AGRICULTURAL VALUE CHAIN FINANCEAGRICULTURAL VALUE CHAIN FINANCE

Kyaw MyintKyaw MyintMinistry of Agriculture and Ministry of Agriculture and

IrrigationIrrigationMyanma Agriculture Service Myanma Agriculture Service

(Myanmar)(Myanmar)

Agricultural value chainAgricultural value chain

• Over three quarter of population in many Over three quarter of population in many developing countries live in rural areas.developing countries live in rural areas.

• Rural income mainly depends on Rural income mainly depends on agriculture and livestock farming. agriculture and livestock farming.

• From the agricultural value chain point of From the agricultural value chain point of view, farmers in rural areas are important view, farmers in rural areas are important role to provide fresh produce and food role to provide fresh produce and food supplies, quality and safety product supplies, quality and safety product demanded by traders, agro-processors, demanded by traders, agro-processors, supermarkets and exporters. supermarkets and exporters.

Quality and safety productQuality and safety product

• Farmers in developing countries are Farmers in developing countries are challenged to compete in markets that are challenged to compete in markets that are more demanding in terms of quality and more demanding in terms of quality and food safety, more concentrated and food safety, more concentrated and integrated, and much more open to integrated, and much more open to international competition.international competition.

Quality and safety productQuality and safety product

• In developed countries, traceability is In developed countries, traceability is achieved from the grower’s field to the achieved from the grower’s field to the supermarket shelf in order to have quality supermarket shelf in order to have quality and safety product.and safety product.

• Traders, exporters and agri-business in Traders, exporters and agri-business in developing countries need to upgrade developing countries need to upgrade their supply chain and endeavour their supply chain and endeavour necessary arrangement to be competitivenecessary arrangement to be competitive. .

Agricultural value chainAgricultural value chain

• A value chain is a supply chain made up of A value chain is a supply chain made up of a series of actors –from input suppliers to a series of actors –from input suppliers to producer and processors to exporters and producer and processors to exporters and buyers-engaged in the full range of buyers-engaged in the full range of activities to bring a product from its activities to bring a product from its conception to its end use.conception to its end use.

• The government need to support the The government need to support the private sector for their participation and private sector for their participation and investment.investment.

• In agricultural value chain, farmers, traders, In agricultural value chain, farmers, traders, agribusiness and input suppliers need to agribusiness and input suppliers need to work together.work together.

Agricultural value chainAgricultural value chain

• For the development of agricultural value For the development of agricultural value chain, consumer and market knowledge, chain, consumer and market knowledge, added value, product differentiation, added value, product differentiation, market potential, sustainable production market potential, sustainable production system, generating rural income and system, generating rural income and increase employment for the rural people increase employment for the rural people need to take into account .need to take into account .

Agricultural value chainAgricultural value chain• long-term strategic vision ,long-term strategic vision ,• They need to recognize their They need to recognize their

interdependence and to work together ,interdependence and to work together ,• To define common object, share risks and To define common object, share risks and

benefits and make the relation work,benefits and make the relation work,• Value chain is oriented by demand and not Value chain is oriented by demand and not

by supply, by supply, • All actors need to have commitment to All actors need to have commitment to

control product quality and safety product,control product quality and safety product,• The implementation is based on mutual The implementation is based on mutual

trust ,trust ,• Information exchange andInformation exchange and• Based on the different circumstances, the Based on the different circumstances, the

supply chain needs to be well organized supply chain needs to be well organized and competitive. and competitive.

AGRICULTURAL VALUE CHAIN AGRICULTURAL VALUE CHAIN FINANCEFINANCE

• Finance providers feel that financing of Finance providers feel that financing of small-and medium-scale farmers are often small-and medium-scale farmers are often risky compared to traders.risky compared to traders.

• Thus, commercial urban-based banks are Thus, commercial urban-based banks are reluctant to provide finance to resource reluctant to provide finance to resource poor farmers in rural area. poor farmers in rural area.

• The reason is that most poor farmers have The reason is that most poor farmers have no collateral. In the case of Myanmar, land no collateral. In the case of Myanmar, land is owned by State and farmers have land is owned by State and farmers have land use right.use right.

• From the commercial bank point of view, From the commercial bank point of view, minimum risks, repayment and high loan minimum risks, repayment and high loan recovery rates are the most important recovery rates are the most important issue. issue.

