Analysis of the Competitiveness of the Rice Subsector in Mali: The Case of Gravitational Irrigation and Bas-fonds Production Systems By Ramziath T. Adjao A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE Agriculture, Food and Resource Economics 2011 ABSTRACT ANALYSIS OF THE COMPETITIVENESS OF THE RICE SUBSECTOR IN MALI: THE CASE OF GRAVITATIONAL IRRIGATION AND BASFONDS PRODUCTION SYSTEMS By Ramziath T. Adjao Given its importance as an urban staple and growing importance in the consumption basket of rural people, rice has become a key part of Mali’s food strategy. Despite considerable increases in production since the 1990s, Mali still relies on imports for about a quarter of its rice needs. Following the 2007/08 commodity price crisis, Malian authorities affirmed the political will for substituting rice imports by domestic production. To date, major increases in production have mainly come from public-led investments in large-scale gravity fed irrigation infrastructure in the Office du Niger (ON). However, given the high costs of maintaining and expanding this irrigation scheme, Mali is now considering strategies to boost domestic production outside the ON zone in more marginal lands such as inland valley swamps (bas-fonds). This study uses both standard budgeting techniques and domestic resource cost analysis to assess the competitiveness and the comparative advantage of bas-fonds and ON rice in selected domestic and West-African markets with the aim to provide empirical analysis for supporting further investment decisions in the rice subsector in Mali. The results show that Mali has a very pronounced comparative advantage in the production and marketing of rice on its national territory, with ON rice being more competitive than bas-fonds rice in most markets. Despite numerous constraints that hinder the comparative advantage of Malian rice in subregional markets (e.g., apparent overvaluation of the currency and high transport costs), the prospects for Malian rice exports seem encouraging, given the high likely payoffs for improving the productivity and post-harvest handling of rice. ACKNOWLEDGMENTS I would like to express my sincere thanks to those who helped and supported me in completing my Master’s program. I am especially grateful to Dr. John Staatz, my major professor and thesis advisor, for his supervision, support and patience throughout my program. I would also like to express my special thanks to my guidance committee members, Dr. Eric Crawford and Dr. Mark Skidmore, for their invaluable comments on my thesis, as well as to Dr. Nango Dembélé and Dr. Valerie Kelly for their support and advice. I am very grateful for the generous financial support I received from the Syngenta Foundation through its Strengthening Regional Agricultural Integration (SRAI) project with the Department of Agricultural, Food and Resource Economics (AFRE) of MSU, and from USAID/Mali and AFRE through the PROMISAM II project, which is part of the USAID-MSU Food Security III Cooperative Agreement. I am also grateful to Dr. Boubacar Diallo, Mr. Abdramane Traoré, Mr. Lamissa Diakité, and Mr. Steve Longabaugh for providing me with important data and documents necessary to complete this thesis. Furthermore, I would like to thank my friends and my colleagues at MSU, especially in the AFRE department for their friendship and support. Particularly, I am greatly indebted to Sonja Perakis, Nathalie Me-Nsope, Alexandra Peralta, Vandana Yadav, Kirimi Sindi, Assa Dembélé,Nwamaka Nnama and Fatoumata Dembélé. Last by not least, I am very grateful to my parents, Affissou Adjao and Dede-Essi Ajavon, as well as my brothers, Abdel-Aziz Adjao and Iqbal Adjao, for their unconditional love, prayers, encouragements and patience. I could not have completed this journey without them. iii TABLE OF CONTENTS LIST OF TABLES ...................................................................................................................... VI LIST OF FIGURES ................................................................................................................. VIII 1. INTRODUCTION................................................................................................................. 1 1.1. 1.2. PROBLEM STATEMENT AND RESEARCH OBJECTIVES ................................................... 4 ORGANIZATION OF THE THESIS ..................................................................................... 8 2. EVOLUTION OF THE INTERNATIONAL AND WEST AFRICAN RICE SUBSECTOR IN THE CONTEXT OF 2008 RICE CRISIS: PRODUCTION, CONSUMPTION AND TRADE ................................................................................................. 9 2.1. 2.2. 3. THE INTERNATIONAL RICE SUBSECTOR ....................................................................... 9 THE WEST AFRICAN RICE SUBSECTOR ....................................................................... 14 OVERVIEW OF THE RICE SUBSECTOR IN MALI .................................................. 18 3.1. IMPORTANCE OF THE RICE SUBSECTOR IN MALI ....................................................... 18 3.1.1. National Rice Consumption and Demand (including nutrition) ........................... 18 3.1.2. National Rice Production and Supply ..................................................................... 19 3.2. POLICY ENVIRONMENT OF THE RICE SUBSECTOR ..................................................... 23 3.2.1. Fiscal Policy ............................................................................................................. 23 3.2.2. Monetary Policy ....................................................................................................... 24 3.2.3. Land Tenure ............................................................................................................. 26 3.2.4. Water Management and Irrigation ......................................................................... 30 3.2.5. Input Credit .............................................................................................................. 33 3.2.6. Agricultural Research and Extension ..................................................................... 35 3.2.7. Rice Marketing ......................................................................................................... 37 4. CONCEPTUAL FRAMEWORK ...................................................................................... 40 4.1. THEORY OF COMPARATIVE ADVANTAGE AND OPPORTUNITY COST ......................... 40 4.2. MEASURES OF COMPARATIVE ADVANTAGE ............................................................... 42 4.2.1. The Domestic Resource Cost as a Preferred Measure of Comparative Advantage 43 4.2.2. Limitation to the Domestic Resource Cost Ratio .................................................... 44 4.2.3. Determining Economic Prices ................................................................................. 45 5. ANALYSIS OF THE COMPETITIVENESS OF THE MALIAN RICE SUBSECTOR IN DOMESTIC AND REGIONAL MARKETS...................................................................... 48 5.1. DATA ............................................................................................................................. 48 iv 5.2. FINANCIAL PROFITABILITY ......................................................................................... 50 5.2.1. Assumptions ............................................................................................................. 51 5.2.2. Results and Discussion ............................................................................................ 52 5.3. ECONOMIC PROFITABILITY ......................................................................................... 62 5.3.1. Assumptions ............................................................................................................. 62 5.3.2. Results and Discussion ............................................................................................ 69 6. COMPARATIVE ADVANTAGE UNDER ALTERNATIVE SCENARIOS ............... 80 6.1. 6.2. 6.3. 6.4. 6.5. 6.6. 7. COMPARATIVE ADVANTAGE AND OUTPUT PRICES..................................................... 80 COMPARATIVE ADVANTAGE AND OVERVALUATION OF THE CFAF FRANC ............... 86 COMPARATIVE ADVANTAGE AND DECREASED TRANSPORT COSTS ............................. 92 COMPARATIVE ADVANTAGE AND IMPROVED FARM-LEVEL YIELDS ........................... 96 COMPARATIVE ADVANTAGE AND IMPROVED PROCESSING TECHNOLOGIES ............ 101 JOINT IMPACT OF MULTIPLE POLICY VARIABLES ON COMPETITIVENESS ................ 104 CONCLUSIONS AND POLICY IMPLICATIONS ...................................................... 108 APPENDIX ................................................................................................................................ 116 BIBLIOGRAPHY ..................................................................................................................... 150 v LIST OF TABLES Table 1: Major Rice Production Systems in Mali ......................................................................... 21 Table 2: Rice Production and Imports (Milled Rice).................................................................... 22 Table 3: Financial Profitability of Rice Paddy – Intensive Bas-fonds Production System in Sikasso, 2008/09 ........................................................................................................................... 53 Table 4: Financial Profitability of Rice Paddy – Intensive Irrigated Production System in Rehabilitated Perimeters in the Office du Niger in Niono, 2008/09............................................. 54 Table 5: Sensitivity Analysis Results Assuming High and Low Yield in Selected Rice Production Systems, Including Input Subsidies, 2008/09 ............................................................................... 58 Table 6: Sensitivity Analysis Results Assuming High and Low Yield in Selected Rice Production Systems, Excluding Input Subsidies, 2008/09 .............................................................................. 61 Table 7: Economic Performance Indicators for Selected Rice Production Systems in Mali, 20082009............................................................................................................................................... 70 Table 8: Farm-Level Economic Budget for Intensive Bas-fonds Production System in Sikasso, Mali, by Point of Sale, 2009 ......................................................................................................... 73 Table 9: Farm-Level Economic Budget for Irrigated Rice Production Systems in Rehabilitated Perimeters in Niono, Mali, by Point of Sale, 2009 ....................................................................... 74 Table 10: DRC ratios for intensive bas-fonds production systems in Southern Mali, by point of sale, 2009 ...................................................................................................................................... 78 Table 11: DRC Ratios for Irrigated Production System in Rehabilitated Perimeters of the Office du Niger in Niono, Mali, by Point of Sale, 2009 .......................................................................... 79 Table 12: Comparative Advantage, Base Scenario....................................................................... 82 Table 13: Comparative Advantage with Pre-2007 World Rice Prices ......................................... 84 Table 14: Comparative Advantage and Overvaluation of the CFAF ........................................... 87 Table 15: Comparison of the Impact of Overvaluation of the CFAF and Imports Duties on Net Margins in Rice Production .......................................................................................................... 91 Table 16: Comparative Advantage and 50% Reduction in Transport Costs ................................ 94 Table 17: Impact of Yield Variation on Comparative Advantage ................................................ 98 vi Table 18: Comparative Advantage and Improved Processing Technologies ............................. 102 Table 19: Joint Impact of Multiple Policy Variables on Competitiveness of the Rice Subsector in Mali ............................................................................................................................................. 106 vii LIST OF FIGURES Figure 1: Major Agricultural Regions in Southern Mali ................................................................ 3 Figure 2: Rice as a Percentage of Total Calorie Intake by Region in 2008 .................................... 9 Figure 3: Trend in Global Rice Consumption Per Capita, 1961 – 2008 ....................................... 11 Figure 4: Rough Rice Production by Geographical Region in 2008 ............................................ 12 Figure 5: Evolution of Prices of 5% Broken Rice, FOB Bangkok, 1986-2010 ............................ 13 Figure 6: Evolution of Rice Consumption in West Africa ........................................................... 15 Figure 7: Relative Price of Local Rice to Millet in Bamako ....................................................... 19 Figure 8: Evolution of Inflation Rates in Mali, 2007-2009 .......................................................... 25 Figure 9: Cost Structure for Selected Rice Production Systems in Mali, 2008/09 ....................... 56 Figure 10: Net Margin per kg, Including Family Labor, Assuming High and Low Yield in Selected Rice Production Systems, 2008/09 (CFAF/kg) .............................................................. 59 Figure 11: Trade routes in West Africa ........................................................................................ 66 Figure 12: Net Social Returns per kg, Including Family Labor, Assuming High and Low Yields in Selected Rice Production Systems, 2008/09 (CFAF/kg) ......................................................... 71 Figure 13: Comparative Advantage, Base Scenario ..................................................................... 83 Figure 14: Comparative Advantage with Pre-2007 World Rice Prices ........................................ 85 Figure 15: Comparative Advantage and Overvaluation of the CFAF .......................................... 88 Figure 16: Comparative Advantage and 50% Reduction in Transport Costs ............................... 95 Figure 17: Comparative Advantage and Farm-level Technologies .............................................. 99 Figure 18: Comparative Advantage and Improved Processing Technologies ............................ 103 viii 1. INTRODUCTION Rice is a major tradable cereal in West Africa, with great importance in terms of food security, income generation, and trade balance. Over the past two decades, both rice consumption and production have significantly increased in the subregion, and with increased urbanization, rice has become the most rapidly increasing dietary staple in West Africa. The steady increase of imports from the international market reinforced the strategic importance of rice for food security and social stability for West Africa, especially since the 2008 rice crisis, during which world rice prices more than tripled, leading many rice-exporting countries to ban rice exports. Even though the increase in world prices was not fully transmitted to most West African consumers, this event represented a real challenge for many countries in the subregion, in contrast to historical patterns of moderate inflation and price stability for imported goods (Staatz et al. 2008 and Diallo et al. 2010). Given its importance as an urban staple, and the ability to grow it under irrigation, which helps stabilize its production, several West Africa countries, including Mali, affirmed the political will for substituting rice imports by domestic production in order to meet their consumption needs. Furthermore, with many studies documenting a decline in rice productivity in Asia (IRRI 2008), increasing investment in domestic rice production could become an attractive option for import-dependent countries, where confidence and trust in international trade has withered since the 2008 rice crisis and whose leaders now fear that Asia might not be able to export sufficient rice in the future to meet their needs. In Mali, due to irregular and low rainfall, previous government efforts to increase rice production have focused on both expanding and intensifying production in irrigated lands. To date, more than half of the rice produced in Mali is grown under the irrigation system of the 1 Office du Niger 1 (ON), located in the Segou region; however, given the high costs of maintaining and expanding this irrigation system and given newer technologies are being developed, notably drought-resistant seed varieties, Mali is now considering strategies to boost 2 domestic production outside of the ON. Rice farming in marginal lands, especially in bas-fond and flooded plains in the Sikasso region, which had received limited attention in the past, are 3 now being developed with the introduction of the drought-resistant NERICA variety (see figure 1) (Plan d’Opération de l’Initiative Riz 2008-2009; OMA 2009) . 1 The Office du Niger is an irrigated agricultural perimeter developed on the inner delta of the Niger River in the Segou region, located at about 250 km downstream from the capital Bamako. Initiated by the French authorities in the 1920s, it was taken over by the Malian authorities following the country's independence in 1960. The project originally intended to meet the supply needs of the cotton textile industry, but following its reform in the 1960s, cotton growing was abandoned in favor of rice. The Office du Niger is now among the largest irrigation schemes in Africa and accounts for about half of rice production in Mali. 2 Bas-fonds are narrow inland valley swamps that used to be permanent rivers, but which have dried up with declining rainfall. During the rainy season, the water table in these swamps rises due to overflow from small rivers, seepage and slope surface runoff from adjacent uplands, generally supplying water throughout the growing season. The standing water level in these basfonds ranges from a shallow/medium depth (25-50 cm) to deep water (50-100 cm). Their length may extend over 25 km, and their width varies from 10 m to 100 m. In the rainy season, the valleys are planted to rice, and to a lesser degree, to vegetables and potatoes. In the dry season however, the majority of the bas-fonds are fallowed and used for grazing livestock (Dimithe 1997). Most of the bas-fonds in Mali are located in the Sikasso region. 3 The New Rice for Africa (NERICA) is an interspecific rice cultivar developed by the Africa Rice Center (WARDA) to improve yields of African rice varieties based on crossings between African rice (Oryza glaberrima Steud.) and Asian rice (O. sativa L.). NERICA is a group of upland rice varieties that can grow in any agro-ecosystem under upland conditions so long as there is enough moisture to sustain the crop throughout the growth period; however, some of the NERICA varieties can be grown in the hydromorphic fringes and are suitable for bas-fonds production in West Africa. Furthermore, NERICA varieties respond better than traditional varieties to higher inputs (WARDA 2008). 2 Figure 1: Major Agricultural Regions in Southern Mali. For interpretation of the references to color in this and all other figures, the reader is referred to the electronic version of this thesis. Niono Sikasso Crop Intensity (%) 1: 702: 50-70 3: 30-50 4: 5-30 Source: Adapted from USDA-FAS Mali Region City Bas-fonds zone Office du Niger 4 Given the new global environment characterized by higher input, energy and commodity prices, it is crucial that Malian decision makers carefully reassess the competitiveness of Mali irrigated and bas-fonds rice on domestic and regional markets as more investments are made. Competitiveness is a relative term; however, this study uses the definition of absolute advantage proposed by Dimithe (1997) and interprets it as “the ability of a given system to produce rice of a specific quality, at a given point in time, in a specific market, at a lower unit cost than another rice production system”. This study uses both standard budgeting techniques and domestic 4 http://www.fas.usda.gov/pecad2/highlights/2001/10/mali/mali_cotton_01.htm 3 resource cost analysis to assess the competitiveness and the comparative advantage of these rice production systems by building on secondary data with the aim to provide empirical analysis for supporting further investment decisions in the rice subsector in Mali. 1.1. Problem Statement and Research Objectives Africa has often been referred to as a potential breadbasket given the large scope for improving productivity and efficiencies in staple food value chains. In West Africa, about 20 million farmers are involved in rice production, more 100 million people depend on it directly for their livelihood, and its contribution in terms of total calorie consumption was 12.3 percent in 2007 (FAOSTAT). Mali is one of the Western African countries with the most potential given the important irrigation systems in the Office du Niger. Furthermore, unlike many countries in the sub-region whose productivity has hardly changed in 20 years, Mali has experienced huge productivity increases in its rice subsector following its cereal market reforms and the devaluation of the CFAF franc in the early 1990s. There have been three major events that marked the evolution of the rice subsector in Mali: the liberalization of grain marketing, the devaluation of the CFAF franc, and the 2007/08 rice crisis. Cereal market reforms that began in the early 1980s had a positive effect on rice production. The liberalization of the grain marketing entailed a range of reforms, including removing legal prohibition to private trade in selected commodities and facilitating the functioning of the private sector, with the aim of placing a greater reliance on the market to allocate resources. More specifically, liberalization of the rice marketing in Mali involved the withdrawal of the ON and OPAM, Mali’s official cereals marketing agency, from direct rice marketing, the allowing of competition in rice milling, and reforms in the management of the 4 irrigation perimeters to promote more direct participation of farmers (Staatz et al. 1989 and Steffen 1990). The liberalization of the rice market, coupled with investment programs to rehabilitate irrigation infrastructure in the ON, have helped increase production levels and productivity of rice. Average yield went from less than two tons per ha to four tons per ha in the ON as a result of farmers’ massive adoption of improved production practices, including transplanting of seedlings instead of broadcast sowing. Despite those efforts, rice production remained marginally competitive in domestic markets until the devaluation of the CFAF franc in 1994. Barry (1998) found that Mali had comparative advantage in supplying rice to its entire territory as well as in parts of some neighboring countries, including Côte d’Ivoire, Guinea and Senegal. However, many researchers believe that the coupled effects of the liberalization process and the devaluation of the CFA franc have already been felt, and more recent studies (Diarra 2004) revealed that even though Mali has a very pronounced comparative advantage in production and marketing of local rice in its national territory, except for the markets of Kayes and Sikasso, it has lost its comparative advantage beyond its borders. Most of the studies that have evaluated the competitiveness of the local rice in Mali over the past two decades, including Diarra (2004), Barry (1994, 1998), and Pearson et al. (1981), have focused on the single production area of the Office du Niger (ON), which accounts for nearly half of local rice production in the country. Very few studies have focused on rice produced in marginal lands outside the gravitational irrigation system of the ON. Dimithe’s analysis (1997) of the financial profitability of bas-fonds rice showed that bas-fonds rice yielded higher returns to labor than the opportunity cost of labor and was more profitable than the main upland crops competing with rice for farmers’ labor (cotton, sorghum/millet, and maize). 