the agenda, especially in Africa;
most promising way to increase agricultural
production is the more widespread adoption of
modern inputs
- However, several constraints to adoption in Africa,
most importantly related to profitability issues and
lack of familiarity of farmers with new technologies
- This paper looks at transaction costs and
transportation costs as a constraint to adoption
(adding to the profitability debate)
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4. 2. Background Ethiopia
- Rapid growth in agricultural productivity. However,
modern input use has contributed little to that
growth. As conventional sources of growth are
running out (land), increasing use of modern inputs
in Ethiopia very important
- Ethiopia imported about 500,000 tons for a value of
500 million USD last year; Fertilizer distribution
almost exclusively done by cooperatives; share of
private sector very limited
- Improved seeds low adoption rates; might possibly
be addressed through new seed law that is being
considered
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5. 3. Data
• Sample area selected purposefully
o Homogeneous region
o Except for transport costs
• Households’ circumstances differ because of
different transport costs...
• ...not because of land characteristics, etc.

7. Transport Costs
• Donkey costs (Birr/kg)
o Cost of renting donkey
o Weight donkey can carry
• Economic transport costs
o Include the opportunity cost
of time

8. Average Travel Times and
Transport Costs to the Market Town
Travel Time Transport Cost
(hours) (Birr/Quintal)
Transport Cost Quintile
Least Remote 1.5 18.2
Quintile 2 3.6 40.2
Quintile 3 5.2 52.5
Quintile 4 6.0 60.4
Most Remote 6.5 73.4
Total 4.5 48.4

9. 4. Modern input use and perceived
constraints
Chemical Improved
fertilizer maize seeds
Did the household use… 80.2 26.0
Major reason for not using modern input
I lacked the money at the time of need 39.7 47.6
No need 17.0 0.0
No need because of share cropped out 14.2 5.4
Fertilizers are too expensive 12.8 8.9
I do not have enough land 5.0 2.7
I was unable to find them 5.7 10.4
There is too much hassle 2.1 2.9
I do not know how to apply them 2.1 2.3
Other 1.4 2.7
I don't grow maize 0.0 17.2
Total 100.0 100.09

10. 4. Modern input use and perceived
constraints
Chemical Improved
fertilizer maize seeds
Was farmer able to buy as much modern
inputs as desired? 30.7 51.1
Reason for not buying enough mod. inputs
lacked the money to buy more 86.5 42.5
There is too much hassle 5.4 8.5
Lack of transportation 4.1 0.9
I was unable to find enough 3.9 47.2
The topography of the land problem 0.2 0.0
Others 0.0 0.9
Total 100.0 100.0
Farmer is aware of recommended fertilizer
on plot 37.1 -
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11. 5. Transaction costs (before acquisition)
Chemical improved
fertilizer seeds
Number of trips made before each transaction…
… before the farmer was able to pick up modern input
0 trips 34.6 37.7
1 trip 21.7 23.7
2 trips 22.1 22.8
3 trips 12.6 8.8
> 3 trips 9.0 7.0
Total 100.0 100.0
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12. 5. Transaction costs (before acquisition)
Chemical improved
fertilizer seeds
Reasons for the unsuccessful trip:
Form issues 39.4 46.9
Form did not have signature of an official 8.4 11.2
Not enough people on the form 31.0 35.7
Management cooperative 52.4 37.1
Cooperative office not open 15.5 11.2
There was no supply of modern inputs 9.2 10.5
Too long queue 23.7 14.0
Money collector was not there 4.0 1.4
Looking for/met with committee member 4.2 5.6
Other 4.1 10.5
Total 100.0 100.0 12