AGRICULTURAL VALUE CHAIN AGRICULTURAL VALUE CHAIN FINANCEFINANCE

• Traders, agro-processors, association of Traders, agro-processors, association of market traders and business organizations market traders and business organizations participate in moving the product from the participate in moving the product from the farm to the final market .farm to the final market .

• In the case of Myanmar, all of business In the case of Myanmar, all of business people use finance which rely on their own people use finance which rely on their own finance, bank loan and some rely on family finance, bank loan and some rely on family and relatives finance.and relatives finance.

AGRICULTURAL VALUE CHAIN AGRICULTURAL VALUE CHAIN FINANCEFINANCE

• Based on mutual trust, traders rely on Based on mutual trust, traders rely on deferred payment system in local markets. deferred payment system in local markets.

• Large companies rely on own finance, Large companies rely on own finance, bank loan and invite shareholders and bank loan and invite shareholders and investors for their agricultural marketing.investors for their agricultural marketing.

• Put another way, financing is important Put another way, financing is important issue for all participants in the agricultural issue for all participants in the agricultural value chain.value chain.

AGRICULTURAL VALUE CHAIN FINANCEAGRICULTURAL VALUE CHAIN FINANCE (Resource poor farmers)(Resource poor farmers)

• Resource poor farmers have no collateral Resource poor farmers have no collateral such as property, land or other assets in such as property, land or other assets in order to have loan from commercial bank. order to have loan from commercial bank.

• Agricultural Development Bank provides Agricultural Development Bank provides season loan which is not adequate for season loan which is not adequate for resource poor farmers.resource poor farmers.

• Most small-scale and medium-scale farmers Most small-scale and medium-scale farmers have no choice to borrow money from local have no choice to borrow money from local moneylenders who charge high interest moneylenders who charge high interest rates. rates.

• They cannot use agro-input due to They cannot use agro-input due to insufficient finance. As a result, level of insufficient finance. As a result, level of yield is low.yield is low.

AGRICULTURAL VALUE CHAINAGRICULTURAL VALUE CHAIN

• The financial service need to be provided to The financial service need to be provided to farmers, agribusiness and small and medium farmers, agribusiness and small and medium enterprises (S M Es)." enterprises (S M Es)."

• Unfortunately, financial services cannot Unfortunately, financial services cannot cover all poor farmers in rural area in the cover all poor farmers in rural area in the country." country."

• If there is no financing service access to If there is no financing service access to farmers, the best possible thing is that farmers, the best possible thing is that ""financing in agriculture need to look at financing in agriculture need to look at supply chain finance". supply chain finance".

• Traders, input suppliers and agribusiness are Traders, input suppliers and agribusiness are important role in the financing of farmers.important role in the financing of farmers.

Public-Private Partnership (PPPPublic-Private Partnership (PPP))

• The government need to support the private The government need to support the private sector for their participation and sector for their participation and investment.investment.

• Public-private partnership (PPP) can support Public-private partnership (PPP) can support to all participants in agricultural value chain. to all participants in agricultural value chain.

• In the case of Myanmar, renovation and In the case of Myanmar, renovation and expansion of highway from Mandalay expansion of highway from Mandalay wholesale market to Muse Town located on wholesale market to Muse Town located on Myanmar-China border was implemented Myanmar-China border was implemented by PPP .by PPP .

Public-Private Partnership Public-Private Partnership (PPP).(PPP).• In the case of Myanmar, pulses, oilseeds In the case of Myanmar, pulses, oilseeds

and fresh produce of jujube, mango, water and fresh produce of jujube, mango, water melon and muskmelon are delivered to melon and muskmelon are delivered to Myanmar-China border for trading to Myanmar-China border for trading to Yunan province, China.Yunan province, China.

• Fresh produce growers and traders can Fresh produce growers and traders can deliver to Myanmar-China border without deliver to Myanmar-China border without time-consuming.time-consuming.

• To cover the initial investment cost and To cover the initial investment cost and maintenance cost , toll gate are maintenance cost , toll gate are established by private sector.established by private sector.

Input suppliersInput suppliers

• Private sector participates as agro-input and Private sector participates as agro-input and seed suppliers in the supply chain.seed suppliers in the supply chain.

• On the supply side, the private companies On the supply side, the private companies need to recovery of sale revenue and do not need to recovery of sale revenue and do not prefer to sell farmers with deferred prefer to sell farmers with deferred payment. payment.

• In the case of Myanmar, agro-input retailers In the case of Myanmar, agro-input retailers supply to farmers in main surplus-supply to farmers in main surplus-producing areas with deferred payment producing areas with deferred payment however sale price is added by the however sale price is added by the opportunity cost of interest. opportunity cost of interest.