5 The 2007/08 rice crisis has changed the underlying economic conditions; thus, results of 5 these previous studies may no longer be relevant. As summarized in the Economist , while the crisis itself may not be long-lasting, the new global environment characterized by higher input, energy and commodity prices will remain due to the underlying current population and income growth, increased urbanization, and rapidly growing demand for convenience food and easy-tocook cereals such as rice. Since the 2007/08 rice crisis, policy leaders in West African countries have taken several steps to hold down rice prices. Most of those measures have focused on lowering taxes, subsidizing imports and imposing export restrictions. However, more recent efforts consisted of massive investments in the rice subsector and subsidizing inputs as a means to boost production and improve the supply of local rice in the long-run. In Mali, the government launched a high-profile rice promotion campaign (referred to as the “Initiative Riz” in French) as a means to give priority to local rice production in order to enable farmers to use the largely untapped land and water resources in order to produce affordable rice. In order to reach the objectives of improving food security, increasing the domestic supply of rice, and strengthening rice exports by capitalizing on the improving incentives for rice production, it is important to focus not only on commercial rice production in irrigated areas, but also consider incremental opportunities for rice produced on more marginal lands by smallholders whose current productivity in rice production is low. While rice produced on the more marginal lands might not be able to compete with commercially-produced irrigated local rice or high quality imported rice in large cities, it could compete in supplying rural consumers in secondary cities. As Malian decision makers carefully rethink their sectoral policy and reevaluate the competitiveness of locally produced rice on both domestic and regional markets, they may raise 5 The Economist. “Grain and bear it: Grain prices are likely to remain high”. May 23rd 2008. http://www.economist.com/node/11435966?story_id=11435966 6 the following questions: What are the underlying financial and economic costs of rice production in selected production systems? Can bas-fonds production systems contribute to supplying the country’s rice requirement at a lower cost than the Office du Niger? Is Malian rice competitive relative to imported Asian rice in national and regional markets? If so, in which markets? If not, what are the constraints to its competitiveness? This study aims to provide empirical analysis for informing further investment decisions in the rice subsector in Mali by building on secondary data. More specifically, the main objectives of this study are as follows: 1. To identify the key domestic and regional end markets for high-quality irrigated rice and lower-quality lowland rice at the national level and within the West Africa region; 2. To carry out a more up-to-date financial and economic analysis using standard budgeting techniques and domestic resource cost (DRC) analysis to assess the competitiveness of Mali in producing and marketing both irrigated and bas-fonds rice compared to importing Asian rice; 3. To identify and examine the constraints to the competitiveness of locally grown Malian rice; and 4. To provide recommendations about how to improve the competitiveness of that key staple food. 7 1.2. Organization of the Thesis This paper is organized into seven chapters, including this chapter. The second chapter discusses the evolution of the international and regional rice subsectors. The third chapter presents an overview of the rice subsector in Mali in the context of the 2007/08 rice crisis. The fourth chapter presents the conceptual framework of the domestic resource cost method that underlies the evaluation of the competitiveness of the rice subsector in Mali. The fifth chapter presents and discusses the results obtained under the base scenario while the sixth chapter discusses the results obtained under alternative scenarios. Finally, the seventh part summarizes the major findings of this study and offers some policy implications. 8 2. EVOLUTION OF THE INTERNATIONAL AND WEST AFRICAN RICE SUBSECTOR IN THE CONTEXT OF 2008 RICE CRISIS: PRODUCTION, CONSUMPTION AND TRADE 2.1. The International Rice Subsector In market-driven economies, consumer demand provides signals to producers about what they should grow and market; thus, it is vital to understand what consumers want in order to produce it as efficiently as possible. Rice occupies an important place in the food security of the world’s population, and it is consumed by more than half of the people on the planet. As a whole, the world population relies on rice for 20 percent of its calorie intake. Asia consumes the most rice, accounting for 30 percent of all its calories, followed by South America (11 percent) and Africa (8 percent) (see figure 2). Figure 2: Rice as a Percentage of Total Calorie Intake by Region in 2008 30% 20% 10% 0% World Asia South America Africa North America Europe Source: Adapted from IRRI World Rice Statistics (WRS) Global rice consumption does not change much from year to year (see figure 3). However, more careful inspection of the smooth trend of rice consumption reveals that global rice consumption per capita has increased consistently from the 1960s to the end of the 1980s at 9 the growth rate of 0.9% per year. Since the early 1990s, however, consumption of rice per capita has been slightly decreasing, with the rate falling to -0.11% per year for the period 1990-2008 (Timmer et al. 2010). Data from the OECD-FAO Agricultural Outlook for 2010-2019 (2010), which corroborate such findings, show that the level of per capita consumption has been falling 0.12% per year for the period 2000-2009. Timmer et al. (2010) further argue that the foundations of this decline could be linked to fact that aggregate income elasticity of demand for rice turned negative since the 1990s. In fact, they found that rice was a normal good at the global level until the mid-1990s, and had become an inferior good thereafter. Their projections on rice consumption trends suggest a significant decline in global rice consumption in the next four decades, starting in just 10 to 20 years. The main drivers of this decline are thought to be: 1) a massive shift of labor from rural to urban areas, and 2) rapid income growth in Asia accompanied by a shift to more balanced diets in Asia (i.e., less rice and more wheat, animal products, fats and oils, and vegetables and fruits). However, in sub-saharan Africa, where rice is still considered a normal good, high population growth combined with changing consumer preferences is causing rapid expansion in rice consumption, and rice consumption is expected to remain strong. Thus, Timmer et al. (2010) expect global rice consumption to fall to 330 million metric tons in 2050, which is significantly lower than the 441 million tons consumed in 2010. However, continued rapid growth of rice consumption in Africa might raise that projection to 380 million metric tons. The OECD-FAO (2010) projections do not go beyond 2019. They expect global rice consumption to grow 1.1% for the period 2010-2019, bringing global rice consumption to 522 million tons. However, their findings are consistent with those of Timmer et al. (2010), in the sense that Asia is expected to decrease its total rice consumption (i.e., from annual growth rate of 1.13% for 2000-2009 to 0.88% for 2010-2019) while the biggest increase 10 in rice consumption is expected to come from sub-saharan Africa (i.e., from annual growth rate of in total rice consumption of 4.29% for 2000-2009 to 4.46% for 2010-2019). Figure 3: Trend in Global Rice Consumption Per Capita, 1961-2008 Source: Timmer et al. 2010 Due to its strategic importance, rice has been a highly protected crop world-wide. The main producing countries are typically also the larger consumers. About four-fifths of the world’s rice is produced by small-scale farmers in developing countries of Asia, South America and Africa, where millions of households depend on rice systems for their main source of employment and livelihoods. Asia generates more than 90% of the world rice production, followed by South America and Africa, with 3.5 percent and 3 percent respectively (see figure 3). The main exporting countries are Thailand (accounting for 25% of the world’s exports), Vietnam (15%), China (12%) and the U.S. (11%). Governments of major rice producing and consuming countries face a food-price dilemma, as they want to provide consumers with low prices while giving enough incentives to producers to grow the crop. Because of high domestic 11 consumption of rice in rice-producing countries, the economic importance of rice differs from that of traditional exports, resulting in only 5-6% of rice being exported worldwide. The world market for rice is therefore thin, and as a result, rice prices are often volatile (FAOSTAT, IRRI WRS). Figure 4: Rough Rice Production by Geographical Region in 2008 100% 50% 0% Asia South America Africa North America Europe Source: Adapted from IRRI World Rice Statistics (WRS) Between November 2007 and May 2008, prices of 5% broken rice FOB Bangkok almost tripled (see figure 5). The world rice crisis of 2007/08, unlike the food crisis which affected other grains and vegetable oils, took place during a period of record world production and fairly plentiful reserves. The world rice markets became volatile due to export restrictions by large rice exporters such as India and Vietnam, rising oil and petrochemical prices, a weaker dollar, illconsidered government policies from large importing countries, especially panic buying in the Philippines, and growing speculation that prices were heading higher. Since their peak in May 2008, rice prices have receded, but have remained high by historical standards. The price decline since May 2008 reflects large harvests in Asia, retreats in oil prices and dampening consumer 12 demand associated with the world recession. However, global rice prices started moving upward again in November 2009 after months of steady decline since reaching their all-time high in May 2008 due to bad weather that caused supply problems in some major rice-producing countries, namely, India and the Philippines (IRRI 2010). Figure 5: Evolution of Prices of 5% Broken Rice, FOB Bangkok, 1986-2010 1000 U.S. $/mt 800 600 400 200 0 1986 2010 Source: Thailand Grain and Feed Weekly Rice Price Updates, U.S. Embassy, Bangkok While the crisis itself may not be long-lasting, some people believe that the new global environment characterized by higher input and energy prices will likely remain, leading to higher rice production costs and potentially higher rice prices (The Economist 2008). However, others believe that global rice prices will not necessarily stay at a high plateau due to declining per capita rice consumption in Asia (Timmer et al. 2010). 13 2.2. The West African Rice Subsector More rice is consumed in West Africa than in other parts of the continent. Rice has become an important part of the West African diet since the 1960s and currently supplies about 13 percent of the calorie intake in the subregion (USAID 2009a). Rice consumption grew from 1.3 million MT in the 1960s to almost 10 million MT by 2006. Increases in demand have been triggered by population growth, rapid urbanization, increasing incomes, and urban consumers’ requirements in terms of cost and ease of cooking. The urban population has been rapidly increasing, and 60 percent of West Africans are projected to live in urban areas by 2020. While there was little to no per capita income growth in West Africa from the end of the 1970s through the 1990s, household incomes have started to rise since 2000, averaging 2.6 percent growth for the region. Therefore, as income continues to rise and the urban population continues to grow in West Africa, consumption trends will likely further shift from coarse grains to rice among smaller, labor-limited households due in part to the ease of preparation. While demand for rice has been growing, rice production has not been able to catch up with the increases in demand for most of West Africa. Rice production has more than doubled since the 1990s, and reached 6.2 million MT of milled rice in 2006 (WARDA 2008). Increases in rice production in the sub region have been achieved largely through extending the area under cultivation, but average yield has stagnated over the couple past decades due primarily to a lack of investment in essential components of a competitive industry, i.e., research and extension, rural infrastructure and a stable marketing environment (USAID 2009a). Consumption increased at 6.6 percent a year while production rose at 5.1 percent, creating a gap that caused West African countries to import more rice. In 2006, imports reached 4.7 million MT, which represent 48 percent of the region’s rice requirement. The region’s self-sufficiency ratio fell from 84 14 percent in the 1970s to 63 percent by 2006. Today West Africa has become a significant player in world rice markets because of its increasingly significant share of world rice imports, which stands at 8.4% (WARDA 2008). Figure 6: Evolution of Rice Consumption in West Africa, 1988-2009 Volume (million MT 10 8 6 4 2 0 1988 2009 West Africa Production West Africa Consumption Source: Adapted from WARDA, 2007 African Rice Trends The 2008 rice crisis led to ‘rice riots’ in many West African countries, including Liberia, Cote d’Ivoire, Burkina Faso, Cameroon, Senegal and Mauritania. These uprisings represented violent expressions of public discontent with rising prices; however, the crisis has also triggered a revival in the interest in ensuring the population access to rice. The reaction of African governments to the rice crisis included reducing import duties on rice and banning exports, while simultaneously favoring local rice production. These governments believed such measures would allow farmers to produce at a lower financial cost, thus allowing them to sell rice more cheaply to consumers. Unfortunately, these cost savings did not trickle down the value chain to 15 consumers as expected. Because of the weak law-enforcement mechanisms and the porous nature of borders in West Africa, some of this “subsidized” rice was exported to neighboring countries, and thus prices in the sub-region region remained high. Africa’s potentials for enhanced production are multiple and include availability of modern rice technologies (e.g., high yielding rice varieties NERICA). According to FAO, 98% of the 200 million ha of wetlands in West Africa are available for rice cultivation. Among all West African countries, Mali is the country with the most potential given its important irrigation systems in the Office du Niger, its increased productivity and quality of processing. Furthermore, investing in rice holds the potential for contributing to growth and poverty reduction in Mali because of the largely unexploited production opportunity and consumers’ preferences for the freshness of Malian rice in West Africa (USAID 2009b). However, despite its freshness, most of the rice produced in Mali is of lower quality (e.g., substantial amount of dirt, pebbles, and other impurities) compared to imported Asian rice. Previous rice initiatives have largely focused on increasing production rather than processing and marketing of rice in Mali; therefore, there is a need to improve processing and marketing of rice along the value chain in order to increase the existing demand for Malian rice in the subregion. Today, Mali’s challenge essentially involves meeting national needs in rice while conquering a share of markets in the subregion. To that effect, in 2006, the government adopted the Law on Agricultural Orientation, which seeks to promote a modernized and competitive agriculture founded on small-family-owned agricultural holdings that go beyond subsistence agriculture, while also promoting agro industries and private investments (Toure 2007). The remainder of this paper focuses on evaluating the potential of Mali to increase its local rice production and marketing nationally and regionally, and it assesses how the new price 16 environment characterized by higher input, energy and commodity prices has affected the competitiveness of Malian rice, both in Mali and in selected markets in neighboring countries. 17 3. OVERVIEW OF THE RICE SUBSECTOR IN MALI This chapter discusses the evolution of the demand, supply and policy in the rice subsector in Mali since the liberalization of the cereal markets in the late 1980s, with a particular emphasis on the 2007/08 rice crisis. 3.1. Importance of the Rice Subsector in Mali 3.1.1. National Rice Consumption and Demand (including nutrition) In Mali, rice is increasingly favored by consumers - primarily in urban zones but also in the rural areas where it is grown. National consumption of rice increased from 34 kg per person in 1989 to 53 kg per person in 1998 and to an estimated 57 kg per person in 2007 (USAID 2009b). This increase in total rice consumption, from 500,000 MT in 1998 to about 950,000 MT in 2009, is mainly due to population growth, increased urbanization in large cities, and the exponential growth of fast food restaurants (or gargotières in French), as more people are working over lunch in urban areas (OMA 2009). Also, the recurrent drought that disrupted the regular supplies of millet and sorghum in recent years explains much of the increase in rice consumption in both urban and rural areas, as many consumers shifted to rice due to the stability of rice supplies through national production and imports. Consumer prices for millet have increased by 47 percent over the period 1995-2009 compared to 35 percent for local rice for the same period (see figure 7). This trend in the substitution of rice for coarse grains (millet, sorghum, and maize) was already a concern in the 1980s, but many studies undertaken since then pointed to urbanization rather than price in driving that substitution effect (Delgado and Reardon 18 1987; Kennedy and Reardon 1994). However, these studies were written in a time of relatively stable prices. Figure 7: Relative Price of Local Rice to Millet in Bamako, 1995-2009 3 1.5 0 1995 2000 2005 2010 Source: Adapted from OMA dataset 3.1.2. National Rice Production and Supply Rice occupies 11 percent of the total cultivated land, which represents about 283,400 ha, and rice production in Mali is based on a variety of productive systems that exhibit significant differences. There are six main types of production systems (see table 1), which include: 1) the fully controlled irrigation subsystems in large-scale gravity-fed systems in the Office du Niger zone and much smaller systems around the Baguineda and Selingué dams; 2) small-scale villagelevel irrigated perimeter systems fed by diesel pumps that raise water from the Niger River to irrigate relatively small village-based systems in the Timbuktu and Mopti Regions; 3) partially controlled flooding systems in Mopti and Ségou; 4) traditional uncontrolled flooding on riverside flood plains in the same zones where controlled flooding is practiced; 5) rainfed rice cultivation 19 with small-scale water retention structures in lowlands (or bas-fonds in French) in the Southern cotton belt; and 6) rainfed rice on upland areas having rainfall in excess of 800-1,100 mm/year, also mostly located in the cotton belt in the Sikasso Region. Even though Mali is one of the largest countries in West Africa, its agricultural potential is limited by irregular and low rainfall, ranging from 200 mm in the north to 1,400 mm in the south (see figure 1). Mali has the largest irrigable land potential of any Sahelian country; however, only about 300,000 hectares have been developed, 75 percent of which is currently cultivated (see table 1). To develop its vast irrigable land potential and thereby lessen the unfavorable effects of the irregular rainfall pattern, Mali has established several governmentmanaged irrigation schemes in large and small perimeters along the Niger and Senegal Rivers and other small rivers in the south of the country. Bas-fonds and flooded plains, which had received limited attention in the past, are now being developed under the rice initiative through the intensification and expansion of controlled flooding systems, and rapid expansion of upland rain-fed rice is being led by the introduction of the drought-resistant Nerica 4 variety (Plan d’Opération de l’Initiative Riz 2008-2009; OMA 2009). 20 Table 1: Major Rice Production Systems in Mali Productive System Geographic Current Current Average Potential Production Farm for Zone Areas Estimates Size Expansion (paddy) NonCost of Improved Production Yields (CFAF/Kg) (paddy) Estimated cost of water infrastructure construction Large-Scale Gravity Fed Systems Small Scale Village Irrigated Perimeters Controlled Flooding ON/Segou, Baguineda, Selingué Timbuktu, Mopti 90,000 ha Yields with improved methods (paddy) 900,000 ha 6 to 10 MT/ha 2 to 3.5 MT/ha 130 CFAF/kg 3,300 ha 19,800 MT 0.3 ha 30,000 ha 0 to 5 MT/ha 159 CFAF/kg 3 to 3.5 Million CFAF/ha 700,000 to 1 Million CFAF/ha Mopti, Segou 75,000 ha 111,000 MT 2.5 – 10 ha 150,000 to 2 - 3 300,000 ha MT/ha 0.8 MT/ha 192 CFAF/kg 150,000 to 300,000 ha 5,000 ha irrigated 60,000 ha total6 14,000 ha 225,000 MT 10 ha 1.2 MT/ha 0.8 MT/ha 181 CFAF/kg 10,000 MT Less than 0.5 ha 300,000 3 MT/ha 0.8 MT/ha 96 CFAF/kg 600,000 CFAF/ha 28,000 MT Less than 0.5 ha 300,000 to 800,000 ha 2 to 3 MT/ha 0.8 MT/ha 130 CFAF/kg -- Uncontrolled Mopti Plain Flooding Rainfed systems in bas-fonds Rainfed systems Sikasso, Cotton Zone Sikasso, Cotton Zone Source: USAID 2009b 405,000 MT 1-2 ha 6 6 to 7 MT/ha 500,000 to 1.6 Million CFAF/ha -- In Sikasso, infrastructure to regulate water in the bas-fonds is still rare. In 2009, among the 60,000 ha planted to rice in the bas-fond, 5,000 ha had small-scale water retention structures (USAID 2010b). 21 Because rice is largely consumed mainly by politically powerful urban consumers, who represent 32 percent of the population and grow at 4 percent per year, the government places a high priority on increasing rice production. Concurrently, rural consumption of rice has also been increasing significantly in the last 10 years. However, despite the significant increases in production, Mali is still a net importer of rice (see table 2); and since the tripling of rice prices during the 2008 rice crisis, the government has adopted several measures with the aim of lowering consumer prices. Those measures included exoneration of the value-added-tax (VAT) and import tariffs on imported rice in exchange for a retail ceiling price of 300 FCFAF/kg, export restrictions, and promotion of local rice production by launching a high-profile rice promotion campaign (referred to as the “Initiative Riz” in French). The objective of the rice initiative was to increase local production by 50 percent in 2009 for a total cost of 42.65 billion 7 CFAF francs (i.e., U.S. $92 million ) through: 1) the extension of irrigated areas; 2) the rapid expansion of upland rain-fed rice by introducing the drought-resistant Nerica 4 variety; and 3) the intensification and expansion of controlled flooding or bas-fonds systems (OMA 2009). Table 2: Rice Production and Imports (Milled Rice) 2002/03 Production (tons) 415,921 Imports (tons) 202,814 Self-Sufficiency Ratio 67 (%) Source: USAID 2009b 7 2003/04 562,930 186,675 75 2004/05 430,850 105,390 80 8 2005/06 567,495 272,371 67 2006/07 631,941 180,208 78 2007/08 649,429 137,142 83 2008/09 964,585 165,716 85 Assuming an exchange rate for the US dollar of 463 CFAF/$ (OANDA.com) 8 This table does not take into account significant, but officially unrecorded, exports of rice to neighboring countries. 22 As a result of those measures, imports and local production significantly increased. Imports increased by 20 percent in 2008/09 relative to 2007/08 due to the high level of tax exemptions. Furthermore, the input subsidies and higher output prices increased the use of fertilizer and resulted in expansion of cultivated areas from 391,870 ha in 2007/08 to 482,552 ha in 2008/09. However, a recent assessment on the impact of the rice initiative highlighted many technical difficulties in the organization and implementation of the project regarding: 1) discrepancies between the announced level of production at 1.6 million tons of paddy and the 1.3 million estimated by a government assessment team, 2) hasty distribution of untested Nerica 4 seeds, and 3) delays in the distribution of subsidized fertilizer. Overall, the financial irregularities due to both mismanagement and corruption have resulted in a shortfall of over 4.7 billion CFAF (i.e., U.S. $10.15 million) (BVG 2009). 3.2. Policy Environment of the Rice Subsector Nations can improve their competitiveness, and thus prosperity, through policy reforms aiming at transforming a subsector in order to simulate broad-based economic growth and increase productivity. The following sections examine these issues in the context of the evolution of the Malian rice subsector, with particular emphasis on the period following the liberalization of the agricultural sector. 