Strategic Use of Subsidies in the Market Facilitation Process to Build Producer Adaptive Capacity

1. STRATEGICUSE OF SUBSIDIES IN THE
MARKET FACILITATIONPROCESS TO
BUILD PRODUCER ADAPTIVECAPACITY
D E R R I C K D E S L A N D E S
P R E S I D E N T
C O L L E G E O F A G R I C U L T U R E , S C I E N C E & E D U C A T I O N
S E P T E M B E R 1 4 T H 2 0 1 6

2. Subsidies
 Definition
A mechanism for reducing the cost to a market actor, through cost-sharing with a government
/development agency, in order to achieve a particular development objective
 Critical consideration
 What are the objectives of the subsidies
 Are they necessary?
 Can they be design smart?
 Are the measures WTO Complaint ie. Production and trade distorting?
 Green – non-distorting, amber – production and trade distorting, or blue box – production and trade distorting but less than amber
(WTO classification)
 Eg. Providing seeds to farmers vs. providing logistic services?

3. WTO Broad Subsidy Classification
 Green box
 government services such as research, disease control, infrastructure and food security, logistics
 payments made directly to farmers that do not stimulate production, such as certain forms of
direct income support
 assistance to help farmers restructure agriculture
 Direct payments under environmental and regional assistance programmes eg. climate
change/resilience programmes
 Amber Box
 Domestic policies that do have a direct effect on production and trade and ultimately
international competition
 Blue Box
 direct payments to farmers where the farmers are required to limit production
 government assistance programmes to encourage agricultural and rural development in
developing countries

4. Types of Subsidies Specific to Agriculture
 Production subsidy
 Encourages suppliers to increase the output of a particular product by partially offsetting the production
costs or losses
 Expands production of a particular product more so that the market would promote but without raising
the final price to consumers
 Predominantly found in developed markets
 Export subsidy
 Support from the government for products that are exported, as a means of assisting the country’s
balance of payments
 Environmental subsidies (These are emerging)
 Climate change
 Energy
 Sustainable development

5. The Economics of Subsidies
 In a perfectly competitive environment there would be no need for a subsidy
 Subsidies in this context would inefficient and wealth reducing
 Subsidies become necessary when markets are considered to be inefficient
 Actions in one country puts market actors at a disadvantage in another
 Structure and organisation of actors in country puts them at a competitive disadvantage in a
particular industry

6. Framework for Smart Subsidies
 Addresses a clearly identified market failure or ‘gap’
 What market failure is the subsidy designed to solve?
 Is time bound: it ends after an agreed period of time
 Subsidies are not considered smart if they need to be in place into the future
 Contributes to systemic change in the market
 The creation of vertical and horizontal linkages between market actors in a stable and sustainable
way
 Market actors are engaged in the subsidy design process
 This improves the likelihood of longterm success of the programme
 Can the provision of the good or service be sustained after the subsidy ends by the
market actors
 Market actors and beneficiaries should be capable of sustaining the market transactions themselves, without
a subsidy

7. Market Facilitation
 Definition
The process of seeking to influence the development and evolution of the value chain without actually
becoming a part of the value chain

8. Stages in Market facilitation
 Stage 1
 Identification of potential opportunities
 conducts research and runs small trials/test runs
 Identifies and partners with progressive value chain actors
 Identifies an effect changes in the value chain
 Stage 2
 Facilitator works to orient value chain actors towards the overall vision
 Facilitator encourages changes in behavior in line with the vision and demonstrates how this will
benefit the value chain actors.
 Engages in risk mitigating measures through the use of “strategic subsidies”
 Stage 3
 facilitation process seeks to achieve sustainability and scale and creates an exit roadmap once broad
objectives are realized.
 Exit is generally gradual with value chain actors eventually left to themselves
 Success is evidenced by the value chain actors themselves are taking ownership over the process of
improving the value chain