• Thus, farmers use agro-input with a little bit Thus, farmers use agro-input with a little bit high price due to inadequate finance. high price due to inadequate finance.

Input suppliersInput suppliers• Agro-input retailers need more finance for Agro-input retailers need more finance for

their buying and selling activities. Put another their buying and selling activities. Put another way, financing is essential for agro-input way, financing is essential for agro-input suppliers as well as farmerssuppliers as well as farmers. .

• Extension workers need to organize to farmers Extension workers need to organize to farmers to purchase agro-input by farmer groups in to purchase agro-input by farmer groups in stead of individual farmer. The main reason is stead of individual farmer. The main reason is that if quantities purchased by farmers are that if quantities purchased by farmers are large, they can make negotiation with input large, they can make negotiation with input suppliers and transporters for purchasing suppliers and transporters for purchasing price and transport charge. Put another way, price and transport charge. Put another way, marketing cost can reduce to farmers. marketing cost can reduce to farmers.

Input suppliers and tradersInput suppliers and traders(In the case of Myanmar)(In the case of Myanmar)

• Highland fresh produce wholesalers in Highland fresh produce wholesalers in Yangon wholesale market work together Yangon wholesale market work together with farmers in main-surplus producing with farmers in main-surplus producing areas located in highland area.areas located in highland area.

• Yangon large-scale wholesalers contact Yangon large-scale wholesalers contact input suppliers to obtain cabbage seeds input suppliers to obtain cabbage seeds and fertilizer and provide to farmers for and fertilizer and provide to farmers for their cabbage growing.their cabbage growing.

• Farmer groups receive agro-input from Farmer groups receive agro-input from wholesaler and supply highland cabbage wholesaler and supply highland cabbage to Yangon wholesalers.to Yangon wholesalers.

Local companies and FarmersLocal companies and Farmers

• Local export companies endeavour in Local export companies endeavour in order to have variety and ensured quality order to have variety and ensured quality from farmers in main-surplus producing from farmers in main-surplus producing areas.areas.

• Fertilizer and seed are supplied to farmers Fertilizer and seed are supplied to farmers who need to sell their crop with market who need to sell their crop with market price. price.

• Some constraints such as marketing Some constraints such as marketing arrangement, farmers' sale volume being arrangement, farmers' sale volume being low compared to quantity demanded by low compared to quantity demanded by company are faced by local companies.company are faced by local companies.

Local companies and FarmersLocal companies and Farmers

• Although constraints occurred in contract Although constraints occurred in contract farming, farmers and local Companies farming, farmers and local Companies endeavour to solve and collaborate for endeavour to solve and collaborate for the success of supply chain.the success of supply chain.

• As for farmers, this type of business is As for farmers, this type of business is supported to obtain finance supply and supported to obtain finance supply and ensured market. ensured market.

• Mutual trust between small farmers and Mutual trust between small farmers and companies is critical issue to succeed. companies is critical issue to succeed.

Value-added productValue-added product

• Private business need to play in the higher Private business need to play in the higher value market chain. value market chain.

• Technology, standardization, quality control, Technology, standardization, quality control, market knowledge and financingmarket knowledge and financing are are required.required.

• Private business find out their investment Private business find out their investment opportunity. opportunity.

• In order to have value –added product , In order to have value –added product , private business invest to compete with private business invest to compete with other suppliers.other suppliers.

• Value-added product such as bean split with Value-added product such as bean split with skin and without skin are received better skin and without skin are received better price for local exporters.price for local exporters.

Steps Use of machines1 Weighing machine

2 1st Stage Cleaner

3 2nd stage cleaner

4 Gravity separator

5 Destoner (It remove small stone)

6 Grading machine

7 Polishing machine

8 Colour sorting machine9 Quality Product

Modern flow process of pulses in Myanmar

FINANCIAL INSTITUTIONFINANCIAL INSTITUTION

• In the case of Myanmar, Agricultural In the case of Myanmar, Agricultural Development Bank (MADB), Livestock and Development Bank (MADB), Livestock and Fishery Development Bank (LFDB), licensed Fishery Development Bank (LFDB), licensed pawnshops, saving and loan cooperatives, pawnshops, saving and loan cooperatives, national NGOs and international NGOs are national NGOs and international NGOs are main source of finance farmers and poor main source of finance farmers and poor people in rural area.people in rural area.