3.2.1. Fiscal Policy Governments of developing countries have traditionally intensively intervened in their agricultural markets to reduce domestic price volatility and also to decrease the costs to politically important interest groups, notably urban consumers. In Mali, fiscal polices have 23 mainly consisted of artificially lowering prices for consumers through subsidies. Since January 2000, Mali has applied the common 10 percent external tariff (TEC) of the UEMOA, in addition to other duties and VAT at 18 percent. Thus, the current overall taxation level of rice in Mali is 32 percent of the value, with a real protection level of 14 (i.e., excluding VAT, which is imposed on both domestic and imported rice) (Baris et al. 2005). This protection can be modulated by the government, to limit the increase in price in case of shortage. During the recent 2008 rice crisis, the government of Mali adopted several measures with the aim of lowering consumer prices by decreasing production costs, with the hope that the lower production costs would be passed on to Malian consumers. These measures included VAT and tariff exonerations on imported rice, fuel subsidies that made fuel prices among the lowest in West Africa, a 50 percent cost reduction on fertilizers and a 60 percent cost reduction on seeds (Plan d’Opération de l’Initiative Riz 20082009; OMA 2009). The real economic impacts of these protection measures are limited given that ultimately it is taxpayers who pay for the subsidies via taxes; however, they do redistribute income among different groups in the population. To date, Mali’s initiatives that aimed to improve competitiveness have been expensive, and the sustainability of government financing over time has a potential impact on the competitiveness of the rice subsector given that high expenditure levels ultimately have to be financed by increased taxation, reduced spending in other sectors, or debt. 3.2.2. Monetary Policy A sound monetary policy is necessary, as it can have both short-term and longer-term effects given that high and volatile inflation can render price signals difficult to interpret and distort decisions away from investments that lead to higher productivity (Porter et al. 2008). The 24 West African Economic and Monetary Union (UEMOA) is an organization of eight states of West Africa, including Benin, Burkina Faso, Côte d’Ivoire, Mali, Niger, Senegal, Togo, and Guinea-Bissau, established to promote economic integration among countries that share a common currency pegged to the Euro, the CFA franc. One consequence of Mali’s adherence to the UEMOA is that there are strict limits on monetary expansion. As a result, Mali has less leeway to use its monetary policy to induce inflation as a way to reduce its debt and stimulate growth of its agricultural subsector. In fact, inflation rates have been below 3 percent per year since the late 1990s, except in 2008-2009 when inflation rates nearly tripled due to the food crisis (see figure 8). As a consequence of the tight monetary policy, interest rates are relatively high, which may impede borrowing by the agricultural sector. Figure 8: Evolution of Inflation Rates in Mali, 2007-2009 12 Percent 8 4 Jan 09 Jan 08 Jan 07 0 9 Source: ECOMAC - ECOWAS database 4 9 ECOWAS Multilateral surveillance for macroeconomic convergence & common statistics 25 3.2.3. Land Tenure The land tenure situation in Mali is marked by the coexistence of customary land tenure practices inherited from the pre-colonial past alongside colonial and post-colonial state policies that impose Western legal concepts of state and private property. In the past 10 years, the government has worked closely with civil society and the private sector to introduce a number of important land-related legislative measures designed to pave the way for significant change in how property rights are perceived and managed. The most important among these documents are the Politique Foncière (générale), the Code Domanial et Foncier (CDF) [Land Act], the Loi d’Orientation Agricole (LOA) [Agricultural Orientation Law], and the Charte Pastorale [Law on Pastoralism]. In Mali, there are eight different types of land registration, notably: 1. Contrat d’exploitation (Contract for exploitation of land and resources); 2. Permis d’exploitation (Permit for use); 3. Permis d’habitation (Permit for housing); 4. Bail avec promesse de vente (Lease with promise to buy); 5. Bail ordinaire (Ordinary lease); 6. Bail emphytéotique (Long-term lease); 7. Titre foncier (official, legally recognized title to land); and 8. Décision de concession rurale (Administrative decision regarding a rural concession). The CDF and the LOA provide for annual contracts, cultivation permissions, rural concessions, leases and land titles. The land title can be held only by national farmers. Foreign operators are entitled to leases only – accompanied by a statement of requirements. These leases can have a duration of up to 50 years and can be renewed (USAID 2010a, GTZ 2009). 26 The CDF and the LOA recognize customary land rights for unregistered lands under conditions specified in the CDF; however, in practice, the neat distinction between “customary” and “statutory” land tenure systems is considerably blurred. In Mali, like in much of West Africa, implementation of state policies and laws is limited in rural areas, mainly due to the lack of financial resources and of institutional capacity in government agencies, lack of legal awareness and, often, lack of perceived legitimacy of official rules and institutions. This legal pluralism creates confusion and fosters tenure insecurity. Thus, insecurity of tenure based on customary rights is currently increasing in areas with high pressure on land such as irrigation and irrigable zones, especially in the Office du Niger (GTZ 2009). Irrigated land is a high-value productive asset, and land ownership in the gravitational irrigated perimeters of the Office du Niger is vested with the state, which delegates land management responsibilities to the Office du Niger. Under the 1996 decree regulating land tenure of the scheme, the Office allocates land use rights to farmers following a two-tier model (i.e., two years of probation, followed by permanent, transmissible use rights). Under this model, farming contracts are granted to farmers for a one-year duration. These contracts are tacitly renewable, they are subject to conditions (e.g., putting land into productive use, payment of the water fee, conservation measures, etc.), and they can be withdrawn if those conditions are not respected. After the probationary period, farmers can apply for a license for permanent cultivation under the farming contracts. Farming licenses provide greater tenure security, as they have indeterminate duration, they are transferable to heirs, and their withdrawal entails payment of compensation – unless the withdrawal is motivated by violations of the farmer’s obligations, which are the same as under the probationary farming contracts (FAO 2006). 27 In the Office du Niger, land transactions are prohibited by law; yet, land rentals and sales are common. Land rentals are often linked to inability of small-scale farmers to pay the water fee, which would entail loss of land use rights. Rather than losing his plot, the farmer may informally rent it out. Informal land sales are also significant. After the “purchase”, the buyer seeks to regularize his position by requesting a formal land allocation from the relevant government agency. Land rentals and sales occur frequently enough for land prices to be well established, and this phenomenon has led to the emergence of an illegal but dynamic land market. Furthermore, these activities seem to be tolerated by the Office du Niger officials, who are themselves among the market players (FAO 2006). Currently, checks and balances to counter corruption are performed by the Office of the Auditor General, but this anti-corruption mechanism has proven to be ineffectual so far (GTZ 2009). Furthermore, Foreign Direct Investments (FDI) and private investments by Malian agribusiness firms have increased pressure on land and thereby insecurity for small farmers, especially since the 2008 global food crisis, which brought an exponential growth in the “purchase” of agricultural land. Foreign governments and private companies have intensified investment activities in agricultural land in poor countries, not only for the production of oil-producing crops but also for the production of food destined to be exported to the investing country. The total area allocated to FDI in Mali counts for 130,105 ha, 100,000 ha of which have been granted to Malibya-Agriculture; 14,100 ha to Markala Sugar Project; 11,288 ha to UEMOA; 2,605 ha to Agro Energy Développement; and 2,112 ha to Mali Biocarburant (GTZ 2009). In the Office du Niger, sales prices per ha for ricegrowing land range from 200,000 to 500,000 CFAF/ha; i.e., US $430 to $1080/ha, and farmers who want to grow rice pay an annual rent to those who possess the land use rights, with annual leases ranging from 125,000 to 150,000 CFAF per ha (i.e., US $ 270 to 325), including fees for 28 water, which are usually half of the rental price. In the irrigated zones of Baguineda, the annual lease per ha ranges from 150,000 to 200,000 CFAF, i.e., US $325 to $430 (GTZ 2009). In rural areas of Southern Mali where most bas-fonds are located, land tenure is based on customary law, which is heavily patriarchal. There is no land market, nor do farmers rent land for cash or in-kind payments. Bas-fonds ownership is communal, and plots are allocated to their users, who are predominantly women, based on customary rules. While this patriarchal tenure system makes it extremely difficult for women to own land, they have access to land through their husbands or the head of their household (Dimithe 1997). However, in villages with a relatively greater degree of urbanization, bas-fonds rice production is largely undertaken by men. Dimithe (1997) argues that bas-fonds rice production used to be a male-dominated activity, but men have abandoned this activity to women due to the relatively heavy weed pressure and difficulty of land preparation in the bas-fond, compared to upland. Thus, bas-fonds rice symbolizes a gender-based social freedom for women, given that they have a discretionary power over the use of their harvest for their own needs and social obligations (e.g., welcoming visitors). The government’s willingness to grant land titles to farmers is relatively new; thus, customary land allocation still continues to be the main/only way to access land for the majority of poor people. Legal pluralism, therefore, constitutes a major challenge for investors as well as for the local communities, especially for women, who suffer a lot from the increasing commercialization of agricultural lands, as they are the last to be considered when land is allocated and, therefore, the first to receive nothing when land becomes scarce. De jure, women are entitled to land ownership; however, de facto, they have limited access to that resource. In fact, traditionally, women cannot own land in Mali. While they can be granted temporary land 29 use rights, these can be retracted at any time. To improve their land tenure security, women frequently form legally recognized associations, requesting land for their collective use. This strategy improves women’s tenure security, but still does not guarantee that the state will not reclaim the lands later. Public attitudes with respect to women’s ownership of land in Mali are beginning to change, and the state is advancing policies that aim to improve women’s access to land (USAID 2010a, FAO 2006, GTZ 2009). 3.2.4. Water Management and Irrigation In the 1995 Forestry Law, the Malian government declared state ownership of water resources. In 2002, the Water Resources Code reaffirmed the principle of state ownership of public water resources while stressing the need to satisfy the public’s need for potable water (USAID 2010a). Water management is important for modern rice farming, as it stimulates better and more stable growth, which is important for high grain production. Water management involves controlling water so that sufficient water is available at various stages of the plant growth, or removing it when there is excess water. This is particularly relevant in Southern Mali, given the erratic rainfall across locations and over the cropping season. In order to lessen the unfavorable effects of irregular rainfall patterns, Mali has established several governmentmanaged irrigation schemes in large and small perimeters along the Niger and Senegal Rivers and other small rivers in the south of the country. Outside the irrigated systems of the Office du Niger, Baguineda and Selingue, agricultural production is mostly extensive and remains largely dependent on weather vagaries. Erratic rainfall leads to weak production and occasionally total loss of harvest. Thus far, the government’s strategy has been to mobilize resources for expanding and intensifying production in irrigated land. However, with the development of newer 30 technologies, notably drought-resistant Nerica 4 variety, Mali is considering strategies to boost domestic rice production in more marginal lands (Dimithe 1997; OMA 2009; Plan d’Opération de l’Initiative Riz 2008-2009). In its current policy of water control, the government has given priority to areas located in zones developed under total water control and to zones that can be equipped with minimal costs, e.g., bas-fonds (see table 1). The Office du Niger constitutes the largest priority area, with its potential for irrigable land amounting to 900,000 ha. The total developed acreage under total irrigation is 125,000 ha, and additional water infrastructure construction in the ON zone is estimated at 3-3.5 million CFAF francs per ha. New developments are expected to be constructed in the ON zone, including acreage allocated to the Millennium Challenge (16,000 ha), Malibya-Agriculture (100,000 ha), Markala Sugar Project (14,100 ha), UEMOA (11,288 ha), Agro Energy Développement (2,605 ha), Grand Distributeur Céréalier du Mali (7400 ha) and Mali Biocarburant (2,112 ha) (OMA 2009; GTZ 2009; and L’Independent 2010). In Southern Mali, bas-fonds are narrow inland valley swamps that used to be permanent rivers, but which have dried up with declining rainfall. During the rainy season, the water table in these swamps rises due to overflow from small rivers and seepage and slope-surface runoffs from adjacent upland, generally supplying water throughout the growing season. In bas-fonds without water control, the valley bottom tends to be sandier than the fringe because flowing water prevents sedimentation. Well-watered bas-fonds offer farmers the opportunity to cultivate rice during the rainy season and to produce various upland crops, notably vegetables and potatoes, and livestock during the dry season. Irregular rainfall patterns have historically discouraged rice farming in bas-fonds because the amount of moisture available to the rice plant is often insufficient to ensure acceptable yields. Thus, in many bas-fonds, water control is a 31 necessary condition for rice production. Typically, water control is done using the planning of the depths according to different typology, including construction of dykelets with a level curve, sloping dykes, and diversion works with an irrigation network (Dimithe 1997). About a fifth of the potential bas-fonds land, measuring 300,000 ha, is being cultivated, mostly by women in the region of Sikasso.Among the 60,000 ha planted to rice in the bas-fonds, 5,000 ha have smallscale water retention infrastructure. Additional water infrastructure construction in bas-fonds areas is estimated at 600,000 CFAF francs per ha compared to small-scale irrigated perimeters in Mopti and Tumbuktu, and flooded plains in Mopti and Segou, where addition water infrastructure can costs up to 1 million to 1.6 million CFAF francs per ha, respectively (see table 1). Historically, water control infrastructure in Southern Mali bas-fonds has been built by the cotton parastatal CMDT, and to a lesser degree by NGOs. However, with the ongoing privatization/reform of the CMDT, the CMDT now focuses exclusively on cotton and is no longer involved in building infrastructure for the bas-fonds. Today, the government of Mali is interested in investing in water control infrastructure in order to meet its rice policy objectives. However, as the government embarks on polices to render irrigable land more productive, with the mission to improve agricultural productivity, it often fails to take into account the full environmental and social impacts of these interventions. Investors and government have not always undertaken in-depth studies to evaluate the efficiency of their planned irrigation systems or assess the potential impact on water availability for other users. Poorly planned exploitation of key water resources, especially of the Niger River and its tributaries, have led to devastating effects on communities that rely on those resources, as illustrated by the partnership between Mali and Malibya. The government of Mali recently leased agricultural land to Malibya for a 50year period, renewable up to a total of 99 years, granting the company unrestricted access to 32 water from the Macina canal and ground water, for an annual fixed fee. Malibya plans to produce 200,000 metric tons of rice each year on irrigated rice plots that will receive water from a 40kilometer water canal leading from Kolongotomo to the project areas in Boky-Wèrè. Construction began on the 40-kilometer water canal in 2009 and was controversial. Several villages and forested areas have been flooded by ongoing canal works, which has deprived the local population of their homes and valuable resources. Villagers have complained of health issues due to dust pollution caused by construction, traffic, and demolition of housing, but the existing legislation does not adequately address how water resources should be managed and how those issues should be resolved (USAID 2010a). In bas-fonds, construction of water control infrastructure often creates several technical and socioeconomic problems as well, especially with regards to gender-based conflict, as men have often taken the bas-fonds land back from women following infrastructure improvements (Dimithe 1997). 3.2.5. Input Credit Since the liberalization of the cereals sector, which began in the 1980s, farmers organizations have been responsible for acquiring and distributing credit needed for acquiring inputs. Financial intermediation in rural Mali has been carried out by two types of institutions: (1) traditional banks, notably the National Bank for Agricultural Development (BNDA), Decentralized Financial Systems (DFS) and the Malian Solidarity Bank (BMS); and (2) microfinance institutions (MFIs). Historically, the BNDA and the BMS have provided the bulk of the financing needs of farmers and other value chain actors during the crop year, such as grain traders, input and agricultural equipment suppliers, as well as for the processing of agricultural 33 products. However, since 2005, the BNDA’s credit authorizations to the rural areas have declined from 39.5 percent of total approvals in 2006 to merely 4.1 percent in 2008. This sharp decline is mainly due to the cotton-sector crisis and to the high indebtedness of actors in the rice and cotton sub-sectors. As a result, the financing of the agricultural sector is increasingly left to MFIs, but their ability to ensure the financing of farmers and other actors in the value chain is now strongly questioned. Producers are concerned about the financial instruments offered by MFIs, and whether MFIs really have the ability to provide the enormous financing needs for the modernization of the agricultural sector, which will require Mali to increase its annual public investments from 154.9 billion CFAF in 2009 to 248.7 billion CFAF by 2015 in order to achieve ECOWAP/CAADP’s objective of a 6 percent annual agricultural growth rate. In fact, due to the structure of MFIs’ resources, consisting of beneficiaries’ short-term savings, BNDA and BMS’s refinancing, donors’ resources, and their own funds, MFIs lack the long-term resources allowing them to finance medium- to long-term loans (Michigan State University Food Security Team, 2011). Furthermore, taking advantage of the increased competition following the liberalization of the sector and of the increase in the number of MFIs, some farmers got heavily indebted. The recovery of unpaid debts and the stabilization of the agricultural sector’s financial system have become major issues today. As a result, banks and MFIs have created risk centers to address these issues (Michigan State University Food Security Team, 2011). However, debate regarding appropriate interest rates levels still persists. The rate is capped at a maximum of 27 percent by UEMOA. The interest rates for fertilizer credit are around 12 percent. BNDA lends at a negotiated rate of 7 or 8 percent to the MFIs, which add a brokerage markup of 4 percent to cover its expenses. Contrary to the views of farmers, small- 34 scale processors and agricultural products traders, who believe that these interest rates are too high and do not take into account the risks associated with agricultural activities, financial institutions argue that these rates barely cover their operating costs, risks, and the repayments of clients’ deposits (Michigan State University Food Security Team, 2011). The lack of access to long- and medium-term loans constrains producers’ level of input use, especially agricultural equipment. Following sluggish growth in productivity levels in the early 2000s due to soil fertility degradation and low use of improved seeds, the government expressed its political will to make proper and affordable supply of quality inputs available to producers. Through its law on agricultural orientation, the government has also conveyed its desire to help producers gain access loans at relatively low interest rates for the purchase of agricultural inputs and equipment (OMA 2009). Although many stakeholders involved with the rural sector advocate subsidizing interest rates, continued credit subsidies to farmers could impede the current momentum of mobilizing local savings, which covers about 88 percent of MFIs' credit supply. In addition, the mobilization of supplier credits through the development of agribusiness and its association with well-organized farmers as well as the establishment of an environment favorable to private foreign investment should constitute the important strategies in new financing agriculture policies. 3.2.6. Agricultural Research and Extension Historically, plant and animal research activities, including rice, have been placed into a single institution, the Institute for Rural Economy (IER in French). Since the early 1990s, agricultural research in Mali has gone through a number of institutional changes, with the aim of decentralizing research activities through the creation of regional centers, and improving 35 management and planning. However, the increased competition between research institutions led to the creation of the Système Nationale de Recherche Agricole (SNRA) as a means to improve research coordination across multiple research and teaching establishments and further increase responsiveness to stakeholders. The SNRA now includes the Institut d’Economie Rurale (IER), the Institut Polytechnique Rural de Katibougou (IPR), the Central Veterinary Laboratory (LCV) and the University of Bamako. Despite these institutional reforms, the system still faces numerous problems, including: 1) over-reliance on donor funding, 2) aging group of researchers with few well-trained replacements, 3) weak training institutions, with inadequate human and financial resources to rebuild and expand human capital, and 4) weak links to extension despite institutional reforms (Michigan State University Food Security Team 2011). In Mali, agricultural extension and advisory services for rice was mainly provided by Governmental and parastatal institutions. Historically, governmental extension services have adopted a general filière intégrée approach to subsector management with extension services being built into the overall development programs for the targeted crops (e.g., CMDT for cotton and ON for irrigated rice). Despite the success of these systems in providing inputs and credit and reliable output markets to farmers, Mali was forced to abandon the approach during the structural adjustment period and to reduce the scope of government-provided extension services for farmers. For the more generalized governmental extension services outside the Office and CMDT, there was significant downsizing of programs under structural adjustment, leading to a World Bank supported Training and Visit (T&V) approach in the early 1990s as part of efforts to transfer greater responsibilities to rural producers through development of Village Associations, assisted by an unpaid cadre of village animateurs (Michigan State University Food Security Team 2011). 