ISSD invests in developing local seed businesses that are technically equipped, market oriented, professionally organised and strategically linked. A recent study highlighted the lasting impact the programme’s activities has had on their viability, generating lessons for further support to seed producing cooperatives.
80% of local seed businesses graduated from the programme in 2016 are still in business. That’s quite a success rate when looking at small- and medium-scale enterprise globally, and agriculture is no easy business. Nevertheless, these seed producer cooperatives are struggling to grow their business, witnessing common trends of reductions in membership, areas under cultivation, volumes, and sales. On the plus side however, productivity is on the rise, quality is reliable, and gross margins are better.
In 2009, in the context of the Local Seed Business project, a predecessor of ISSD Ethiopia, 33 seed producer cooperatives (SPCs) were selected and strengthened as local seed businesses (LSBs), a cornerstone of the ISSD approach.
From 2012-15, support to these first generation LSBs continued, whilst simultaneously scaling the model to an additional 244 cooperatives. Having been consolidated in their development and serving as a reference for new LSBs, the decision was taken in 2016 to graduate the 33 from programme support. In its latest phase, which draws to an end shortly, ISSD has not been supporting these original LSBs.
Evaluating their performance
In 2018, ISSD commissioned a study of the performance of the 33 graduated LSBs. Two main questions were asked; 1) How sustainable are the business models of these LSBs; and 2) How effective are they in contributing to local seed security? The research would also provide recommendations on improving its approach to strengthening local seed business in Ethiopia.
Despite a general trend of declining area and production, productivity has increased 31% from 2014-17. This is likely due to cooperative members still engaged in seed production applying good agronomic practices learned through the programme to achieve higher yields. Seed quality is reliable and the majority of crops in the portfolio face zero rates of rejection by authorities. A considerable number of SPCs are considered among stakeholders interviewed in the study as best-in-class within their woredas in terms of quality.
|Figure 1: Area under seed production and volumes of seed produced by graduated SPCs from 2012-17|
The collective product portfolio of graduated LSBs has almost halved from 2012-17. Graduated LSBs are producing quality seed of fewer crops and varieties now than when support from the programme was given. But this may also be necessary for sustaining business. LSBs have become more specialized in terms of crops, whilst still marketing on average five varieties per crop. Reductions in the overall diversity have not resulted in less products on offer for a given crop.
More alarming is the general decline in sales. Nationally, in 2017, less than half the total volume of seed produced was sold formally. However, of note, the LSBs in SNNPR and Tigray sold all their seed. Public seed enterprises are purchasing to a far lesser extent from LSBs. The opposite is true however for unions and NGOs, with these channels representing the first and third most important channels respectively. Sales directly to farmers account for more than a third of all transactions, which is good for local seed security.
|Figure 2: Sales (%), as a proportion of total volumes of seed produced, and their channels (2012-17)|
ISSD and others have trained the management committees of SPCs across the four regions the programme is active. However, SPC management committee members are up for re-election every 3 years and may serve a maximum of two three-year terms. The research concluded that the turnover of capable management committee members has resulted in weakened organizational performance of graduated LSBs.
The number of seed producing members is down 20% since graduation. Only half the LSB members perceive cash flow to be positive, a downward trend from 2015. This may be discouraging members to continue their engagement in the seed business. Despite these perceptions, gross margins are higher than before. Along with the measured increase in productivity, this indicates improved efficiency.
The value of LSB assets is depreciating and few have secured access to standard storage and processing facilities. Being an important partner to many LSBs, the level of maturity of the union strongly influences the quality of access to such facilities. Well-established unions provide crucial services including technical assistance and credit. Lines of not only financial credit, but basic seed as well, can be extended through cooperation with the union.
Newly established unions on the other hand potentially pose a threat to graduated LSBs. In some cases, LSBs ceased to clean, package and market their own branded seed after the establishment of a new union. In these cases, LSBs lost access to basic seed and their autonomy along with it. Preferential access to early generation seed is given to unions, which tie LSBs into out-grower agreements.
‘The LSB products are in demand’. This is a key indicator against which graduated SPCs performed best during the study period. Also observed were bigger gross margins reported in 2017 than in the either of the previous two years. Surprising, however, is the decline in sales, which doesn’t intuitively go hand-in-hand with these aforementioned accomplishments. What is more, the weakest area of performance of graduated LSBs is value addition. So why the contradiction?
There are many institutional challenges yet to be resolved. The short and poorly differentiated supply of early generation seed is one of them. The other relates to structural relationships and professionalism in marketing. There is a great deal of dissatisfaction with the way prices are set. There are two main reasons: 1) The current standard premium of 15% above the grain price is considered too low; and 2) The time of price setting is when grain supply is at its peak. The result is a low premium on a low prevailing price and a weak incentive for investment.
The research into graduated LSBs continues to inform ISSD’s work in the remaining period of the programme. The full report of this research, as well as more information on our work with seed producing cooperatives is available on our website www.issdethiopia.org