9. The Starting Point
 Assessment of current situation
Dialogue with experts
Dialogue with importers
Assessment of import and production data
Assessment of farmer technical competence
Assessment of the state of the value chai

10. Inputsupplies
Production
Marketing,Sales@
Service
Transportation@
Logistics
Procurement
FarmerProfitMargin
Human Resources
Use of Technology
Agricultural Infrastructure
Assessment of the State of the Value Chain
Input costs
are
expensive,
and are
sometimes
lacking in
quality
Traditional
Production
methods,
inadequate
tools, good
knowledge of
farming
No sorting is
done by
farmers,
packaging is
poor and
leads to post
harvest losses
Non existent
marketing,
farmer relies
on middlemen
which reduces
earning s from
produce
Use of open
back pickup
truck s to
transport
goods adds to
post harvest
losses, lowers
quality
Sortinggrading@
packaging
The profit margin
for farmers is
erratic at best,
depending on
weather patterns
of the level of
production of the
farming
community
Farmers procures inputs
in a manner that is
inefficient
Low use of technology
among most groups
Good leadership among
farming groups, but
requires further training
Infrastructure of
Farming communities
needs improvement

11. Other issues identified
 Unregulated seed potatoes import system
◦ Quality inconsistent affecting farmer yield
◦ Deceptive marketing by seed suppliers
 Unavailability of seeds to take advantage of year round climate
 Lack of cold storage to extend the shelf life of the Irish potato
 Significant losses due to poor harvest and post harvest practices

12. Implementation
 Proposed and implemented changes in import policy regime
 Created buy-in among importers
 Create dialogue platform between buyers and farmers
 Provision of contracts by buyers to farmers
 Changes to seed policy
 Move from “class A” to Elite seeds
 Mandate imports of size 28-35 from size 55 where possible
 Expand the number of importers of seeds
 Intensive training of farmers
 Provide of subsidy of 20 to 30% of COP subject to training attendance
 Phased out eventually

13. Implementation (cont’d)
 Engagement of financing companies
◦ Assist farmers to prepare business plans
◦ Direct payment of input to suppliers
◦ Direct payment of revenue to financial institutions
 Engagement of critical partners
◦ USAID – through Gustav fund
◦ ADCI VOCA through initial competitiveness programme
◦ Exposure to new approaches such as the farmer field methodology were particularly important in
training programme
 Provision of transportation and logistics support at a cost to buyers
 Broker price agreement between buyers and farmers based on COP
 Resuscitation, repair and upgrade traditional potato facilities

14. Prologue – did we Succeed?
9,858,000 17,416,000 22,444,000
30,666,000 30,792,000 34,842,000
2,008 2,009 2,010 2,011 2,012 2,013
2008-2013
White Potato Production
2008 - 2013
Production
0
5000000
10000000
15000000
20000000
25000000
2008 2009 2010 2011 2012 2013
21,325,143
19,726,705
11,274,008 12,387,395
10,353,860
7,630,383
White Potato Table Imports
2008 - 2013
Imports

15. Did we Succeed (cont’d)
Jury is still out
 Positives
 Fledging process emerging with the organisation of the importers and farmers into an
association although there is an increasing sense of fragmentation
 Sustainability though fledging has taken root
 Some evidence of improvements in productivity among farmers (this is not widespread
however)
 Some evidence of revival in potato towns such as Guys Hill, Christiana
 Many elements of the import policy changes remain
 But
 Financing is still a major challenge although Importers have become the major financier for
farmers (this may not be enough however)
 Focus of the ministry not as razor sharp as it needs to be, programme not as tightly managed
as it needs to be
 Welfare elements slipping into the Model

16. Next Steps
Develop similar programme for other critical crops
Onion has started
Sweet potato has started
Requires more deliberate policy oversight
 Appointment of value chain managers with the appropriate budgets
 Development of agreed targets within the context of our development goals

17. END OF PRESENTATION