36 Getting the right information to the right people in the right form at the right time is essential to improved public and private decisions regarding investments, policies, production, marketing, and adaptation to climate change. In Mali, research and extension are all very weak in terms of human resources and budgets. Researchers often lack the incentive to produce adequate packages and technologies for farmers, and the “traditional sector,” does not benefit from the higher levels of investments in research, extension, and infrastructure that are commonly found in the cotton and irrigated rice zones. Today, the general perception is that Mali’s agricultural extension system is “broken”, and has failed to provide the quality and quantity of services needed, particularly for the poorest of farmers in zones where there are no strong cash crops to anchor the system. In 2006, the Law on Agricultural Orientation advocated a fee-for-service extension model and provided a new policy orientation on long-term investments for the rice subsector that involves the creation of a national fund for agricultural development to help finance support services (consultancy, research and extension services, post harvest operations and marketing). The effectiveness of this new model is still yet to be tested (Michigan State University Food Security Team 2011; OMA 2009). 3.2.7. Rice Marketing The liberalization of cereal markets in Mali, which promoted small-scale rice mills in the ON and gave farmers the freedom to pay their water and input charges to the ON in cash instead of paddy. This new measure, coupled with the introduction of small mobile mills in the ON, put an end to the Office du Niger’s monopoly on rice milling. As a result of these changes, the small mills quickly became farmers’ preferred outlet for their grain. Small mills had several advantages compared with the large state mills. Many of these small plate mills could be moved from village 37 to village, rendering possible on-farm husking; thus, facilitating access to remote areas and reducing the costs of hauling paddy long distances for processing (Diarra et al. 1999). Furthermore, the small mills’ operating costs were below those of the large mills, mainly due to the lower capital and labor costs per kg of the small mills, the poor state of repair of the state mills and the ability of the small mills, through their differential pricing, to attract better quality paddy, and their generally higher capacity utilization (USAID 2009b). The rapid spread of the small mills in the ON had profound effects on the organization of the rice subsector in the ON. The large number of mills competed not only with the ON mills but also among themselves for paddy, which forced them to pass their cost savings back to farmers in the form of higher prices. The ability of the market to pay premiums for higher quality rice led to a dramatic change in rice production technology. Farmers began to adopt improved postharvest techniques to preserve paddy quality rather than focusing solely on agronomic yield. The quality of milled rice varies widely according to the rice variety, storage conditions, humidity level of the paddy, and type of processing equipment used. While in most instances, one would expect modern industrial mills to have a higher milling ratio than the small mills, this was not the case in Mali in the early 1990s. In fact, the state mills, which had not been adequately maintained, achieved a milling rate of about 65-67, while the small mills varied between 65 and 70% (Diarra 1999). However, since the late 1990s, the reported technical efficiency averages for small mills started to drop, with 60% for small mobile hullers of type Engelberg, 63% on average for the compact plastic roller units, and 65% for minirizeries (Diarra 2004). This decline could be due to the inappropriate maintenance of the equipment. 38 Despite recent decline in milling rates, the introduction of the minirizeries mills in the ON zone has helped improve the overall quality of local rice, which contained fewer amount of broken rice and impurities such as pebbles, bran, straw, and rice flour, has considerably improved, leading to the emergence of a specific market segment for “high quality” local rice. This bifurcated the market for local rice into two distinct segments: a high-end segment with a 15 to 20 percent price premium, consisting exclusively of local rice that has been polished and cleaned, and a mass market segment consisting of imported rice and un-cleaned and heterogeneous local rice (USAID 2009b). 39 4. CONCEPTUAL FRAMEWORK 4.1. Theory of Comparative Advantage and Opportunity Cost Agricultural policy affects the economic system by altering incentives and thus the economic decisions that shape that system. An economy is competitive or has comparative advantage in the production of a tradable commodity if its production in the country involves a lower opportunity cost, in terms of foregone production of other goods and services, than in other countries. The competitiveness of that economy is due to one or several of the following factors (Tsakok 1990): 1. It uses fewer traded inputs per unit of output, 2. It uses fewer domestic resources per unit of output, 3. Its domestic resources have lower opportunity cost, and/or 4. The value of its domestic currency is not high relative to other major currencies. Policies can create financial incentives to produce goods for which the country is not an efficient producer in economic terms. Whether a country produces a good in which it has a comparative advantage depends on whether internal policies are such that domestic prices reflect economic opportunity costs and whether incentives generated by price policy are supportive of efficient agricultural development. The concept of comparative advantage has its foundation in economic theory and is an important component to the theory of international trade. According to the assumptions of standard microeconomic theory, the main objective of risk-neutral producers is to maximize profits, which reflects the difference between the value of the output produced and the value of inputs (i.e., land, labor and capital) used in the production process. When inputs and outputs are valued at their opportunity costs in an environment characterized by no market failure, 40 producers’ behavior (assuming profit maximization) results in an efficient allocation of resources. Opportunity-cost pricing is a powerful concept that has been widely used as a benchmark value to assess efficiency. When assessing whether distortions from opportunity-cost pricing exist, it is necessary to identify the next best market alternative for the use of a particular resources, which may reside in international markets. Therefore, the opportunity cost of a tradable commodity is its border price; i.e., the price of an export or import converted into domestic currency at a given exchange rate. Border prices reflect the relative scarcity of those commodities to the economy, and according to the border-price paradigm, domestic prices that systematically diverge from border prices entail efficiency losses. Assessing comparative advantage of a subsector consists of the following steps (Tsakok 1990): (1) Computing the opportunity cost of foreign exchange, i.e., its scarcity value to the domestic economy. This serves as a benchmark value for further computations and comparisons. (2) Computing the value added in foreign and border prices. This indicates net earnings in foreign exchange (in the case of an export) or net savings in foreign exchange (in the case of an import substitute) derived from the product. The net earnings or net savings indicate the benefit of domestic production in terms of foreign exchange. The benefit is also a measure of opportunity cost—what the economy can earn or save given foreign trade opportunities open to the economy; 41 (3) Computing the cost of the primary factors or domestic resources used in production.This indicates the cost in terms of alternatives forgone. Domestic resources are valued in shadow prices, giving the domestic resource cost; and (4) Comparing the domestic resource cost to the net benefits. This cost-benefit comparison is the measure of efficiency. 4.2. Measures of Comparative Advantage There are several measures of comparative advantage. The economic profitability measure is derived from maximizing a country’s economic profit as follows: T N Πei = Pei * Qi - Σ t=1 Pet* Qt - Σ n=1 Pen * Qn where, Πei : economic profitability from producing output i Pei : economic price of output i Qi : quantity of output i Pet : economic price of tradable input t used to produce output i Qt : quantity of tradable input t used to produce output i Pen : economic price of nontradable input t used to produce output i Qn : quantity of nontradable input t used to produce output i Measures of comparative advantage can be expressed in absolute values (e.g., net economic benefit) or as coefficients (e.g., domestic resource cost ratio), and are based upon economic or shadow prices. The computation of measures of comparative advantage requires obtaining the quantities of domestic resources and nontraded inputs in representative farming 42 systems (provided by farm budgets) and understanding major alternative uses of these inputs under given market structures (Tsakok 1990). Absolute profitability measures such as the net economic benefit (NEB) have been criticized because they are dependent of the unit and scale of operation, which make it difficult to compare investments. The domestic resource cost ratio (DRC) is simply an extension of the absolute economic profitability measure and have the advantage of being scale-free and independent of the unit of measurement. Both measures use the same information on prices and input use, and require that primary and intermediary inputs in the production be valued in shadow prices, but the DRC is more widely used than the NEB. However, one advantage of using absolute rather than relative efficiency measures is the direct economic interpretation in monetary terms of gains or losses. Furthermore, absolute measures enable identification of transfers (often called “distortions”—divergences between financial and economic costs) introduced by government policies, and thus, facilitate the interpretation of shadow prices, as one can relate them to prices observed in the real markets. 4.2.1. The Domestic Resource Cost as a Preferred Measure of Comparative Advantage The domestic resource cost compares the opportunity costs of domestic production to the value added that it generates and is calculated as: N Σ n=1 Pen * Qn DRC = -------------------------------------, T (Pei * Qi - Σ t=1 Pet* Qt) *SER where, SER: shadow exchange rate. 43 The numerator represents the sum of the costs of using land, labor and capital; i.e., the total cost of domestic resources and of nontraded inputs. The denominator represents the value added in border prices; i.e., the net foreign exchange earned or saved by producing the good domestically. DRC <1 indicates efficiency and international competitiveness – the economy saves foreign exchange from local production; DRC =1 indicates that the economy neither gains nor saves foreign exchange through domestic production; and DRC>1 indicates inefficiency and lack of international competitiveness – the economy is incurring costs in excess of what it gains or saves from the production in terms of foreign exchange. 4.2.2. Limitation to the Domestic Resource Cost Ratio The advantages of the DRC approach are its simplicity and the ease with which the result may be interpreted. Nonetheless, its major limitations include: 1) the tendency for some “domestic” costs to involve import components, which are not always easy to disaggregate, 2) the partial equilibrium framework on which it is based and which focuses only on a single market without addressing the linkages among markets, and 3) the static nature of the framework, which does not allow to account for uncertainty nor changes in structural conditions that could alter comparative advantage (e.g., productivity enhancement). However, it is been argued that even if world prices embody subsidies, the importing country, especially if it is “small” in an economic/political sense, like Mali, cannot do anything to alter those subsidies, and hence the subsidized world price represents the opportunity cost to the country of domestically producing the good. While the economic interpretation of DRC ratios is straightforward (they measure economic efficiency of domestic production), the policy interpretation is not. Thus, the task of 44 the analyst is to integrate the information within a broader framework of objectives and market opportunities because even though efficiency is important, it must be balanced with other considerations in order to form sound policy interpretation. Furthermore, given the inconsistency among the statistics cited by various authors who examined the rice value chain in the past few years, there is some uncertainty about the values of some of the key variables that go into the calculation of efficiency of domestic production. As a result, analysts have performed sensitivity analysis on some key parameters to see how those variations affect efficiency, resulting in the computation of a set of DRCs rather than relying just on one. These key parameters often include yields, exchange rates, world prices, wage rates and transport costs. This set of DRCs would indicate whether there is a good case for further exploring efficiency aspects of expanding production of this commodity (Tsakok, 1990 and Barry, 1994). 4.2.3. Determining Economic Prices Adjusting financial prices into economic values requires: (1) adjusting for direct transfer payments, (2) adjusting for price distortions in traded items, and (3) adjusting for price distortions in non-traded items (Gittinger 1982). Shadow prices indicate the contribution to objectives of resources or a social welfare function at the margin. However, determining the marginal contribution of the good to the social welfare function requires assigning a weight to each objective proportional to its relative importance in the overall social objective, which calls for defining a numeraire or a common denominator for measuring cost and benefits (Barry 1994). There is a substantial literature on shadow pricing, and two kinds of numeraires have been widely used: the first one, the “world price” numeraire, adjusts the prices of nontraded goods to be equivalent to border prices, while the second one, the “domestic price” numeraire, adjusts the 45 prices of traded goods to be equivalent to domestic prices (Belli et al 1997). This paper will compute shadow prices using the “domestic price” numeraire as follows: 1) Direct transfer payments include taxes and subsidies. As mentioned above, during the 2007/08 crisis, the government of Mali undertook several measures with the aim of lowering consumer prices, including VAT and tariff exoneration on imported rice, as well as input subsidies on fertilizers and seeds. In Mali, agricultural subsidies for rice production and marketing do not operate by means of direct payments but are granted through mechanisms that change market prices. Thus, these subsidies are not treated as direct transfer payments but rather as indirect subsidies, and adjustment for these subsidies are made regarding whether they affect tradable or nontradable goods as discussed below. 2) Traded goods: goods are traded if their production or consumption will affect a country’s level of imports or exports on the margin (Gittinger 1982). • Traded goods include production output (i.e., rice paddy) and inputs (i.e., seeds and fertilizers); these are valued at their economic parity prices. The import parity price is the economic price of the imported good at the point of delivery obtained by adding to its FOB 10 price all freight and insurance charges between the world market and the point of reference, accounting for the adjustment of the currency. Conversely, the export parity price, which is the economic price of exports at a 10 Free on Board or FOB is a term of sale to indicate that the price quoted by a seller includes all charges up to placing the goods on board a ship at the port of departure specified by the buyer. 46 specific point, is obtained by deducting freight and issuance charges from the CIF • 11 price, accounting for the adjustment of the currency. Tradable but nontraded goods are those which are not traded because of government regulation, such as rice under an export ban (Gittinger 1982) These goods are valued at their market price. However, it is important to mention that even though the distinction between nontradable factors and tradables is essential, it is often a difficult task, for production processes are complex, and it is the analysts’ task to compare the marginal cost and benefit of undertaking this activity. 3) Non traded goods are goods, which by their very nature tend to be cheaper to produce domestically than to import but for which the export price is lower than the domestic cost of production (Gittinger 1982). Such goods include labor, capital and land, transport, construction, services, utilities, credit and irrigation water. The primary factors of production (i.e., labor, capital and land) are valued as follows: • labor is valued at the market wage rate during the agricultural peak season; • capital is valued at the shadow discount rate, determined by the consumption rate of interest, which measures the rate of fall of the average consumption over time; • land is valued at its residual return in the best alternative use, i.e., the difference between the social profit and the economic cost of other factors of production in their best alternative use. 11 Cost, Insurance, Freight or CIF is a term of sale to indicate that the price quoted by a seller includes insurance and all other charges up to the named port of destination. 47 5. ANALYSIS OF THE COMPETITIVENESS OF THE MALIAN RICE SUBSECTOR IN DOMESTIC AND REGIONAL MARKETS The objective in this chapter is to assess the comparative advantage of Mali in the production and marketing of rice both in domestic markets and in the subregion. More specifically, this chapter examines: 1) whether Malian rice is financially profitable at the farm level, 2) whether Malian rice is economically profitable at the farm level, and 3) whether it is a good use of national resources to market rice in various markets in the subregion. 5.1. Data This study examines irrigated rice of rehabilitated perimeters in the Office du Niger and bas-fonds rice of southern Mali in the cotton zone. There are several irrigated and bas-fonds rice production enterprises based on a unique combination of inputs (i.e., seed, fertilizer, herbicide, and water control) associated with each system. More specifically, the literature has identified two types of irrigated rice enterprises in the Office du Niger, i.e., rehabilitated perimeters and non-rehabilitated perimeters, and four types of bas-fonds rice enterprises, i.e., purely traditional, macro-semi intensive, micro-semi intensive, and intensive systems. Previous studies found that the intensive irrigated rice production systems in rehabilitated perimeters and the intensive basfonds production systems were the most profitable and the least risky alternatives among the other rice enterprises listed above, given the use of improved seed varieties, fertilizer and water control infrastructure (Diarra 2004, Dimithe 1997). Thus, this study focuses on those two production systems. In order to conduct the analysis on the financial profitability and the economic competitiveness of both irrigated and bas-fonds rice, this study built on and updated data from previous studies, notably those conducted by Barry et al. (1998) and Diarra (2004) for irrigated 48 rice, and by Dimithe (1997) for bas-fonds rice. Crop budgets for irrigated rice obtained from IER and the Ministry of Agriculture were used to update previous cost/benefit analysis. Unfortunately, no recent detailed crop budget for bas-fonds rice was available. Thus, up-to-date data on quantity of inputs used for the production of a hectare of bas-fonds rice was not available, but this study updated per unit cost figures of these inputs using data obtained from the Institute for Rural Economy (IER), the National Statistics Department (INSTAT—formerly known as DNSI), and the Agricultural Market Watch (OMA). One of the major constraints faced during the data collection process was the inconsistency among the statistics cited by various sources regarding production and yield levels. For production statistics, this study relied on the figures available from the Cellule de Planification et de Statistique (CPS) for Rural Development. Domestic output and input prices were collected from the OMA and the IER. World market output and input prices (i.e., fertilizer) were obtained from USDA/ERS. Inflation rates were obtained from the Economic Community of West African States (ECOWAS), which 12 were used to update transport rates . Finally, freight rates, port charges, as well as customs and import duties data were collected from various country reports of a workshop on price transmission and parity prices held in Bamako in 2009, notably for Mali, Senegal, Cote d’Ivoire and Burkina Faso. 13 12 Transport rates in West Africa are usually collected from traders; thus, these rates are likely to include nontariff barriers and bribes. 13 Diallo, B., Dembele N., Staatz J., and Adjao R. “Atelier régional méthodologique sur les prix de parité à l’importation et à l’exportation du riz et du maïs en Afrique de l’Ouest.” Workshop held in Bamako, Mali, June 17-18, 2009. http://www.aec.msu.edu/fs2/srai/index.htm#rp 49 5.2. Financial Profitability This section assesses whether Malian rice is financially profitable at the farm level. Performance indicators, in financial terms, are important, as they determine to a large extent whether rice producers continue or cease farming and, if they continue, what commodities they produce. Rice producers will remain active if their financial profitability is positive, i.e., if they are able to cover their costs and generate profit. While budget analysis is based on the assumption that farmers desire to maximize their profit by making the “best” possible use of the resources available to them, it is important to keep in mind when analyzing the results that their objectives are typically more complex and may include non-monetary and social concerns such as meeting food security needs by ensuring that some portion of their food supply is met through their own production, especially in the bas-fonds. This section estimates and analyzes the financial returns associated with rice production in Mali. Due to price differentials for rice in the production systems of the bas-fonds and the Office du Niger (i.e., bas-fonds rice is usually of lower quality, and thus, receives a lower price), the most profitable enterprise may not necessarily be the least costly. Therefore, two performance measures are used to evaluate the financial profitability of the selected rice production systems. Those measures are: 1. The total cost of production per kg, which, when used in comparison with the farmgate producer price, indicates the relative profitability of the enterprise; it is computed by including all variable and fixed costs; and 2. The net margin per kg, which measures the return to management and is computed as the gross revenue less the total cost of production, including the cost of family labor and land. A positive net margin indicates a profitable enterprise. 50 5.2.1. Assumptions This section discusses the assumptions used to estimate the financial profitability of paddy, notably: 1. The year 2009 is taken as the base year of this study; 2. The price of paddy used in this study is the average producer price from June 2008 to May 2009 reported by OMA (i.e., 150 CFAF/kg for the bas-fonds and 160 CFAF/kg for 14 the ON) . 3. Both family labor and hired labor are remunerated at the rural market wage rate; 4. Irrigated rice production in rehabilitated perimeters is considered to be a commercial operation; thus, this study assumes that all labor is hired; 5. All production inputs are valued at their market price; 6. There are no fixed costs associated with rice production in the bas-fonds, given the use of 15 mechanical equipment is negligible . Fixed costs associated with rice production in the ON mainly involved land preparation costs (i.e., tillage and puddling); 7. There is no illicit land rental or sale. In the Office, farmers maintain their land use right by solely paying the water fee. In the bas-fond, there is no water fee or usage fee associated with the cultivation of agricultural land; 8. The development of the irrigation infrastructure in the Office du Niger has been undertaken by the government while in the bas-fond, it has been carried on by the 14 The average price of paddy in the village of Loulouni, in the Sikasso region, was used as a proxy for estimating producer price in the bas-fonds while the average paddy price in Macina, in the Segou region, was used as a proxy for estimating producer prices in the Office du Niger (OMA). 