13. 5. Transaction costs (acquisition)
Unit 2010
Chemical Improved
fertilizer seeds
Average time spent on acquisition trip:
Travel there hours 3.2 2.3
Time at location hours 5.5 5.0
Travel back hours 3.6 2.0
Was input stored between the time of
acquisition and transport % yes 42.5 8.5
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14. 5. Transaction costs after acquisition
(for those that received credit)
Ch. fertilizer
Number of trips for each transaction…
… before the farmer was able to pay (exclude payment trip)
0 trips 66.4
1 trip 18.3
2 trips 10.2
3 trips 5.1
Reasons for the unsuccessful trip:
Form was lost 32.4
Money collector was not there 22.5
Cooperative office was not opened 21.1
Queue too long 18.3
Other 5.6
Total 100.0
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15. 5. Transaction costs and late access to
modern inputs
Unit Total
Percentage of plots that the households are late in
planting due to delays in acquiring fertilizer
% 20
Were there any days in the 2010 season when an
adult household member could not work on the
farm because of searching modern input % 44
Lost day in search of modern inputs number 3.6
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16. 6. Pricing and profitability
• To get at implicit prices of modern inputs, value
all the transaction and transportation costs
• Value the opportunity costs of time as well
• Transaction costs increase implicit fertilizer
prices by 20% for those farmers living close
• Fertilizer price increases by 100% for the most
remote households
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17. Implicit and cash prices of chemical fertilizer
16
14
Birr/kg
12
10
8
0 20 40 60 80
Distance from market (Birr/kg)
Purchase price Implicit price
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18. Implicit and cash prices of improved maize
seeds
35
30
Birr/kg
25
20
15
0 20 40 60 80
Distance from market (Birr/kg)
Purchase price Implicit price
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19. Pricing modern inputs
- How important are these implicit costs?
- Costs about 160 USD/ton to bring chemical fertilizer
from Djibouti to rural areas in Ethiopia
- Transaction and transportation for the most remote
areas are thus 3 times as important as bringing
products from international markets to rural areas
- Profitability of modern input use affected by these
transaction costs
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20. Profitability of fertilizer use
- Profitability of fertilizer use explained by two
factors: 1/ the technical response of output to
fertilizer use; 2/the relationship between output
prices and fertilizer prices.
- The value cost ratio (VCR) often used to evaluate
profitability of fertilizer use. It is defined as:
VCR = (O/N)/(Pn/Po) = (O*Po)/(N*Pn)
where O are the units of outputs produced from
one unit of nutrient, Pn is the price of fertilizer, and
Po is the price of output.
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21. Ratio of output versus input prices
.7
.6
.5
.4
.3
.2 (Po/Pi)
0 20 40 60 80
Distance from market (Birr/kg)
teff maize
sorghum millet
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22. Value-Cost Ratios (VCR)
2.5
(implicit and cash prices
2
VCR
1.5
1
0 20 40 60 80
Distance from market (Birr/kg)
teff (implicit) millet (implicit)
maize (implicit) sorghum (implicit)
teff millet
sorghum maize
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23. 7. Adoption of modern inputs
- Two ways of looking at modern input adoption
- Non-parametric graphs, simple graphs of adoption
as function of remoteness
- Regression analysis (including distance as well as
plot and household characteristics); Use double-
hurdle models:
a. first hurdle: regression of different factors (including
remoteness) on access of modern inputs (yes/no);
b. second hurdle: regression of different factors
(including remoteness) on quantity used of inputs
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24. Adoption of chemical fertilizer (kg/ha)
150
100
kg/ha
50
0
0 20 40 60 80
Distance from market (Birr/kg)
urea DAP
chemical fertilizer
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25. Adoption of improved maize seeds (kg/ha)
15
10
5
0
0 20 40 60 80
Distance from market (Birr/kg)
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26. 7. Adoption of modern inputs
Results double hurdle model:
- Use the unconditional Average Partial Effect (APE) to
analyzed impact of explanatory variables
- APE of log(distance) on chemical fertilizer use is
evaluated at -44 and is highly significant, i.e. a
doubling of the distance to the cooperative office
and market (or about 20 kms) reduces the fertilizer
use by 44 kg per ha (ceteris paribus).
- A doubling of the distance reduces the improved
maize seed use by 6 kg per hectare.
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27. 8. External validity constraints
- To what extent are the findings from this remote
area (and exceptional kebele) in Amhara valid
temporarily (over time) and spatially (for Ethiopia as
a whole)?
- Same questions asked for the year 2011: similar
results
- AGP data (20% of farmers complain of lack of
fertilizer supply; 12% of late supply of fertilizer);
- VCR at distribution center similar to other estimates
(Spielman; Asrat et al.; Tefera et al.)
- Distances of farmers to modern input distribution
centers being calculated 27

28. 9. Conclusions
Our study highlights constraints with respect to two
variables for adoption of modern inputs:
- Transaction and transportation costs limit the
profitability of modern input use
- Profitability a major important determinant in
adoption (indicating that farmers respond to
profitability concerns) (important as credit access or
procastination clearly not only factors)
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29. 9. Conclusions
Policy implications to improve modern input adoption:
1. Rationing of improved seed in these markets; better
supply chains required
2. Further management capacity building for
cooperatives required
3. De-licensing as to allow for a more competitive
environment in the last mile
4. Further improved transportation infrastructure
needed (importance of feeder roads)
5. Recent policy to move away from credit provision
for modern input acquisition; implications adoption
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