• MADB distributes seasonal crop loan or short-MADB distributes seasonal crop loan or short-term loan for 2-4 years and long-term loan for term loan for 2-4 years and long-term loan for 5 years and above.5 years and above.

• Interest rate of MADB is currently determined Interest rate of MADB is currently determined by the prescription of the Central Bank. by the prescription of the Central Bank.

FINANCIAL INSTITUTIONFINANCIAL INSTITUTION

• Lending rate is currently Lending rate is currently 17percen17percent, while the t, while the saving rate is saving rate is 12 per annum12 per annum..

• The same interestThe same interest raterate of lending and of lending and borrowing is applied by Commercial banks. In borrowing is applied by Commercial banks. In the case of Myanmar, Agricultural Development the case of Myanmar, Agricultural Development Bank provides seasonal loan, perennial crop Bank provides seasonal loan, perennial crop plantation such as oil palm, tea, and coffee etc. plantation such as oil palm, tea, and coffee etc.

• Due to a sharp increase of fertilizer and fuel Due to a sharp increase of fertilizer and fuel price, seasonal crop loan provided by price, seasonal crop loan provided by Agricultural Development Bank had become Agricultural Development Bank had become small compared to farmers’ requirement to be small compared to farmers’ requirement to be purchased agro-input and paid hired labour purchased agro-input and paid hired labour cost.cost.

FINANCIAL INSTITUTIONFINANCIAL INSTITUTION

• Amount of seasonal loan cannot be covered Amount of seasonal loan cannot be covered farmers’ requirement due to limitation of farmers’ requirement due to limitation of financial source .financial source .

• Put another way, seasonal loan do not Put another way, seasonal loan do not reflect current market price of agro-inputs. reflect current market price of agro-inputs.

• Generally speaking, resource poor farmers Generally speaking, resource poor farmers do not interest to deposit their cash in the do not interest to deposit their cash in the bank.bank.

• The public sector endeavour farmers to save The public sector endeavour farmers to save their cash in Agricultural Development Banktheir cash in Agricultural Development Bank

FINANCIAL INSTITUTIONFINANCIAL INSTITUTION

• Farmers who saveFarmers who save in Agricultural in Agricultural Development Bank receive loan to Development Bank receive loan to purchase agricultural machineries such as purchase agricultural machineries such as water pumping engine, small tractor and water pumping engine, small tractor and thresher etc. depending on their saving thresher etc. depending on their saving amount. amount.

• Financing projects are required. Financing projects are required.

• National NGOs and international Non-National NGOs and international Non-Governmental Organization (I NGOs) Governmental Organization (I NGOs) involve in micro-finance projectsinvolve in micro-finance projects implemented in rural areas. implemented in rural areas.

FINANCIAL INSTITUTIONFINANCIAL INSTITUTION

• Rural development projects support micro Rural development projects support micro credit to, credit to, self-help groupsself-help groups (SGH), landless (SGH), landless people and small poor farmers’ family to people and small poor farmers’ family to generate income to reduce poverty generate income to reduce poverty situation situation

• Access to microfinance servicesAccess to microfinance services enables enables poor and economically active people to poor and economically active people to invest in new business activities, thereby invest in new business activities, thereby increasing levels of employment and increasing levels of employment and income. income.

FINANCIAL INSTITUTIONFINANCIAL INSTITUTION

• Micro-finance is required to develop the Micro-finance is required to develop the agricultural-value chain and micro-finance agricultural-value chain and micro-finance projects need to extend in rural areas.projects need to extend in rural areas.

• Due to limitation of finance, public sector's Due to limitation of finance, public sector's financing cannot fulfill to requirement of financing cannot fulfill to requirement of resource poor farmers and poor people. resource poor farmers and poor people.

• Traders, input suppliers and agribusiness Traders, input suppliers and agribusiness need to provide finance to farmers in need to provide finance to farmers in agricultural value chain in order to have agricultural value chain in order to have quality and safety product, and ensured quality and safety product, and ensured supplies. supplies.

FINANCIAL INSTITUTIONFINANCIAL INSTITUTION

• FinancingFinancing is important issue for the is important issue for the development agricultural value chain. In development agricultural value chain. In the agricultural value chain, input the agricultural value chain, input suppliers, traders, agro-processors and suppliers, traders, agro-processors and agri-business are important role of agri-business are important role of financing to farmers and need to work financing to farmers and need to work together.together.

• Government need to support to promote Government need to support to promote financing for resource poor farmers and financing for resource poor farmers and private sector.private sector.

THANK YOUTHANK YOU