15 This assumption is consistent with previous studies, notably Dimithe (1997). 51 CMDT, which is the cotton parastatal. Thus, investments in the water control infrastructure for both production systems are considered to be sunk costs. 5.2.2. Results and Discussion The estimated financial budgets strongly show that the production of paddy is a very profitable enterprise in both the bas-fonds and the Office du Niger, with rice produced in the Office being almost three times more profitable than rice produced in the bas-fond, when including family labor costs and assuming 50 percent subsidy on fertilizer costs and 60 percent subsidy on seed costs. Higher profitability of the ON rice production system is a result of lower production costs (i.e., 82 CFAF/kg in the ON compared to 124 CFAF/kg in the bas-fonds). These lower production costs are in part due to lower seeding rates in the ON (60 kg/ha in the ON compared to 218 kg/ha in the bas-fonds), where transplanting instead of broadcasting of seeds is being used. The detailed computations of financial profitability of rice produced in the bas-fonds and in the ON are included in tables 3 and 4 below. Furthermore, if one assumes that the price of paddy were the same in the bas-fonds and in the ON (i.e., that the quality of the rice and the marketing costs were the same), then the net margins of paddy production in the bas-fonds, including family labor, increases from 26 to 36 CFAF/kg. 52 Table 3: Financial Profitability of Rice Paddy – Intensive Bas-fonds Production System in Sikasso, 2008/09 Amount Family labor (person-day/ha) cleaning plowing planting weeding fertilizer application harvesting threshing Total family labor costs 354,900 218 115 94 3 30 245 250 250 6,580 250 98 1,000 53,410 28,750 23,375 16,450 7,394 8,417 98,328 236,124 0 0 7 8 7 5 4 14 12 57 Fixed costs (CFAF/ha) 150 0 Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Interest on working capital (13.8%) - 6 months Hired labor (person-day/ha) Total operating costs Value per ha 2,366 Revenues Yield (kg paddy/ha) Unit value 1,000 56,833 Performance Measures (CFAF/ha) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 236,124 292,957 118,776 61,943 Performance Measures (CFAF/kg) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 100 124 50 26 Notes: -The price of paddy is the average price from June 2008-May 2009 reported by the OMA -The cost of seeds include a 60 percent subsidy -The cost of fertilizer (i.e., urea and DAP) include a 50 percent subsidy -Both family and hired labor are remunerated at the rural market wage rate -Family labor represents one third of total labor force in BF Source: Adapted from Dimithe (1997) and updated using data from OMA and IER 53 Table 4: Financial Profitability of Rice Paddy – Intensive Irrigated Production System in Rehabilitated Perimeters in the Office du Niger in Niono, 2008/09 Amount Unit value Value per ha 5,747 160 919,520 60 213 163 0 72 245 250 250 6,580 250 14,700 53,125 40,625 0 17,959 7,483 10 45 13 30 70 168 1,000 168,000 301,892 Fixed costs (CFAF/ha) Tillage Puddling Water charges Cleaning of tertiary canals Scarecrows Extension costs Total fixed costs 1 1 1 1 1 1 25,000 25,000 67,000 10,000 5,000 40,000 25,000 25,000 67,000 10,000 5,000 40,000 172,000 Family labor (person-day/ha) 0 1,000 0 Revenues Yield (kg paddy/ha) Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Interest on working capital (13.8%) - 6 months Hired labor (person-day/ha) Nursery preparation Transplanting Weeding Harvesting Threshing Total hired labor costs Total operating costs Performance Measures (CFAF/ha) Total production cost Net margin 473,892 445,628 Performance Measures (CFAF/kg) Total production cost 82 Net margin 78 Notes: -The price of paddy is the average price from June 2008-May 2009 reported by OMA -The cost of seeds include a 60 percent subsidy -The cost of fertilizer (i.e., urea and DAP) include a 50 percent subsidy -All labor is hired (i.e., assuming rice production is a commercial operation) -Transplanting include: uprooting, transport of plants and replanting -Harvesting costs include cutting of the grain, and the gathering in bundles and sheaves Source: Adapted from data from OMA and IER 54 This study found labor costs to be main component of production costs, assuming that farmers, irrespective of their location, gender, and work availability have the same opportunity cost of labor at a market wage rate of 1000 CFAF per day. Structurally, labor costs account for about half of total costs in both production systems, followed by fertilizers (18% in the bas-fonds vs. 20% in the ON). While seeds are the third most important costs in the bas-fonds (18%), they are minor costs in the Office du Niger (3%). The water charges, which are zero in the bas-fond, are the third most important cost in the Office du Niger (see table 3). As other studies pointed out (Dimithe 1997), valuation of farmers’ reservation wage may differ between male and female farmers, from one farm operation to another, as well as from farmer to farmer within the same gender group depending on farmers’ wealth, attitude towards leisure, employment opportunities, and the strength of patriarchal social systems in the households with regard to access to entitlement. Given the large proportion of labor in total production costs, it is thus vital to develop better estimates of farmer’s opportunity cost of labor, which was not possible in this study due to data unavailability. However, if family labor were to be compensated from net margins above operating costs, bas-fonds farmers would break even if hired labor received the 16 market wage of 1000 CFAF/ person-day while family labor received 2090 CFAF/person-day . The base scenario of this study assumed that family labor in the bas-fonds accounted for more than a third of total labor costs, while all labor in the Office du Niger was hired. Despite the commercial nature of rice farming in the Office, it is common for family labor to be involved in rice production. Assuming that about one third of the labor is being provided by family labor, as reported by crop budgets obtained from the IER, rice farmers in the Office du Niger would 16 One person-day represents a six-hour day of work. 55 break even if hired labor received the market wage and family labor was compensated at 7,142 CFAF/person-day. Figure 9: Cost Structure for Selected Rice Production Systems in Mali, 2008/09 100% Other 80% Water 60% Labor 40% Herbicide 20% Fertilizer Seed 0% Bas-fonds Office du Niger Source: Appendix Tables 1-2 The rice financial budgets discussed above were estimated based on average yields as reported by the CPS. However, given that Mali is characterized by irregular and low rainfall, actual yields are unstable and range from 800 kg/ha to 3000 kg/ha in bas-fonds and from 4500 kg/ha to 6640 kg/ha in rehabilitated perimeters of the Office du Niger (OMA 2009, BVG 2009). The uncertainty regarding yield levels could be due to systemic risk, notably bad weather and poor quality of inputs, or idiosyncratic risks, including non-compliance to recommended farming techniques. This section presents financial budgets of the “low” and “high” yields scenarios, assuming a direct proportion change in harvest and post-harvest requirements, notably for harvesting costs, threshing costs and number of sacks purchased. Other input costs remain unchanged. 56 A “poor yield” scenario represents a 66 percent yield decline for the bas-fonds system and a 22% yield decline for the Office du Niger system, while a “high yield” scenario represents a 27 percent increase for the bas-fonds and a 16 percent increase for the Office. These estimated changes in yield indicate that there is more variation in yield in the bas-fond, which suggests that rice production in the Office du Niger is a less risky enterprise compared to the bas-fond. Results of the sensitivity analysis are summarized in table 5. Detailed results are included in the appendix. 57 Table 5: Sensitivity Analysis Results Assuming High and Low Yield in Selected Rice Production Systems, Including Input Subsidies, 2008/09 Indicators Yield (MT paddy per ha) Total family labor (person-day/ha) Revenues (1000 CFAF/ha) Total production cost (1000 CFAF/ha), including family labor Net margins above operating costs (1000 CFAF/ha) Net margins per ha, including family labor (1000 CFAF/ha) Family labor compensation (1000 CFAF/person-day) Cost of paddy per kg, including family labor (CFAF) Net margins per kg, including family labor (CFAF) Yield change (%) Cost of paddy per kg change (%) Net margins per kg change (%) Break-even yield (MT paddy per ha) Break-even paddy price (CFAF/kg) BF Base 2.4 57 355 293 119 62 2.1 124 26 ON Base 5.7 72 920 478 514 442 7.1 83 77 1.9 124 3.0 83 Production systems BF ON BF Low Yield Low Yield High Yield 0.8 4.5 3.0 40 65 64 120 720 450 206 452 328 -46 333 186 -86 268 122 -1.2 5.1 2.9 257 100 109 -107 60 41 -66 -22 27 108 21 -12 -510 -22 55 1.4 2.9 2.2 257 100 109 ON High Yield 6.6 77 1,062 492 648 571 8.4 74 86 16 -11 12 3.1 74 Notes: -The price of paddy is 150 CFAF/kg in the BF and 160 CFAF/kg in the ON -Input subsidies on costs of fertilizers (50%) and seeds (60%) are included -Family labor is remunerated at the rural market wage rate and represent about one third of total labor force in BF and ON -A “poor yield” scenario represents a decline of 66% for BF and 22% for ON to reflect actual yield variations in these systems -A “high yield” scenario represents an increase of 27% for BF and 16% for ON to reflect actual yield variations Source: Appendix Tables 1-6 for detailed computations 58 The profitability of rice increases with yield levels, and full water-control irrigated rice is always more profitable than bas-fonds rice; thus, the “Office du Niger, high yield” scenario is the most profitable scenario (see figure 10). Rice is profitable under all scenarios, except for the “bas-fond, low yield” case, where net margins are negative. In fact, rice production ceased to be a financially profitable enterprise in the bas-fonds when yield dropped below 1,372 kg/ha. In order for the “bas-fond, low yield” scenario to be profitable, the price of paddy would have to increase from 150 CFAF/kg to at least 257 CFAF/kg, everything else held constant. Figure 10: Net Margin per kg, Including Family Labor, Assuming High and Low Yield in Selected Rice Production Systems, 2008/09 (CFAF/kg) 100 ON, high yield ON, base ON, low yield BF, high yield 50 BF, base BF, low yield 0 1 2 3 4 -50 -100 -150 Source: Appendix Tables 1-6 59 5 6 Furthermore, if we assume that the subsidies on input costs are removed, then paddy production for the base scenario ceases to be profitable in the bas-fonds, where farmers nearly break-even, but financial profitability remains quite strong in the ON despite a 14 percent decline in net returns (i.e., a net margin of 77 CFAF/kg with subsidies compared to 67 CFAF/kg without subsidies). Rice producers in the ON could achieve comparable financial returns (i.e., 77 CFAF/kg) if their agricultural productivity were to increase 16 percent instead of decreasing their input costs by more than 50% through input subsidies (see table 6 for summary results; detailed results are included in the appendix). 60 Table 6: Sensitivity Analysis Results Assuming High and Low Yield in Selected Rice Production Systems, Excluding Input Subsidies, 2008/09 Indicators Production systems BF ON BF ON BF ON Base Base Low Yield Low Yield High Yield High Yield Yield (MT paddy per ha) 2.4 5.7 0.8 4.5 3.0 6.6 Total family labor (person-day/ha) 57 72 40 65 64 77 Revenues (1000 CFAF/ha) 355 919 120 720 450 1,062 Total production cost (1000 CFAF/ha), including family labor 355 533 268 507 390 551 Net margins above operating costs (1000 CFAF/ha) 57 458 -108 277 123 588 Net margins per ha, including family labor (1000 CFAF/ha) 0 386 -148 212 60 511 Family labor compensation (1000 CFAF/person-day) 1.0 6.4 -2.8 4.3 1.9 7,6 Cost of paddy per kg, including family labor (CFAF) 150 93 335 113 130 83 Net margins per kg, including family labor (CFAF) 0 67 -185 47 20 77 Yield change (%) -66 -22 27 16 Cost of paddy per kg change (%) 123 22 -13 -11 Net margins per kg change (%) 249,787 -30 -26,967 15 Break-even yield (MT paddy per ha) 2.4 3.3 2.4 3.1 2.4 3.4 Break-even paddy price (CFAF/kg) 150 93 335 113 130 83 Notes: -The price of paddy is 150 CFAF/kg in the BF and 160 CFAF/kg in the ON -Input subsidies on costs of fertilizers (50%) and seeds (60%) are removed -Family labor is remunerated at the rural market wage rate and represent about one third of total labor force in ON and BF -A “poor yield” scenario represents a decline of 66% for BF and 22% for ON to reflect actual yield variations -A “high yield” scenario represents an increase of 27% for BF and 16% for ON to reflect actual yield variations Source: Appendix Tables 7-12 for detailed computations 61 5.3. Economic Profitability The main objective of the financial analysis was to estimate the profitability of each of the specified rice production systems from the point of view of the farmers, while the purpose of the economic analysis is to estimate the profitability of these systems from the point of view of the society as a whole and evaluate their competitive position at different points of sale. Assessing the competitiveness of alternative production systems simply by comparing production costs is often inconclusive because these costs are often influenced by government policies. This section assesses whether Malian rice could compete with imports not only in Mali, but also in neighboring countries. First, economic budgets are estimated, using shadow prices to adjust the financial budget items in order to reflect their true social value. Then, the estimated economic values are used to compute domestic resource cost coefficients (DRC) in order to determine whether it is a good use of scarce national resources to market rice on various markets in the subregion. 5.3.1. Assumptions This section discusses the assumptions used to calculate the domestic resource cost coefficients. The year 2009 is taken as the base year of the study, which bases its analysis of comparative advantage on the following assumptions: 1. Mali imports about 15-20 percent of its total rice consumption. Rice imports originate from Thailand, the world’s largest rice producer, which produces different qualities of rice, ranging from the highest to the lowest quality of rice, with 5 to 100 percent broken grains, respectively. The bulk of the rice imported by Mali is 35 percent broken rice, which is equivalent to the rice cultivated at the ON, while bas-fonds rice quality is 62 categorized as 45 percent broken rice, which is comparable in quality to Thai A1 super. Although the 35 percent broken and the Thai A1 super sell under the price of the 5 percent broken, their price was not quoted in the international rice market for 2008/09. Thus, it is assumed that the FOB Bangkok prices of the 35 percent broken and the Thai A1 super rice are 10 percent and 30 percent lower than the 5 percent broken rice, respectively 17 . Thus, using the average 2008/09 FOB price for the 5 percent broken rice of $588/MT (USDA/ ERS, 2010), this study estimated the FOB price for the 35 percent broken and Thai A1 rice to be $530/MT and $412/MT, respectively; 2. In the early 1990s, there was empirical evidence showing that the CFAF currency, which is pegged to the Euro, was overvalued. The overvalued currency was believed to be the root of some of the poor economic performance of the countries in the CFAF zone; and thus, a devaluation of 50% of the currency was adopted and implemented in 1994 by all the countries of this monetary community. There is a current debate on the efficacy of the 1994 devaluation of the CFAF on the economic performance of the CFAF zone countries. Some people believe that the CFAF is no longer overvalued while others argue that the currency is still overvalued. Recent findings reveal that following the devaluation of the CFAF, the overvaluation trend has been steadily increasing since 2001. In fact, the average overvaluation for the CFAF zone is estimated at 25% in 2004 (Etta-Nkwelle et al 2010). An overvalued of CFAF can have significant negative impacts on exports as it makes imports, including rice from abroad, artificially cheap, which can undermine the 17 Estimations are from the author based on data from “Thailand Grain and Feed Weekly Rice Price Update, U.S. Embassy, Bangkok,” which reported average FOB prices in 2006/07 for 5 percent broken , 35 percent broken, and Thai A1 rice to be at US $313/MT, $282/MT and $241/MT, respectively. 63 competitiveness of Malian rice on the domestic and subregional markets. In light of the recent evidence, this study assumes that the CFAF is overvalued by 25%. 3. The official exchange rate used to convert the reference price for rice (CIF) in CFAF franc is 463 CFAF to U.S. $ 1, i.e., the average rate from January to December 2009 (OANDA 2010). Assuming that the CFAF is overvalued by 25%, the real exchange rate is estimated at 578 CFAF to U.S. $ 1. 4. Malian rice is considered as an import substitute on both Malian and subregional markets, given that Mali also imports rice to bridge the gap between production and local demand. Therefore, the study uses the CIF price of imported rice as a starting point for the economic analysis. The shadow prices of rice paddy are determined by first estimating the social price of milled rice at the point of sale, and then at the farm. Because the study assumes that the milling of paddy takes place in the village, the social prices of milled rice are converted into paddy equivalents at the village level. 5. Rice has historically been imported through the ports of Abidjan, Côte d’Ivoire and Dakar, Senegal. The markets considered are: • in Mali: Niono, Bamako, Sikasso and Kayes; • in Senegal: Tambacounda, Kaolack and Dakar; • in Cote d’Ivoire: Korhogo, Bouake and Abidjan; and • in Burkina Faso: Bobo Dioulasso. In this study, the estimation of the import parity prices follow cost structures from the port of entry to the production zone (i.e., Sikasso for bas-fonds and Niono for the Office du Niger). More specifically, parity prices for the Mali-Senegal trade route are based on the cost structure via the port of Dakar while the Mali-Burkina Faso and Mali-Cote 64 d’Ivoire trade routes are based on the cost structure via the port of Abidjan, as shown in figure 11, such that: • Mali-Senegal trade route: - • Irrigated rice: Dakar-Kaolack-Tamba-Kayes-Bamako-Niono Bas-fonds rice: Dakar-Kaolack-Tamba-Kayes-Bamako-Sikasso Mali-Cote d’Ivoire trade route: - • Irrigated rice: Abidjan-Bouake-Korhogo-Bamako-Niono Bas-fonds rice: Abidjan-Bouake-Korhogo-Sikasso Mali-Burkina Faso trade route: - Irrigated rice: Abidjan-Bouake-Korhogo-Bobo Dioulasso-Niono - Bas-fonds rice: Abidjan-Bouake-Korhogo-Bobo Dioulasso-Sikasso 6. Unlike the financial analysis, which used the market price to value improved seeds, in the economic analysis, seeds are valued by the shadow price of paddy consumed in the farm, i.e., the farm-level undistorted price of imported rice expressed in paddy equivalent, assuming imports via the port of Dakar. 7. Rice farmers use three types of fertilizers: urea, diammonium phosphate (DAP), and a compound fertilizer (NPK), which are imported from abroad. Thus, fertilizers are valued by their undistorted farm-level price of imported fertilizer, assuming imports via the port of Dakar. 65 Figure 11: Trade Routes in West Africa Note: Design of Ramziath Adjao and Steve Longabaugh 66 8. The interest rate charged by BNDA for granting loans to rice farmers in the ON for the purchase of inputs, especially chemical fertilizers is 13.8%. This rate is assumed to be devoid of any distortion and therefore represents the social cost of capital (Diarra 2004); 9. The shadow price of labor can be determined by either its market price if there exist a competitive labor market or its residual value. This study assumes that rural labor market is relatively competitive during the period between land preparation and harvest, and therefore uses an average wage rate of 1,000 CFAF/day as the shadow value of agricultural labor; 10. In economic analysis, land is typically valued at its opportunity cost. Conventionally, land has been assigned a zero economic cost in most DRC analyses conducted in West Africa. In the bas-fond, the economic cost of land is also assumed to be zero, because bas-fonds land is seldom sold, and rice is the only crop that can be grown in the bas-fonds during the rainy season (Dimithe 1997). However, this is not the case in the Office du Niger, given the commercial nature of the rice operation and growing concerns about land deterioration. Therefore, land in the Office du Niger is valuated at its rental price per hectare, which is 160,000 CFAF; 11. The cost of water control infrastructure of 600,000 CFAF/ha in the bas-fonds and of 3,500,000 CFAF/ha in the Office du Niger are also included in the economic analysis (USAID 2009b). Since, this investment is rehabilitated every 15 years in the bas-fonds and every 20 years in the Office du Niger, with no salvage value, only part of this cost; i.e., the annual equivalent value for the year 2009, is taken into account. In economic analysis, investment costs earn an economic rate of return, and the annual equivalent investment value of water control is determined by multiplying its full cost by the 67 corresponding capital recovery factor. The capital recovery factor is estimated using the formula: i(1+i) n ---------------- , n (1+i) -1 where “n” is the useful life of the infrastructure, and “i” the real interest rate. The annual equivalent investment value is the annual payment that will repay infrastructure cost over its useful life and earn an economic rate of return equal to “i” (Dimithe 1997). Thus, using a real interest rate of 13.8 percent, the irrigation fees associated with the investments in water control are estimated at 89,549 CFAF/ha for the bas-fonds and 522,367 CFAF/ha for the Office du Niger; 12. The conversion rate of paddy to rice varies depending on the milling equipment. It averages about 60% for small mobile Engelberg-type hullers, 63% on average for the compact plastic roller units, 65% for mini rice mills, and 67 to 68% for larger industrial units (Diarra 2004). This study uses an average rate 65% for irrigated rice, and 63% for bas-fonds rice; 13. Ideally, intermediate inputs such as fertilizer, seed, and transportation should be disaggregated into costs components until all costs items are traced back to tradable inputs, domestic factors and transfer (Dimithe 1997). However, in this process is not used in this study because all necessary data were not available. Thus, the full costs of seed, fertilizer, and transport are classified as tradable input costs; 68 5.3.2. Results and Discussion 5.3.2.1 Economic Performance The estimated economic budgets show that production of paddy is a socially profitable activity in both the bas-fonds and in the Office du Niger, except for low yields in the bas-fonds (see table 7 and 8 for summary results; detailed computations are included in appendix tables 1324). While bas-fond rice is more costly to produce than irrigated rice from the ON in financial terms, it is less costly in economic terms. Despite lower production costs, full-water irrigated rice was found to be more profitable than bas-fond rice, in both financial and economic terms, due to the price premium for irrigated rice. In fact, rice produced in the Office du Niger is 1.6 times more profitable than rice produced in the bas-fond, with net social returns of 75 CFAF/kg in the Office du Niger compared to 47 CFAF/kg in the bas-fond, when including family labor costs. These results reflect in part the fact that the social price of milled rice at the farm level in paddy equivalent is 22% higher in the Office du Niger compared to the bas-fonds (i.e., import parity price of paddy of 228 CFAF/kg in the bas-fonds versus 287 CFAF/kg in the Office). In contrast, if we assume that there is no quality differential and that both bas-fonds and ON rice receive the same price, everything else held constant, then the economic profitability of bas-fonds rice doubles, with net social returns increasing from 47 CFAF/kg to 88 CFAF/kg. At this higher output price level, paddy production in the bas-fonds is more profitable than in the ON, in economic terms. These results suggest that there are likely high returns to marketing extension work aimed at improving post-harvest handling of paddy and improving milling in the bas-fonds areas to improve the quality of the marketed rice. 69 Table 7: Economic Performance Indicators for Selected Rice Production Systems in Mali, 2008-2009 Indicators Production systems BF, base ON, base BF, low yield ON, low yield BF, high yield ON, high yield Yield (MT paddy per ha) 2.4 5.7 0.8 4.5 3.0 6.6 Parity price of paddy ( CFAF/kg) 228 287 228 287 228 287 Revenues (1000 CFAF/ha) 539 1,650 182 1,292 683 1,906 Total production costs (CFAF/kg) 181 212 508 265 146 186 Net margin (CFAF/kg) 47 75 -280 22 82 101 Yield change (%) -66 -22 27 16 Cost per kg of paddy change (%) 180 25 -19 -12 Net margin per kg change (%) -698 -71 75 34 Break-even yield (MT paddy per ha) 1.9 4.4 1.8 4.3 2.0 4.4 Break-even paddy price (CFAF/kg) 181 212 508 265 146 186 Notes: -The import parity price of paddy is 228 CFAF/kg in the BF and 287 CFAF/kg in the ON -Family labor is remunerated at the rural market wage rate and represent about one third of total labor force in BF and ON -A “poor yield” scenario represents a decline of 66% for BF and 22% for ON to reflect actual yield variations in these systems -A “high yield” scenario represents an increase of 27% for BF and 16% for ON to reflect actual yield variations Source: Appendix Tables 13-24 for detailed computations 70 Furthermore, when considering the “low” and high” yield scenarios, results show that profitability of rice increases with yield, and irrigated rice is always more profitable than basfonds rice (see figure 12). Similarly to the financial analysis, the “Office du Niger, high yield” scenario is still the most profitable enterprise, and the “bas-fond, low yield” alternative becomes profitable when the parity price of paddy increases to at least 508 CFAF/kg. Figure 12: Net Social Returns per kg, Including Family Labor, Assuming High and Low Yields in Selected Rice Production Systems, 2008/09 (CFAF/kg) 150 ON, base 100 BF, base 50 BF, high yield ON, high yield ON, low yield BF, low yield 0 -50 -100 -150 -200 -250 -300 Source: Appendix Tables 13-24 Further analysis of the economic budgets, for the base scenario, reveals bas-fonds rice is socially profitable on the entire Malian territory, as well as on all selected markets in neighboring countries (i.e., Korhogo, Bouake and Bobo Dioulasso); however, it is not profitable on any of the markets in Senegal. In contrast, full-water control irrigated rice is socially profitable on the entire Malian territory, as well as all neighboring markets close to Malian borders, including Tambacounda in Senegal. However, ON rice loses its competitiveness beyond Tamba in Senegal and on coastal markets such as Abidjan. Net social returns range from -75 to 21 CFAF/kg for ON 71 rice compared to -47 to 39 CFAF/kg for bas-fond-rice, and as expected, Malian rice is most profitable in the area where it is produced (see tables 8 and 9). The substantial higher social returns in the gravitational irrigated schemes of the Office du Niger compared to the bas-fonds may lay in the higher import parity prices of paddy for the Office. 72 Table 8: Farm-Level Economic Budget for Intensive Bas-fonds Production System in Sikasso, Mali, by Point of Sale, 2009 Indicators Bamako Sikasso Niono Kayes Yield 2.4 2.4 2.4 2.4 (MT paddy per ha) Parity price of paddy (CFAF/kg) 218 228 227 185 Revenues (1000 CFAF/ha) 516 539 536 438 Operating costs (1000 CFAF/ha) 282 282 282 282 Fixed costs (1000 CFAF/ha) 90 90 90 90 Family labor costs (1000 CFAF/ha) 57 57 57 57 Total prod. cost (1000 CFAF/ha) 428 428 428 428 Net margin (1000 CFAF/ha) 87 111 108 10 Cost per kg of paddy (CFAF/kg) 181 181 181 181 Net margin per kg (CFAF) 37 47 46 4 Note: Total production costs include family labor Source: Computation of author using Appendix Tables 13-19 73 Tamba Point of sale Kaolack Dakar Korhogo Bouake Abidjan Bobo 2.4 2.4 2.4 2.4 2.4 2.4 2.4 165 151 142 200 184 167 210 391 358 337 472 436 395 498 282 282 282 282 282 282 282 90 90 90 90 90 90 90 57 57 57 57 57 57 57 428 428 428 428 428 428 428 -37 -71 -91 44 8 -34 70 181 181 181 181 181 181 181 -16 -30 -39 19 3 -14 29 Table 9: Farm-Level Economic Budget for Irrigated Rice Production Systems in Rehabilitated Perimeters in Niono, Mali, by Point of Sale, 2009 Indicators Point of sale Bamako Sikasso Niono Kayes Tamba Kaolack Dakar Korhogo Bouake Abidjan Bobo 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 Yield (MT paddy per ha) Parity price of paddy (CFAF/kg) 269 279 287 Revenues (1000 CFAF/ha) 1,546 1,605 1,650 Operating costs (1000 CFAF/ha) 365 365 365 Fixed costs (1000 CFAF/ha) 854 854 854 Family labor costs (1000 CFAF/ha) 0 0 0 Total prod. cost ( 1000 CFAF/ha) 1,219 1,219 1,219 Net margin (1000 CFAF/ha) 327 386 431 Cost per kg of paddy (CFAF/kg) 212 212 212 Net margin per kg (CFAF) 57 67 75 Source: Computation of author using Appendix Tables13-20 74 235 215 200 191 233 218 199 255 1,353 1,234 1,151 1,099 1,340 1,251 1,146 1,466 365 365 365 365 365 365 365 365 854 854 854 854 854 854 854 854 0 0 0 0 0 0 0 0 1,219 1,219 1,219 1,219 1,219 1,219 1,219 1,219 134 15 -68 -120 121 31 -73 247 212 212 212 212 212 212 212 212 23 3 -12 -21 21 5 -13 43 However, the results of these economic budgets need to be taken with caution, given that estimations were made based on the assumption of hypothetical villages located near Sikasso and Niono 18 , without accounting for the relative importance of total area of rice produced in a particular system, the relative size of these production schemes, the number of cropping seasons adequate for rice production, nor the costs of assembly of the product at the farm level. While the above indicators of social profitability show whether a production system is profitable to society, they do not explicitly inform on how they make use of domestic resources relative to an alternative system. Thus, the next section presents results of DRC computations and explicitly addresses this issue. 5.3.2.2 Domestic resource cost ratio In order to compute DRC ratios, inputs are portioned into tradable and domestic factors. In this study, labor is treated as a domestic factor, while intermediate inputs such as fertilizer and seed are classified as tradable. The competitiveness of rice varies over space, depending on the market in which farmers sell their harvest. Results of the DRC ratios reported in tables 10 and 11 are consistent with the results of the absolute measure of economic profitability analysis above. The magnitude of the DRC ratios suggests that rice production in Mali is the most competitive in the area where it is produced. Also, DRC ratios between zero and one indicate that bas-fonds rice is competitive on the entire Malian territory, as well as on selected neighboring markets close to the Malian borders (i.e., Korhogo, Bouake and Bobo Dioulasso); however, it is neither competitive on any of the markets in Senegal nor in coastal cities such as Abidjan. In contrast, irrigated rice from the ON is competitive on all markets up to Tambacounda, but it loses its 18 The towns of Niono and Sikasso were selected for consistency with previous studies, notably Dimithe (1997). 75 competitiveness on Senegalese markets beyond Tambacounda and on coastal markets such as Abidjan. Furthermore, all DRC ratios for the irrigated rice production system in the Office du Niger are slightly lower than DRC ratios for the bas-fonds rice production system, except for Sikasso. In fact, the magnitude of the DRC ratios suggests that irrigated rice production is more competitive than bas-fonds rice production, except for Sikasso, the area where bas-fonds rice is produced. Again, these results are driven by the price differential between bas-fonds and ON rice. Nonetheless, given prices that prevailed on the market in 2009, producing bas-fonds and full-water control irrigated rice to supply domestic markets is a better use of domestic resources than importing rice from the international market. However, although bas-fonds can make a contribution to supplying Mali’s requirements in rice by complementing production of the Office du Niger, rice produced in the bas-fonds would not be competitive if it were exported to Senegal or to the coastal cities. Also, the value of the domestic resources used in marketing rice from the Office du Niger on most neighboring markets in the subregion is less than the foreign exchange cost of importing more rice from the international market, but it is still more efficient to import Asian rice to supply markets beyond Tambacounda in Senegal as well as some coastal cities such as Abidjan. 76 If improvements in milling and post-harvest handling led bas-fonds rice to be of equal quality to that in the ON, the competitiveness situation would reverse, with bas-fond rice having comparative advantage over imported rice and ON rice on all markets, including coastal cities such as Dakar and Abidjan. Thus, if Mali was just interested in generating calories rather than 19 economic value, it would be less costly to produce the calories in the bas-fonds than in the ON. 19 In principle, using scale free measures like DRC ratios to decide where to invest in cases where investment alternatives are mutually exclusive inherently or because of capital limitations is inappropriate precisely because such measures are independent of scale. However, given that investments in the bas-fonds or the ON are not mutually exclusive in this study, DRC ratios could be used to infer investment decisions. 77 Table 10: DRC ratios for intensive bas-fonds production systems in Southern Mali, by point of sale, 2009 Scenario 1: Assuming Price Differential between Bas-fonds and ON Rice Indicators Point of sale Bamako Sikasso Niono Kayes Tamba Kaolack Dakar Revenues (1000 CFAF/ha) 516 539 536 438 391 358 337 Costs (1000 CFAF/ha) Tradable inputs 148 148 148 148 148 148 148 Domestic factors 280 280 280 280 280 280 280 DRC ratios 0.762 0.716 0.722 0.965 1.154 1.337 1.484 Note: The import parity price of paddy is 228 CFAF/kg in the BF and 287 CFAF/kg in the ON Korhogo Bouake Abidjan Bobo 472 436 395 498 148 280 0.864 148 280 0.972 148 280 1.136 148 280 0.801 Scenario 2: Assuming no Price Differential between Bas-fonds and ON Rice Indicators Bamako Sikasso Revenues (1000 CFAF/ha) 614 637 Costs (1000 CFAF/ha) Tradable inputs 148 148 Domestic factors 280 280 DRC ratios 0.601 0.572 Niono 635 Kayes 537 Point of sale Tamba Kaolack Dakar 489 456 435 148 280 0.576 148 280 0.721 148 280 0.821 148 280 0.910 Note: The import parity price of paddy is 287CFAF/kg in both the bas-fonds and the ON Source: Computation of author using Appendix Tables 13-19 78 148 280 0.975 Korhogo Bouake Abidjan Bobo 576 541 499 602 148 280 0.654 148 280 0.714 148 280 0.799 148 280 0.617 Table 11: DRC Ratios for Irrigated Production System in Rehabilitated Perimeters of the Office du Niger in Niono, Mali, by Point of Sale, 2009 Indicators Point of sale Bamako Sikasso Niono Kayes Tamba Kaolack Dakar Korhogo Bouake Abidjan Bobo Revenues (1000 CFAF/ha) 1,546 1,605 1,650 1,353 1,234 1,151 1,099 1,340 1,251 1,146 1,466 Costs (1000 CFAF/ha) Tradable inputs 168 168 168 168 168 168 168 168 168 168 168 Domestic factors 1,051 1,051 1,051 1,051 1,051 1,051 1,051 1,051 1,051 1,051 1,051 DRC ratios 0.763 0.731 0.709 0.887 0.986 1.070 1.129 0.897 0.971 1.075 0.810 Source: Computation of author using Appendix Tables 13-20 79 6. COMPARATIVE ADVANTAGE UNDER ALTERNATIVE SCENARIOS This chapter attempts to assess the comparative advantage of Mali compared to the rest of the world in producing and marketing rice on selected markets of West Africa under various scenarios by performing sensitivity analyses on various policy variables. Sub-sections 6.1 through 6.5 assess the individual effects of a change in factors of comparative advantage, and the last subsection measures the joint impact of multiple policy variables on the DRC coefficients. 6.1. Comparative Advantage and Output Prices The world market price of a commodity is often considered as the country’s opportunity cost for producing and marketing that good. Unfortunately, world market prices are unstable. As discussed in chapter 2, world market prices of five percent broken rice FOB Bangkok have been volatile but never exceeded $400/MT until May 2008, when they went over $900/MT. While many argued that rice prices will remain high due to the new global environment characterized by higher input and energy prices, others believe that global rice prices will not necessarily stay at a high plateau due to declining per capita rice consumption in Asia (Timmer et al. 2010). Since their peak in May 2008, rice prices have receded, but they have remained high by historical standards. Based on the 2010 USDA/ERS annual average prices, which reported prices for the five percent broken rice to be $489, this study estimates the FOB price for the 35 percent broken and Thai A1 rice to be $440/MT and $342/MT, respectively. As a result of the uncertainty in international prices, a sensitivity analysis is performed in order to evaluate the impact of world prices on the comparative advantage of Mali using the estimated FOB prices above. 80 When other variables are kept constant, the results of the sensitivity analysis suggest that if rice FOB prices were to decrease 18 percent (i.e., percent change that would cause FOB Bangkok prices to return to their pre-2007/08 crisis level), then bas-fonds and full-water control rice lose their comparative advantage in northern Mali as well as neighboring countries, except in Bobo Dioulasso (in Western Burkina Faso) (see tables 12-13 and figures 13-14). Surprisingly, an 18 percent increase in the FOB price of rice would render irrigated rice from the Office du Niger more competitive than bas-fonds rice in Sikasso, where bas-fonds rice is produced. 81 Table 12: Comparative Advantage, Base Scenario Indicators Bamako DRC ratios - BF 0.768 DRC ratios -ON 0.763 Sikasso 0.721 0.732 Niono 0.727 0.710 Kayes 0.974 0.888 Point of sale Tamba Kaolack Dakar 1.166 1.354 1.504 0.987 1.070 1.130 Assumptions: - FOB prices of Thai A1 rice is $412/MT and 35% broken rice is $530/MT - 25% overvaluation of the CFA franc - Customs and import duties are excluded - Economic cost of transport is 34.6 CFAF/MT-km - Yield of 2,366 kg/ha for the BF and 5,747 kg/ha for the ON - Milling rate of 63% for the BF and 65% for the ON Source: Computation of author using Appendix Tables 13-24 82 Korhogo 0.871 0.897 Bouake 0.981 0.972 Abidjan 1.148 1.076 Bobo 0.807 0.810 Figure 13: Comparative Advantage, Base Scenario : Notes: - Design of Ramziath Adjao and Steve Longabaugh - The circles are “approximate” and cover only the u shaded countries (i.e., Burkina Faso, Mali, Senegal and Cote d’Ivoire unshaded d’Ivoire). 83 Table 13: Comparative Advantage with Pre-2007 World Rice Prices Indicators Bamako DRC ratios - BF 0.925 DRC ratios -ON 0.892 Sikasso 0.858 0.850 Niono 0.865 0.820 Kayes 1.241 1.067 Point of sale Tamba Kaolack Dakar 1.571 1.931 2.252 1.214 1.343 1.438 Korhogo 1.094 1.094 Bouake 1.272 1.207 Assumptions: - FOB prices decrease by 18% (i.e., $338/MT for Thai A1 rice and $445/MT 35% broken rice) - 25% overvaluation of the CFA franc - Customs and import duties are excluded - Economic cost of transport is 34.6 CFAF/MT-km - Yield of 2,366 kg/ha for the BF and 5,747 kg/ha for the ON - Milling rate of 63% for the BF and 65% for the ON Source: Computation of author using Appendix Tables 13-24 84 Abidjan 1.570 1.372 Bobo 0.994 0.968 Figure 14: Comparative Advantage with Pre : Pre-2007 World Rice Prices Notes: - Design of Ramziath Adjao and Steve Longabaugh - The circles are “approximate” and cover only the u shaded countries (i.e., Burkina Faso, Mali, Senegal and Cote d’Ivoire unshaded d’Ivoire). 85 6.2. Comparative advantage and overvaluation of the CFAF franc In the early 1990s, evidence of overvaluation of the CFAF franc led to a 50 percent devaluation of the currency. In light of recent findings, the base scenario of this study assumes that the CFAF franc is still overvalued by 25 percent. The aim of this section is to show how different estimate levels would affect the comparative advantage of Mali and the rest of the world on selected West African markets by measuring the impacts of a zero and 50 percent devaluation of the currency compare to the base scenario. The results of this sensitivity analysis, reported in table 14 and figure 15, show that irrigated rice from the Office du Niger is still more competitive than bas-fonds rice on all markets regardless of the level of overvaluation of the currency, except for Sikasso where basfonds rice is produced. When assuming zero percent overvaluation, both bas-fonds and irrigated rice are only competitive in few southern domestic markets up to Bamako, and lose their comparative advantage in foreign markets, except Bobo Dioulasso for irrigated rice. Under the assumption of a 50 percent overvaluation of the CFAF franc, the comparative advantage of Malian rice in both the bas-fonds and the Office du Niger is greatly improved. While bas-fonds rice is competitive on most markets, except for Dakar and Kaolack, irrigated rice is competitive on all markets. 86 Table 14: Comparative Advantage and Overvaluation of the CFAF Scenario 1: Zero Percent Overvaluation Indicators Point of sale Bamako Sikasso Niono Kayes Tamba Kaolack Dakar DRC ratios - BF 0.956 0.898 0.905 1.218 1.468 1.707 1.900 DRC ratios -ON 0.950 0.911 0.884 1.107 1.234 1.339 1.414 Assumptions: - FOB prices of Thai A1 rice is $412/MT and 35% broken rice is $530/MT - Zero % overvaluation of the CFA franc - Customs and import duties are excluded - Economic cost of transport is 34.6 CFAF/MT-km - Yield of 2,366 kg/ha for the BF and 5,747 kg/ha for the ON - Milling rate of 63% for the BF and 65% for the ON Korhogo 1.118 1.139 Bouake 1.263 1.236 Abidjan 1.489 1.371 Bobo 1.029 1.024 Korhogo 0.716 0.741 Bouake 0.803 0.801 Abidjan 0.937 0.886 Bobo 0.665 0.671 Scenario 2: 50 Percent Overvaluation Indicators Point of sale Bamako Sikasso Niono Kayes Tamba Kaolack Dakar DRC ratios - BF 0.643 0.604 0.608 0.813 0.970 1.124 1.248 DRC ratios -ON 0.638 0.612 0.593 0.741 0.823 0.892 0.942 Assumptions: - FOB prices of Thai A1 rice is $412/MT and 35% broken rice is $530/MT - 50 % overvaluation of the CFA franc - Customs and import duties are excluded - Economic cost of transport is 34.6 CFAF/MT-km - Yield of 2,366 kg/ha for the BF and 5,747 kg/ha for the ON - Milling rate of 63% for the BF and 65% for the ON Source: Computation of author using Appendix Tables 13-24 87 Figure 15: Comparative Advantage and Overvaluation of the CFAF : Scenario 1: Zero Percent Overvaluation 88 Figure 16 (cont’d). Scenario 2: 50 Percent Overvaluation Notes: - Design of Ramziath Adjao and Steve Longabaugh - The circles are “approximate” and cover only the u shaded countries (i.e., Burkina Faso, Mali, Senegal and Cote d’Ivoire unshaded d’Ivoire). 89 An overvalued currency can have significant negative impacts on exports, and it would make imports, including rice from abroad, artificially cheap, which can undermine the competitiveness of Malian rice in the domestic and subregional markets. Instead of devaluing the currency, governments have often imposed import duties and taxes on imported rice as a means to correct for the distortion at the sectoral level. In other words, the various taxes imposed on imported rice and production inputs could be considered as a sectoral means to adjust for the overvalued currency. Since January 2000, Mali has applied the common 10 percent external tariff (TEC) of the UEMOA. By adding other duties and VAT at 18 percent, the current level of duties on imported rice is 32 percent (Baris et al. 2005). However, this import duty level has been modulated during the 2007/08 crisis (i.e., reduction of VAT and tariff imported rice) Furthermore, the government of Mali has provided fuel subsidies as well as a 50 percent cost reduction on fertilizers and a 60 percent cost reduction on seeds (Plan d’Opération de l’Initiative Riz 2008-2009; OMA 2009). In theory, one should compare a level of import taxes and duties that are equivalent to that the overvaluation in order to assess whether imposing import duties and taxes corrects the distortion resulting from the overvaluation of the currency. In Mali, the government has subsidized inputs, but given that overvaluation makes the import of inputs for rice production cheaper in domestic currency terms in Mali, one would need to tax both imported rice and imported inputs to fully compensate on a sectoral level for overvaluation. In fact, an increase of duties and taxes on imported rice is not equivalent to an overvaluation of comparable level of that of the taxes because exporting to countries in the same monetary zone doesn’t have any effect on prices in Senegal, RCI, or Burkina Faso, while a devaluation of the currency would. 90 In order to assess whether the subsidies and taxes imposed by Mali on rice and production inputs for rice correct for overvaluation of a currency, we computed financial and economic net profits for bas-fond rice and ON rice at the farm level. The financial prices assume no overvaluation of the CFAF and include various taxes and subsidies that prevailed on the market at the time of the analysis (i.e., in 2009). The economic prices are free of taxes and subsidies, but assume a 25% overvaluation of the currency, as discussed above. The results of the analysis, which are summarized in table 15, suggest that if one assumes no overvaluation of the CFAF, then there are significant price distortions. Table 15: Comparison of the Impact of Overvaluation of the CFAF and Imports Duties on Net Margins in Rice Production Financial Prices with taxes and sub. Net margins (CFAF/ha) BF 61,943 Social Prices 0% overvaluation 10% overvaluation 25% overvaluation 31,526 62,177 110,778 Net margins (CFAF/ha) ON 441,861 137,931 254,714 430,596 Source: Computation of author using Appendix Tables 13-24 For bas-fonds rice, the financial net returns per ha are double those of the economic returns, while for ON rice, the financial returns per ha are triple those of the economic returns. This implies that if the degree of overvaluation of the CFAF is more than 10%, then the basfonds producers are actually being implicitly taxed, even though they are getting financial subsidies. In other words, the subsidies/sectoral policies are not “strong enough” at the 2009 levels to offset the tax imposed by the lower rice prices resulting from the overvaluation. For the ON producers, if the overvaluation is about 25%, then the subsidies just offset the “macroeconomic tax” imposed by the overvaluation. Thus, the competitiveness of bas-fonds 91 producers is hurt more by the overvaluation than are the ON producers. This makes sense, as the bas-fonds producers use fewer imported inputs, and hence get little implicit subsidy from the cheaper inputs that result from the overvaluation of the CFAF (in contrast with the ON producers), but they feel the full weight of the tax on output implicitly imposed by the cheaper imports of rice resulting from the overvaluation. 6.3. Comparative advantage and decreased transport costs Transport costs account for over half of the transfer costs from the production regions to the consumption markets. Over the past decade, West African countries have made great efforts to improve their physical infrastructure. However, recent studies have shown that the existence of transit oligopolies have limited the effect from these cost-reducing investments (USAID 2010c). Furthermore, checkpoints, bribes and delays have all increased along primary trade corridors in West Africa, and vehicles transporting freight in Mali are second hand and often very old, requiring recurrent costs of maintenance and repair. As a result, transport rates remain high, which could render both exports from the Sahelian countries and production using imported inputs uncompetitive. The impact of lower transfer costs on the competitiveness of local agricultural products is not, however, determinate because commodities imported from the world market may also be positively affected by lower transport costs. This section conducts a sensitivity analysis to assess the impact of lower transport costs on the competitiveness of Malian rice, assuming that economic costs 20 of transport rates are halved. 20 The economic costs of transport as computed by Manuel Bernard, Economist at the African Development Bank, and Eric Crawford, Agricultural Economist at MSU and adjusted for inflation. These computations exclude taxes on vehicles, spare parts and fuels. Detailed computations are included in the appendix. 92 The results, which are summarized in table 16 and figure 16, suggest that halving transport costs has a greater impact on improving the competitiveness of Malian rice marketed in markets that are located inland and close to the production zones. Thus, the results suggest that irrigated rice from the ON would become competitive on all markets, including Dakar, although bas-fonds rice would still not be competitive in Senegalese markets beyond Tambacounda. 93 Table 16: Comparative Advantage and 50% Reduction in Transport Costs Indicators Bamako DRC ratios - BF 0.803 DRC ratios -ON 0.801 Sikasso 0.776 0.783 Niono 0.779 0.770 Kayes 0.909 0.868 Point of sale Tamba Kaolack Dakar 0.993 1.055 1.098 0.917 0.952 0.975 Assumptions: - FOB prices of Thai A1 rice is $412/MT and 35% broken rice is $530/MT - 25 % overvaluation of the CFA franc - Customs and import duties are excluded - Economic cost of transport is halved (i.e., 17.3 CFAF/MT-km) - Yield of 2,366 kg/ha for the BF and 5,747 kg/ha for the ON - Milling rate of 63% for the BF and 65% for the ON Source: Computation of author using Appendix Tables 13-25 94 Korhogo 0.862 0.868 Bouake 0.912 0.901 Abidjan 0.979 0.943 Bobo 0.823 0.821 Figure 16: Comparative Advantage and 50% Reduction in Transport Costs : Notes: - Design of Ramziath Adjao and Steve Longabaugh - The circles are “approximate” and cover only the u unshaded countries (i.e., Burkina Faso, Mali, Senegal and Cote d’Ivoire d’Ivoire). 95 6.4. Comparative advantage and improved farm-level yields Technological change represents one of the major driving forces in altering a country’s comparative advantage. As discussed above, due to irregular and low rainfall patterns, current yields are unstable and range from 800 kg/ha to 3000 kg/ha in bas-fonds (i.e., 66 percent below to 27 percent above average yield) and from 4500 kg/ha to 6640 kg/ha in rehabilitated perimeters of the Office du Niger (i.e., 22 percent below to 16 percent above average yield). Increased investments in agricultural research and extension could potentially raise average on-farm yields by decreasing the risks associated with erratic rainfall patterns. This section attempts to assess the impact of different levels of yields on the competitiveness of rice by measuring the effects of these “low” and “high” yields scenarios. Summary results are displayed in table 17 and figure 17. Under the “low yield” scenario (i.e., 66 percent yield decrease in the bas-fonds and 22 percent in the ON to match lowest reported yields in these production systems), all DRC ratios for rice produced in the bas-fonds are greater than one, which indicate that producing and marketing bas-fonds rice would no longer be an efficient means of saving or earning foreign exchange. Furthermore, the negative DRC coefficients when rice is marketed in Senegal and Southern Cote d’Ivoire, suggest that the economic value of the output does not even cover the cost of traded inputs, much less that of the nontraded inputs. Also, at these lower yields, irrigated rice from the ON is only competitive in markets near the production zones (i.e., Niono, Sikasso and Bamako), but it loses its competitive advantage beyond Bamako. An expansion of current yields (i.e., 27 percent in the bas-fonds and 16 percent in the ON to match the highest reported yield in these production systems) appears to improve the competitive position of bas-fonds rice compared to irrigated rice on most markets, except Dakar. 96 Both bas-fonds and irrigated rice have DRC ratios less than one for all markets, but the magnitude of the DRC ratios are smaller for bas-fonds rice, which implies that, at these higher yield levels, production and exports of bas-fonds rice should be preferred over irrigated rice. 21 This is probably due to the fact that higher yield levels are accompanied by higher postharvesting costs, which are greater expenditures in the Office du Niger and thus further increase unit cost of production at the farm level. 21 Again, using scale-free measures like DRC ratios to decide where to invest in cases where investment alternatives are mutually exclusive is inappropriate, but such an issue is not as important in this study given that investment decisions for rice production in the bas-fonds or in the Office du Niger are not mutually exclusive alternatives. 97 Table 17: Impact of Yield Variation on Comparative Advantage Scenario 1: Low Yields Indicators Point of sale Bamako Sikasso Niono Kayes Tamba Kaolack Dakar DRC ratios - BF 10.960 8.198 8.445 -100.450 -13.873 -8.644 -7.001 DRC ratios -ON 0.984 0.943 0.913 1.152 1.286 1.400 1.483 Assumptions: - FOB prices of Thai A1 rice is $412/MT and 35% broken rice is $530/MT - 25% overvaluation of the CFA franc - Customs and import duties are excluded - Economic cost of transport is 34.6 CFAF/MT-km - Yield of 800 kg/ha for the BF and 4,500 kg/ha for the ON - Milling rate of 63% for the BF and 65% for the ON Korhogo 29.083 1.164 Bouake -79.994 1.265 Abidjan -14.881 1.407 Bobo 14.683 1.047 Korhogo 0.645 0.775 Bouake 0.718 0.838 Abidjan 0.827 0.926 Bobo 0.601 0.701 Scenario 2: High Yields Indicators Point of sale Bamako Sikasso Niono Kayes Tamba Kaolack Dakar DRC ratios - BF 0.575 0.543 0.546 0.714 0.838 0.955 1.045 DRC ratios -ON 0.661 0.634 0.616 0.767 0.851 0.921 0.972 Assumptions: - FOB prices of Thai A1 rice is $412/MT and 35% broken rice is $530/MT - 25% overvaluation of the CFA franc - Customs and import duties are excluded - Economic cost of transport is 34.6 CFAF/MT-km - Yield of 3,000 kg/ha for the BF and 6.640 kg/ha for the ON - Milling rate of 63% for the BF and 65% for the ON Source: Computation of author using Appendix Tables 13-24 98 Figure 17: Comparative Advantage and Farm : Farm-level Technologies Scenario 1: Low Yields 99 Figure 17(cont’d). Scenario 2: High Yields Notes: - Design of Ramziath Adjao and Steve Longabaugh - The circles are “approximate” and cover only the u unshaded countries (i.e., Burkina Faso, Mali, Senegal and Cote d’Ivoire d’Ivoire). 100 6.5. Comparative advantage and improved processing technologies Well-performing processing technologies are essential to improve the competitiveness of the rice subsector in Mali, as the paddy-to-milled rice conversion rate determines the unit cost of milled rice; the higher the conversion rate is, the lower the unit cost of milled rice will be. The base scenario in this study assumes an average rate of 65% for ON irrigated rice, and 63% for bas-fonds rice. Improving further the milling ratio to 65 percent for bas-fonds rice and 68 percent for the irrigated rice would expand the competitiveness of Malian rice, as shown in table 18 and figure 18. Compared to the base scenario, slight improvement of the processing technologies has limited impact on the competitiveness of bas-fonds and ON rice in Northern Senegal. In fact, even though the DRC ratios are slightly lower in magnitude, improving the processing technology alone is not enough for bas-fonds and ON rice to gain comparative advantage in any of the markets in Senegal and Southern Cote d’Ivoire. 101 Table 18: Comparative Advantage and Improved Processing Technologies Indicators Bamako DRC ratios - BF 0.733 DRC ratios -ON 0.724 Sikasso 0.689 0.694 Niono 0.694 0.674 Kayes 0.926 0.841 Point of sale Tamba Kaolack Dakar 1.105 1.278 1.416 0.934 1.012 1.068 Assumptions: - FOB prices of Thai A1 rice is $412/MT and 35% broken rice is $530/MT - 25% overvaluation of the CFA franc - Customs and import duties are excluded - Economic cost of transport is 34.6 CFAF/MT-km - Yield of 2,366 kg/ha for the BF and 5,747 kg/ha for the ON - Milling rate of 65% for the BF and 68% for the ON Source: Computation of author using Appendix Tables 13-24 102 Korhogo 0.830 0.850 Bouake 0.932 0.920 Abidjan 1.088 1.017 Bobo 0.770 0.768 Figure 18: Comparative Advantage and Improved Processing Technologies : Notes: - Design of Ramziath Adjao and Steve Lon Longabaugh - The circles are “approximate” and cover only the u shaded countries (i.e., Burkina Faso, Mali, Senegal and Cote d’Ivoire unshaded d’Ivoire). 103 6.6. Joint impact of multiple policy variables on competitiveness In the previous section, sensitivity analyses were performed to assess how DRC coefficients react to a change in policies or factor of comparative advantage. Although changing a single policy instrument may sometime help improve the competitiveness of rice, as suggested by the results of the “high yield” sensitivity analysis scenario, it is not always the case. The analysis above indicated that improving processing technologies alone, for instance, was not enough to induce Malian rice produced in the bas-fonds or in the ON to be markedly more competitive in Northern Senegal or Southern Cote d’Ivoire relative to the base scenario. Thus, a combination of policy instruments is more likely to improve the competitiveness of this subsector compared to using a single policy variable. This section assesses the joint impact of several policy variables on the competitiveness of Malian rice under the following scenarios: 1) the output price is decreased by 18 percent (i.e., to bring price back to its pre-2007/08 crisis level), the currency undergoes a 50 percent devaluation and transport costs are halved; 2) in addition to scenario 1, the milling rate increases to 65 percent for the bas-fonds and 68 percent for the Office du Niger; and 3) in addition to scenario 2, on-farm yield levels increase by 27 percent in the bas-fonds and 16 percent in the Office du Niger (i.e., high yield scenario). As expected, the comparative advantage of Mali in producing and marketing rice is greatly improved when several policy variables are implemented simultaneously (see table 19). The strongest impact for irrigated rice is realized under the second and third scenarios for bas-fonds rice. Under the third scenario, the competiveness of ON irrigated rice is undermined on some markets compared to the second scenario, notably in Senegal and southern Cote d’Ivoire. This is 104 probably due to the assumption that higher yield levels are accompanied by higher post-harvest costs. 105 Table 19: Joint Impact of Multiple Policy Variables on Competitiveness of the Rice Subsector in Mali Scenario 1 Indicators Bamako DRC ratios - BF 0.824 DRC ratios -ON 0.797 Sikasso 0.797 0.780 Niono 0.800 0.767 Kayes 0.936 0.864 Point of sale Tamba Kaolack Dakar 1.024 1.090 1.136 0.913 0.947 0.970 Korhogo 0.880 0.860 Bouake 0.932 0.893 Abidjan 1.002 0.934 Bobo 0.840 0.814 Assumptions: - FOB prices of rice are decreased 18% (i.e., $338/MT for Thai A1 rice and $435/MT for 35% broken rice) - 25% overvaluation of the CFA franc - Customs and import duties are excluded - Economic cost of transport is 34.6 CFAF/MT-km - Yield of 2,366 kg/ha for the BF and 5,747 kg/ha for the ON - Milling rate of 65% for the BF and 68% for the ON Scenario 2 Indicators Bamako DRC ratios - BF 0.785 DRC ratios -ON 0.756 Sikasso 0.760 0.740 Niono 0.763 0.728 Kayes 0.890 0.819 Point of sale Tamba Kaolack Dakar 0.972 1.034 1.076 0.864 0.897 0.918 Assumptions: - FOB prices of Thai A1 rice is $412/MT and 35% broken rice is $530/MT - 25% overvaluation of the CFA franc - Customs and import duties are excluded - Economic cost of transport is 34.6 CFAF/MT-km - Yield of 2,366 kg/ha for the BF and 5,747 kg/ha for the ON - Milling rate of 65% for the BF and 68% for the ON 106 Korhogo 0.838 0.815 Bouake 0.887 0.846 Abidjan 0.952 0.884 Bobo 0.800 0.772 Table 19(cont’d). Scenario 3 Indicators Bamako DRC ratios - BF 0.586 DRC ratios -ON 0.674 Sikasso 0.559 0.652 Niono 0.562 0.636 Kayes 0.698 0.761 Point of sale Tamba Kaolack Dakar 0.793 0.874 0.933 0.827 0.880 0.916 Assumptions: - FOB prices of Thai A1 rice is $412/MT and 35% broken rice is $530/MT - 25% overvaluation of the CFA franc - Customs and import duties are excluded - Economic cost of transport is 34.6 CFAF/MT-km - Yield of 2,366 kg/ha for the BF and 5,747 kg/ha for the ON - Milling rate of 65% for the BF and 68% for the ON Source: Computation of author using Appendix Tables 13-24 107 Korhogo 0.645 0.766 Bouake 0.702 0.814 Abidjan 0.782 0.879 Bobo 0.608 0.705 7. CONCLUSIONS AND POLICY IMPLICATIONS The objective of this study was to assess the comparative advantage of Mali in the production and marketing of rice both in domestic markets and in the subregion, by examining (1) whether Malian rice is financially profitable at the farm level, (2) whether Malian rice is economically profitable at the farm level, and (3) whether it is a good use of national resources to market rice on various markets in West Africa. To do so, this study focused on irrigated rice of rehabilitated perimeters in the Office du Niger and bas-fonds rice of southern Mali in the cotton zone, using standard budgeting techniques and domestic resource cost (DRC) coefficients as methods of analysis. This study found that both production systems are very profitable, in financial terms, with rice produced in the Office du Niger being 1.5 times more profitable than rice produced in the bas-fond, when inputs costs are subsidized by more than 50 percent (i.e., net margin of 26 CFAF/kg for bas-fonds rice and 77 CFAF/kg for the Office). When input subsidies are removed, rice production in the bas-fonds is no longer a lucrative activity, as famers barely break-even. However, the financial returns for full-water control irrigated rice are still substantial, with net margin of 67 CFAF/kg. Thus, savings from the removal of a 50 percent subsidy on input costs causes net margins for farmers in the Office du Niger to drop only 14 percent, and rice producers in the ON could achieve comparable financial returns (i.e., 77 CFAF/kg) if their agricultural productivity were to increase 16 percent. Furthermore, this study found that financial profitability of Malian rice increases with yields. The data suggest that production risk is lower in the Office du Niger due to better water control, with yields varying between 800 and 3,000 kg/ha in the bas-fonds compared to 4,500 and 6,640 kg/ha in the Office. Results of the sensitivity analysis with respect to yield suggest that 108 that irrigated rice is always more financially profitable than bas-fonds rice in both scenarios and that bas-fonds rice production ceases to be profitable when the yield drops below 1,372 kg/ha under the “low yield” scenario. Results of the economic analysis reveal that while bas-fond rice is more costly to produce than full-water control irrigated rice in financial terms (i.e., 124 CFAF/kg in the bas-fonds compared to 83 CFAF/kg in the ON), it is less costly in economic terms (i.e., 47 CFAF/kg in the bas-fonds compared to 75 CFAF/kg in the ON). Despite lower production costs, rice produced in the ON is found to be more profitable than bas-fond rice, in both financial and economic terms, due to the high price premium for 35% broken Thai rice over Thai A1 super. In fact, the social price of milled rice at the farm level in paddy equivalent is 22 percent higher in the Office du Niger compared to the bas-fonds (i.e., 228 CFAF/kg in the bas-fonds and 287 CFAF/kg in the Office). Thus, if Mali was just interested in generating calories rather than economic value, it would be cheaper to produce the calories in the bas-fonds rather than in the ON, given that investing in the bas-fonds or in the Office du Niger are not mutually exclusive alternatives. However, the level of the investments would also depend on the magnitude of additional output (hence calories) that could be obtained in the bas-fonds as opposed to that could be obtained in the ON, given yield levels and resource constraints in these production systems (e.g., scarcity of land and water resources). However, if we assume that there is no price differential between bas-fonds and ON rice, then the economic profitability of bas-fonds rice doubles when rice is valued at 287 CFAF/kg, with net social returns increasing from 41 CFAF/kg to 88 CFAF/kg, everything else held constant. At these higher output price levels, paddy production in the bas-fonds is more profitable than in the ON, in economic terms, which suggests that there are likely high returns to 109 marketing extension work aimed at improving post-harvest handling of paddy and improving milling in the bas-fonds areas. Also, results of the sensitivity analysis with respect to yield in economic terms are consistent with those of the financial analysis in that rice production in the ON is always more economically profitable than in the bas-fonds and that bas-fonds rice ceases to be profitable when yield drops below 1,825 kg/ha. As for the analysis of comparative advantage of Mali in the production and marketing of rice in selected markets of the subregion, focus was given to the following markets: • Mali: Sikasso, Niono, Bamako and Kayes; • Senegal: Tambacounda, Kaolack and Dakar; • Côte d'Ivoire: Korhogo, Bouake and Abidjan; and • Burkina Faso: Bobo Dioulasso. Results of the DRC analysis suggest that Mali has a very pronounced comparative advantage in the production and marketing of rice on its national territory. The magnitude of the DRC coefficients shows that ON rice is more competitive than bas-fonds rice, except in Sikasso, where bas-fonds rice is produced. Nonetheless, producing bas-fonds and irrigated rice to supply domestic markets is a better use of domestic resources than importing rice from the international market. Although bas-fonds can make a contribution to supplying Mali’s requirements in rice by complementing production of the Office du Niger, rice produced in the bas-fonds would not be competitive if it were exported to Senegal or to coastal cities such as Abidjan, which is sensible. In effect, while full-water control irrigated rice has comparative advantage on all neighboring markets, except Northern Senegal and Southern Cote d’Ivoire, bas-fonds rice is only competitive in selected inland markets close to the Malian borders (i.e., Korhogo, Bouake and Bobo 110 Dioulasso) but loses its comparative advantage in all markets in Senegal and in Southern Cote d’Ivoire as well. The results of this study contrast with those of Dimithe (1997), who found that bas-fonds production systems were more competitive than full-water control irrigated systems of the ON. The differences in findings may largely stem from the fact that Dimithe assumed no price differential between rice produced in the ON and bas-fonds rice. When making similar assumptions, results of this study concurs with those of Dimithe. Furthermore, this study assumes higher yields and higher import parity prices of rice for the ON relative to the bas-fonds than when Dimithe conducted his study (i.e., 20 percent increase in yield and 120 percent increase in CIF prices). The comparative advantage of Mali, especially for irrigated rice, in selected regional markets also contrasts with the findings of Diarra (2004), who showed that Malian rice was not competitive in any of the neighboring countries due to high transport costs. The increased competitiveness, compared to 2003, is mainly due to higher FOB Bangkok prices of rice, which are three times higher (i.e., the average FOB price for 35% broken rice was $177/kg in 2003 compared to $530/kg in 2009). Despite this increased competitiveness on regional markets, it appears that Malian rice still lacks comparative advantage in Northern Senegal and Southern Cote d’Ivoire. The competitiveness of the rice subsector in these markets is further hampered by an overvalued currency that discourages local production in favor of imports. Thus, sensitivity analyses were performed to determine how changes in various policy variables and factors, including reduced world prices, devaluation of the CFAF franc, decreased transport costs, and increased productivity at the farm and processing levels would affect the comparative advantage of Malian rice on these selected markets. Results of the sensitivity 111 analysis indicate that an 18 percent decrease in the FOB prices of rice to bring them back to their pre-2007/08 crisis level would cause irrigated ON rice to lose its comparative advantage in all neighboring markets, except for Bobo Dioulasso, and bas-fonds rice would no longer be competitive beyond Bamako. A 50 percent devaluation of the currency, however, would make Malian rice competitive on all markets, except Kaolack and Dakar for bas-fonds rice. Furthermore, because production risks are lower in the Office du Niger due to better water control, our “low yield” scenario only represents a 22 percent yield decline in the ON versus 66 percent in the bas-fonds. Thus, when accounting for lower production risk in the Office, decreasing yield by more than an half in the bas-fonds and by about quarter in the Office du Niger results the loss of comparative advantage on all markets for bas-fonds rice while ON rice remains competitive on domestic markets, except Kayes. However, expanding current yield by 16 percent in the bas-fonds and 27 percent in the Office, under the “high yield” scenario, helps Malian rice gain comparative advantage in all markets, except Dakar, and suggests that basfonds rice is more competitive than ON rice on most markets (i.e., with the exception of Kaolack). This is probably due to the fact that higher yield levels are accompanied by higher post-harvesting costs, which are greater expenditures in the Office du Niger and thus further increase unit cost of production at the farm level. Although changing a single policy instrument may help improve the competitiveness of the rice subsector in Mali, it may not always be the case,, especially for bas-fond rice marketed in Northern Senegal and Southern Cote d’Ivoire. In fact, it appears that Mali could export rice produced in the bas-fonds to these markets if and only if several macroeconomic and sectoral policies were implemented simultaneously, notably devaluating the CFAF franc by 50 percent, maintaining output prices at a high level, and halving transport costs. Nonetheless, bas-fonds rice 112 would remain noncompetitive in coastal markets of Senegal, and it would become competitive only if processing technologies were to be improved in addition to the above policy changes. If Mali were to focus its efforts in making local rice, especially bas-fonds rice, competitive in the coastal markets, it would probably fail, given the high costs associated with implementing several macroeconomic and sectoral policies jointly. A better strategy could be to develop bas-fonds rice production as a means to complement irrigated ON rice production. Basfonds rice, which is typically lower in quality compared to irrigated ON rice, could be marketed to consumers in rural and secondary markets in Southern Mali (e.g., Sikasso, Koutiala, and Bougouni) who usually seek cheaper rice grades, while higher quality rice produced in the ON could be destined to wealthier consumers in major urban markets (i.e., Bamako) and the export markets. Furthermore, focusing on inland markets that are closer to Malian borders could be a means to save resources, which could partly be invested in research and extension to render agricultural production less risky and help generate more marketable surpluses. Despite the numerous constraints that still characterize the rice sector, this study suggests that the export prospects of Malian rice in the subregion are encouraging. For Mali to position itself as a potential credible exporter of rice to regional markets, however, it is necessary that it generates enough rice surpluses. The current surplus levels are low, but may increase in volume if agricultural extension as well as investment efforts in irrigated and bas-fonds lands are undertaken. Thus, there may be high payoffs to improving the production and productivity of rice. Furthermore, there is a need to develop and implement mechanisms for financing investments in the various rice production zones to increase the areas cultivated and reduce the uncertainty associated with erratic weather patterns. The recent amendments to the land policy in the Office du Niger that grant land titles to private investors is a first step to help facilitate the 113 mobilization of these financial resources, which is a prerequisite for the promotion of commercial rice production in Mali. In addition to increased acreage, new strategies must be envisaged to continue the extension of good agricultural practices in order to increase yield levels and improve the overall quality of rice paddy given that the Office du Niger no longer provides such services. However, increasing marketable volume of milled rice without addressing the quality issue will no longer be sufficient if Mali is to claim a share of the booming West African rice market. In West Africa, Malian rice is preferred to imported Asian rice due to its freshness. In Senegal, for instance, most consumers have a propensity to seek rice with high levels of brokens, while in Cote d’Ivoire consumers prefer rice that has very few broken grains. Regardless of the grade of rice they prefer, relatively affluent consumers in labor-limited households are more likely to demand rice that is clean and free of debris, as income continues to rise and the urban population continues to grow in the subregion. The current poor quality of Malian rice could represent an important challenge for marketing rice in foreign regional markets, given current trends. Thus, it is crucial to develop and implement strategies that could help improve processing technologies that reduce the level of impurities and harmonize the amount of broken in each grade of rice in order to gain additional markets, especially in neighboring markets that are relatively close to the Malian borders such as Bobo Dioulasso, Korhogo, Bouake, Tambacounda and Kaolack. In order to further promote Malian rice exports in the sub-region, there is a need for a sound monetary policy that brings the official exchange rate in line with the opportunity cost of resources. The apparent overvaluation of the CFA franc is hindering the competitiveness of the 114 rice sector, and absent a change in the parity rate, offsetting tariffs may be appropriate to achieve a “partial, sector-specific quasi-devaluation”. Finally, urgent measures need to be put in place to break up the transport oligopolies and eliminate non-tariff barriers, which contribute to further increase the already high marketing costs. Again, information/awareness programs that inform the various actors involved in the marketing segment of the rice value chain could help fight against these illegal practices. Providing additional incentives to customs officers and other agents, through pay raise for example, may also contribute to reduce corruption on the transportation corridors. 115 APPENDIX 116 Appendix Table 1: Financial Profitability of Rice Paddy – Intensive Bas-fonds Production System in Sikasso, 2008/09 – BaseSscenario Amount Family labor (person-day/ha) cleaning plowing planting weeding fertilizer application harvesting threshing Total family labor costs 354,900 218 115 94 3 30 245 250 250 6,580 250 98 1,000 53,410 28,750 23,375 16,450 7,394 8,417 98,328 236,124 0 0 7 8 7 5 4 14 12 57 Fixed costs (CFAF/ha) 150 0 Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Interest on working capital (13.8%) - 6 months Hired labor (person-day/ha) Total operating costs Value per ha 2,366 Revenues Yield (kg paddy/ha) Unit value 1,000 56,833 Performance Measures (CFAF/ha) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 236,124 292,957 118,776 61,943 Performance Measures (CFAF/kg) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 100 124 50 26 Notes: - Financial profitability of paddy in intensive BF system in Sikasso – Base scenario - Input subsidies on costs of fertilizers (50%) and seeds (60%) are included Source: Adapted from Dimithe (1997) and updated using data from OMA and IER 117 Appendix Table 2: Financial Profitability of Rice Paddy – Intensive Irrigated Production System in Rehabilitated Perimeters in the Office du Niger in Niono, 2008/09 – Base Scenario Amount 245 250 250 6,580 250 30 1,000 14,700 53,125 40,625 0 17,959 11,250 96,060 233,719 25,000 25,000 67,000 10,000 5,000 40,000 25,000 25,000 67,000 10,000 5,000 40,000 172,000 72 Family labor (person-day/ha) 919,520 1 1 1 1 1 1 Fixed costs (CFAF/ha) Tillage Puddling Water charges Cleaning of tertiary canals Scarecrows Extension costs Total fixed costs 160 60 213 163 0 72 375 96 Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Financial costs Hired labor (person-day/ha) Total operating costs Value per ha 5,747 Revenues Yield (kg paddy/ha) Unit value 1,000 71,940 Performance Measures (CFAF/ha) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 405,719 477,659 513,801 441,861 Performance Measures (CFAF/kg) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 71 83 89 77 Notes: - Financial profitability of paddy in intensive ON system in Niono – Base scenario - Input subsidies on costs of fertilizers (50%) and seeds (60%) are included Source: Adapted from datasets from OMA and IER 118 Appendix Table 3: Financial Profitability of Rice Paddy – Intensive Bas-fonds Production System in Sikasso, 2008/09 – Assuming a Low Yield Scenario Amount Family labor (person-day/ha) cleaning plowing planting weeding fertilizer application harvesting threshing Total family labor costs 120,000 218 115 94 3 10 245 250 250 6,580 250 33 1,000 53,410 28,750 23,375 16,450 2,500 8,417 33,247 166,149 0 0 7 8 7 5 4 5 4 40 Fixed costs (CFAF/ha) 150 0 Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Interest on working capital (13.8%) - 6 months Hired labor (person-day/ha) Total operating costs Value per ha 800 Revenues Yield (kg paddy/ha) Unit value 1,000 39,625 Performance Measures (CFAF/ha) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 166,149 205,774 -46,149 -85,774 Performance Measures (CFAF/kg) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 208 257 -58 -107 Notes: - Financial profitability of paddy in intensive BF system in Sikasso - “low yield” scenario - A “low yield” represents a decline of 66% for BF to reflect actual yield variations - Input subsidies on costs of fertilizers (50%) and seeds (60%) are included Source: Adapted from Dimithe (1997) and updated using data from OMA and IER 119 Appendix Table 4: Financial Profitability of Rice Paddy – Intensive Irrigated Production System in Rehabilitated Perimeters in the Office du Niger in Niono, 2008/09 – Assuming a Low Yield Scenario Amount 245 250 250 6,580 250 30 1,000 14,700 53,125 40,625 0 14,063 11,250 97,820 231,583 25,000 25,000 67,000 10,000 5,000 40,000 25,000 25,000 67,000 10,000 5,000 40,000 172,000 48 Family labor (person-day/ha) 720,000 1 1 1 1 1 1 Fixed costs (CFAF/ha) Tillage Puddling Water charges Cleaning of tertiary canals Scarecrows Extension costs Total fixed costs 160 60 213 163 0 56 375 98 Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Financial costs Hired labor (person-day/ha) Total operating costs Value per ha 4,500 Revenues Yield (kg paddy/ha) Unit value 1,000 48,180 Performance Measures (CFAF/ha) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 403,583 451,763 316,418 268,238 Performance Measures (CFAF/kg) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 90 100 70 60 Notes: - Financial profitability of paddy in intensive ON system in Niono - “low yield” scenario - A “low yield” represents a decline of 22% for ON to reflect actual yield variations - Input subsidies on costs of fertilizers (50%) and seeds (60%) are included Source: Adapted from data from OMA and IER 120 Appendix Table 5: Financial Profitability of Rice Paddy – Intensive Bas-fonds Production System in Sikasso, 2008/09 – Assuming a High Yield Scenario Amount Unit value Value per ha 3,000 150 450,000 218 115 94 3 38 245 250 250 6,580 250 125 1,000 53,410 28,750 23,375 16,450 9,375 8,417 124,676 264,453 0 0 0 7 8 7 5 4 18 15 64 1,000 63,800 Revenues Yield (kg paddy/ha) Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Interest on working capital (13.8%) - 6 months Hired labor (person-day/ha) Total operating costs Fixed costs (CFAF/ha) Family labor (person-day/ha) cleaning plowing planting weeding fertilizer application harvesting threshing Total family labor costs Performance Measures (CFAF/ha) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor Performance Measures (CFAF/kg) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 264,453 328,254 185,547 121,746 88 109 62 41 Notes: - A “high yield” represents an increase of 27% for BF to reflect actual yield variations - Input subsidies on costs of fertilizers (50%) and seeds (60%) are included Source: Adapted from Dimithe (1997) and updated using data from tOMA and IER 121 Appendix Table 6: Financial Profitability of Rice Paddy – Intensive Irrigated Production System in Rehabilitated Perimeters in the Office du Niger in Niono, 2008/09 – Assuming a High Yield Scenario Amount Family labor (person-day/ha) 1,062,400 60 213 163 0 83 245 250 250 6,580 250 123 1,000 14,700 53,125 40,625 0 20,750 7,483 122,610 259,293 25,000 25,000 67,000 10,000 5,000 40,000 25,000 25,000 67,000 10,000 5,000 40,000 172,000 60 Fixed costs (CFAF/ha) Tillage Puddling Water charges Cleaning of tertiary canals Scarecrows Extension costs Total fixed costs 160 1 1 1 1 1 1 Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Interest on working capital (13.8%) - 6 months Hired labor (person-day/ha) Total operating costs Value per ha 6,640 Revenues Yield (kg paddy/ha) Unit value 1,000 60,390 Performance Measures (CFAF/ha) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 431,293 491,683 631,107 570,717 Performance Measures (CFAF/kg) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 65 74 95 86 Notes: - A “high yield” represents an increase of 16% for BF to reflect actual yield variations - Input subsidies on costs of fertilizers (50%) and seeds (60%) are included Source: Adapted from data from OMA and IER 122 Appendix Table 7: Financial Profitability of Rice Paddy – Intensive Bas-fonds Production System in Sikasso, 2008/09 – Base Scenario, Without Input Subsidies Amount Family labor (person-day/ha) cleaning plowing planting weeding fertilizer application harvesting threshing Total family labor costs 354,900 218 115 94 3 30 392 375 375 6,580 250 98 1,000 85,456 43,125 35,063 16,450 7,394 12,426 98,328 298,242 0 0 7 8 7 5 4 14 12 57 Fixed costs (CFAF/ha) 150 0 Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Interest on working capital (13.8%) - 6 months Hired labor (person-day/ha) Total operating costs Value per ha 2,366 Revenues Yield (kg paddy/ha) Unit value 1,000 56,833 Performance Measures (CFAF/ha) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 298,242 355,075 56,658 -175 Performance Measures (CFAF/kg) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 126 150 24 0 Notes: - Financial profitability of paddy in intensive BF system in Sikasso – Base scenario - Input subsidies on costs of fertilizers (50%) and seeds (60%) are removed Source: Adapted from Dimithe (1997) and updated using data from OMA and IER 123 Appendix Table 8: Financial Profitability of Rice Paddy – Intensive Irrigated Production System in Rehabilitated Perimeters in the Office du Niger in Niono, 2008/09 – Base Scenario, Without Input Subsidies Amount 392 375 375 6,580 250 30 1,000 23,520 79,688 60,938 0 17,959 11,250 96,060 289,414 25,000 25,000 67,000 10,000 5,000 40,000 25,000 25,000 67,000 10,000 5,000 40,000 172,000 72 Family labor (person-day/ha) 919,520 1 1 1 1 1 1 Fixed costs (CFAF/ha) Tillage Puddling Water charges Cleaning of tertiary canals Scarecrows Extension costs Total fixed costs 160 60 213 163 0 72 375 96 Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Financial costs Hired labor (person-day/ha) Total operating costs Value per ha 5,747 Revenues Yield (kg paddy/ha) Unit value 1,000 71,940 Performance Measures (CFAF/ha) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 461,414 533,354 458,106 386,166 Performance Measures (CFAF/kg) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 80 93 80 67 Notes: - Financial profitability of paddy in intensive ON system in Niono – Base scenario - Input subsidies on costs of fertilizers (50%) and seeds (60%) are removed Source: Adapted from data from OMA and IER 124 Appendix Table 9: Financial Profitability of Rice Paddy – Intensive Bas-fonds Production System in Sikasso, 2008/09 – Assuming a Low Yield Scenario, Without Input Subsidies Amount Family labor (person-day/ha) cleaning plowing planting weeding fertilizer application harvesting threshing Total family labor costs 120,000 218 115 94 3 10 392 375 375 6,580 250 33 1,000 85,456 43,125 35,063 16,450 2,500 12,426 33,247 228,267 0 0 7 8 7 5 4 5 4 40 Fixed costs (CFAF/ha) 150 0 Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Interest on working capital (13.8%) - 6 months Hired labor (person-day/ha) Total operating costs Value per ha 800 Revenues Yield (kg paddy/ha) Unit value 1,000 39,625 Performance Measures (CFAF/ha) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 228,267 267,891 -108,267 -147,891 Performance Measures (CFAF/kg) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 285 335 -135 -185 Notes: - A “low yield” represents a decline of 66% for BF to reflect actual yield variations - Input subsidies on costs of fertilizers (50%) and seeds (60%) are removed Source: Adapted from Dimithe (1997) and updated using data from OMA and IER 125 Appendix Table 10: Financial Profitability of Rice Paddy – Intensive Irrigated Production System in Rehabilitated Perimeters in the Office du Niger in Niono, 2008/09 – Assuming a Low Yield Scenario, Without Input Subsidies Amount 392 375 375 6,580 250 30 1,000 23,520 79,688 60,938 0 14,063 11,250 97,820 287,278 25,000 25,000 67,000 10,000 5,000 40,000 25,000 25,000 67,000 10,000 5,000 40,000 172,000 48 Family labor (person-day/ha) 720,000 1 1 1 1 1 1 Fixed costs (CFAF/ha) Tillage Puddling Water charges Cleaning of tertiary canals Scarecrows Extension costs Total fixed costs 160 60 213 163 0 56 375 98 Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Financial costs Hired labor (person-day/ha) Total operating costs Value per ha 4,500 Revenues Yield (kg paddy/ha) Unit value 1,000 48,180 Performance Measures (CFAF/ha) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 459,278 507,458 260,723 212,543 Performance Measures (CFAF/kg) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 102 113 58 47 Notes: - A “low yield” represents a decline of 22% for ON to reflect actual yield variations - Input subsidies on costs of fertilizers (50%) and seeds (60%) are removed Source: Adapted from data from OMA and IER 126 Appendix Table 11: Financial Profitability of Rice Paddy – Intensive Bas-fonds Production System in Sikasso, 2008/09 – Assuming a High Yield Scenario, Without Input Subsidies Amount Family labor (person-day/ha) cleaning plowing planting weeding fertilizer application harvesting threshing Total family labor costs 450,000 218 115 94 3 38 392 375 375 6,580 250 125 1,000 85,456 43,125 35,063 16,450 9,375 12,426 124,676 326,571 0 0 7 8 7 5 4 18 15 64 Fixed costs (CFAF/ha) 150 0 Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Interest on working capital (13.8%) - 6 months Hired labor (person-day/ha) Total operating costs Value per ha 3,000 Revenues Yield (kg paddy/ha) Unit value 1,000 63,800 Performance Measures (CFAF/ha) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 326,571 390,372 123,429 59,628 Performance Measures (CFAF/kg) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 109 130 41 20 Notes: - A “high yield” represents an increase of 27% for BF to reflect actual yield variations - Input subsidies on costs of fertilizers (50%) and seeds (60%) are removed Source: Adapted from Dimithe (1997) and updated using data from OMA and IER 127 Appendix Table 12: Financial Profitability of Rice Paddy – Intensive Irrigated Production System in Rehabilitated Perimeters in the Office du Niger in Niono, 2008/09 – Assuming a High Yield Scenario, Without Input Subsidies Amount Family labor (person-day/ha) 1,062,400 60 213 163 0 83 392 375 375 6,580 250 123 1,000 23,520 79,688 60,938 0 20,750 11,326 122,610 318,831 25,000 25,000 67,000 10,000 5,000 40,000 25,000 25,000 67,000 10,000 5,000 40,000 172,000 60 Fixed costs (CFAF/ha) Tillage Puddling Water charges Cleaning of tertiary canals Scarecrows Extension costs Total fixed costs 160 1 1 1 1 1 1 Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Interest on working capital (13.8%) - 6 months Hired labor (person-day/ha) Total operating costs Value per ha 6,640 Revenues Yield (kg paddy/ha) Unit value 1,000 60,390 Performance Measures (CFAF/ha) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 490,831 551,221 571,569 511,179 Performance Measures (CFAF/kg) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 74 83 86 77 Notes:- A “high yield” represents an increase of 16% for BF to reflect actual yield variations - Input subsidies on costs of fertilizers (50%) and seeds (60%) are removed Source: Adapted from data from OMA and IER 128 Appendix Table 13: Farm-Level Import Parity Price of Office du Niger Rice for Imports through the Port of Dakar, 2009 Point of Sale FOB price milled rice ($/mt milled rice) Ocean freight (CFAF/mt) Insurance (0.2% of FOB) CIF price, Dakar, $/mt Real exchange rate (CFAF/$) -- 25% overvalued CIF price, Dakar, CFAF/mt Port charges, CFAF/mt Transit costs, Dakar Customs and import duties, Dakar (CFAF/mt) excluded Parity Price in Dakar (CFAF/mt milled rice) Dakar to Kaolack Distance(km) Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Price in Kaolack (CFAF/mt milled rice) Kaolack to Tamba Distance(km) Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Price in Tamba (CFAF/mt milled rice) Transport, Tamba to Kayes Distance(km) Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Transit costs Price in Kayes (CFAF/mt milled rice) SENEGAL Dakar Kaolack Tamba 530 120 11 661 579 382,322 10,300 10,000 MALI Kayes Bamako Sikasso 402,622 180 43 7,783 410,405 279 43 12,064 422,469 362 43 15,653 3,000 441,122 129 Niono Appendix Table 13 (cont’d). Kayes to Bamako Distance(km) Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Handling and storage costs in Bamako Price in Bamako (CFAF/mt milled rice) Bamako to Sikasso Distance(km) Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Price in Sikasso (CFAF/mt milled rice) Bamako to Niono Distance(km) Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Price in Niono (CFAF/mt milled rice) Gate price in point of sale (CFAF/mt milled rice) Wholesale marketing margin (5%) Wholesale price at point of sale (CFAF/mt milled rice) Point of sale to Village in Bas-fonds (assumed negligible distance from Sikasso) Distance(km) Transport cost (CFAF/mt milled rice) Minus Transport (CFAF/mt milled rice) Gate price in village (CFAF/mt milled rice) Minus Wholesale marketing margin (5%) Wholesale price in the village with margin deducted (CFAF/mt milled rice) Minus Retail marketing margin (5%) Retail price in the village (CFAF/mt milled rice) 612 43 26,463 3,000 470,585 384 43 16,604 487,189 346 43 14,961 485,546 402,622 410,405 422,469 441,122 470,585 487,189 485,546 20,131 20,520 21,123 22,056 23,529 24,359 24,277 422,753 430,926 443,593 463,178 494,114 511,549 509,824 1,766 1,599 1,320 958 346 346 0 43 43 43 43 43 43 43 -76,362 -69,141 -57,077 -41,424 -14,961 -14,961 0 346,392 361,785 386,516 421,754 479,153 496,588 509,824 -17,320 -18,089 -19,326 -21,088 -23,958 -24,829 -25,491 329,072 343,696 367,190 400,667 455,196 471,758 484,332 -16,454 -17,185 -18,360 -20,033 -22,760 -23,588 -24,217 312,618 326,511 348,831 380,633 432,436 448,170 460,116 130 Appendix Table 13 (cont’d). Retail price in the village with margin deducted (CFAF/kg milled rice) Milling rate (%kg milled rice/kg paddy) Minus Milling costs of paddy (CFAF/kg of paddy) Import parity price in village (CFAF/kg paddy) 313 0.65 -12 191 327 0.65 -12 200 Source: Adapted from various datasets from USDA/ERS, OMA, IER, and ECOWAS 131 349 0.65 -12 215 381 0.65 -12 235 432 0.65 -12 269 448 0.65 -12 279 460 0.65 -12 287 Appendix Table 14: Farm-Level Import Parity Price of Office du Niger Rice for Imports through the Port of Abidjan, 2009 Point of Sale COTE D’IVOIRE MALI Abidjan Bouake Korhogo Sikasso Bamako Niono 530 120 10 660 579 382,091 12,270 15,284 FOB price milled rice ($/mt milled rice) Ocean freight CFAF/mt) Insurance CIF price, Abidjan, $/mt Real exchange rate (CFAF/$) -- 25% overvalued CIF price, Abidjan, CFAF/mt Port charges, CFAF/mt (4% of FOB) Transit costs, Abidjan (4% of CIF) Customs and import duties, Abidjan (CFAF/mt) excluded Parity Price in Abidjan (CFAF/mt milled rice) 409,644 Abidjan to Bouake Distance(km) 350 Transport cost (CFAF/mt milled rice) 43 Transport (CFAF/mt milled rice) 15,134 Price in Bouake (CFAF/mt milled rice) 424,778 Bouake to Korhogo Distance(km) 300 43 12,972 437,750 Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Price in Korhogo (CFAF/mt milled rice) Transport, Korhogo to Sikasso Distance(km) Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Transit costs 233 43 10,075 3,000 132 BURKINA Bobo Appendix Table 14 (cont’d). Price in Sikasso (CFAF/mt milled rice) Sikasso to Bamako Distance(km) Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Handling and storage costs in Bamako Price in Bamako (CFAF/mt milled rice) Bamako to Niono Distance(km) Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Price in Niono (CFAF/mt milled rice) Transport, Korhogo to Bobo Distance(km) Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Road taxes (2500FCFAF/100 km), Bobo Handling and storage costs in Bobo Price in Bobo (CFAF/mt milled rice) Gate price in point of sale (CFAF/mt milled rice) Wholesale marketing margin (5%) Wholesale price at point of sale (CFAF/mt milled rice) Point of sale to Village in Bas-fonds (assumed negligible distance from Sikasso) Distance(km) Transport cost (CFAF/mt milled rice) Minus Transport (CFAF/mt milled rice) Farmgate price in village (CFAF/mt milled rice) Minus Wholesale marketing margin (5%) Wholesale price in the village with margin deducted (CFAF/mt milled rice) 450,825 384 43 16,604 3,000 470,429 346 43 14,961 485,390 409,644 424,778 20,482 21,239 430,126 446,017 437,750 450,825 470,429 485,390 21,887 22,541 23,521 24,269 459,637 473,366 493,950 509,659 287 43 12,410 2,500 1,000 453,660 453,660 22,683 476,343 1,613 1,263 43 43 -69,746 -54,612 360,380 391,405 -18,019 -19,570 963 391 346 0 43 43 43 43 -41,640 -16,907 -14,961 0 417,997 456,459 478,989 509,659 -20,900 -22,823 -23,949 -25,483 485 43 -20,971 455,371 -22,769 342,361 371,834 397,097 433,636 455,040 484,177 432,603 133 Appendix Table 14 (cont’d). Minus Retail marketing margin (5%) Retail price in the village (CFAF/mt milled rice) Retail price in the village with margin deducted (CFAF/kg milled rice) Milling rate (%kg milled rice/kg paddy) Minus Milling costs of paddy (CFAF/kg of paddy) Import parity price in village (CFAF/kg paddy) -17,118 -18,592 325,243 353,243 325 0.65 -12 199 -19,855 -21,682 -22,752 -24,209 377,243 411,954 432,288 459,968 353 0.65 -12 218 Source: Adapted from various datasets from USDA/ERS, OMA, IER, and ECOWAS 134 377 0.65 -12 233 412 0.65 -12 256 432 0.65 -12 269 460 0.65 -12 287 -21,630 410,973 411 0.65 -12 255 Appendix Table 15: Farm-Level Import Parity Price of Bas-fonds Rice for Imports through the Port of Dakar, 2009 Point of Sale FOB price milled rice ($/mt milled rice) Ocean freight (CFAF/mt) Insurance (0.2% of FOB) CIF price, Dakar, $/mt Real exchange rate (CFAF/$) -- 25% overvalued CIF price, Dakar, CFAF/mt Port charges, CFAF/mt Transit costs, Dakar Customs and import duties, Dakar (CFAF/mt) excluded Parity Price in Dakar (CFAF/mt milled rice) Dakar to Kaolack Distance(km) Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Price in Kaolack (CFAF/mt milled rice) Kaolack to Tamba Distance(km) Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Price in Tamba (CFAF/mt milled rice) Transport, Tamba to Kayes Distance(km) Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Transit costs Price in Kayes (CFAF/mt milled rice) Kayes to Bamako Distance(km) SENEGAL Dakar Kaolack Tamba 412 120 8 540 579 312,664 10,300 10,000 Kayes MALI Bamako Sikasso 332,964 180 43 7,783 340,747 279 43 12,064 352,811 362 43 15,653 3,000 371,464 612 135 Niono Appendix Table 15 (cont’d). Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Handling and storage costs in Bamako Price in Bamako (CFAF/mt milled rice) Bamako to Sikasso Distance(km) Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Price in Sikasso (CFAF/mt milled rice) Bamako to Niono Distance(km) Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Price in Niono (CFAF/mt milled rice) Gate price in point of sale (CFAF/mt milled rice) Wholesale marketing margin (5%) Wholesale price at point of sale (CFAF/mt milled rice) Point of sale to Village in Bas-fonds (assumed negligible distance from Sikasso) Distance(km) Transport cost (CFAF/mt milled rice) Minus Transport (CFAF/mt milled rice) Gate price in village (CFAF/mt milled rice) Minus Wholesale marketing margin (5%) Wholesale price in the village with margin deducted (CFAF/mt milled rice) Minus Retail marketing margin (5%) Retail price in the village (CFAF/mt milled rice) Retail price in the village with margin deducted (CFAF/kg milled rice) Milling rate (% kg milled rice/kg paddy) 43 26,463 3,000 400,927 384 43 16,604 417,531 346 43 14,961 415,888 332,964 340,747 352,811 371,464 400,927 417,531 415,888 16,648 17,037 17,641 18,573 20,046 20,877 20,794 349,612 357,784 370,452 390,037 420,973 438,408 436,682 1,804 1,637 1,358 996 384 384 391 43 43 43 43 43 43 43 -78,005 -70,784 -58,720 -43,067 -16,604 -16,604 -16,907 271,607 287,001 311,732 346,970 404,369 421,803 419,775 -13,580 -14,350 -15,587 -17,349 -20,218 -21,090 -20,989 258,027 272,651 296,145 329,622 384,151 400,713 398,787 -12,901 -13,633 -14,807 -16,481 -19,208 -20,036 -19,939 245,125 259,018 281,338 313,141 364,943 380,678 378,847 245 0.63 136 259 0.63 281 0.63 313 0.63 365 0.63 381 0.63 379 0.63 Appendix Table 15 (cont’d). Minus Milling costs of paddy (CFAF/kg of paddy) Import parity price in village (CFAF/kg paddy) -12 142 Source: Dataset from USDA/ERS, OMA, IER, and ECOWAS 137 -12 151 -12 165 -12 185 -12 218 -12 228 -12 227 Appendix Table 16: Farm-Level Import Parity Price of Bas-fonds Rice for Imports through the Port of Abidjan, 2009 Point of Sale COTE D’IVOIRE MALI Abidjan Bouake Korhogo Sikasso Bamako Niono 412 120 10 542 579 313,798 9,538 12,552 FOB price milled rice ($/mt milled rice) Ocean freight (CFAF/mt) Insurance CIF price, Abidjan, $/mt Real exchange rate (CFAF/$) -- 25% overvalued CIF price, Abidjan, CFAF/mt Port charges, CFAF/mt (4% of FOB) Transit costs, Abidjan (4% of CIF) Customs and import duties, Abidjan (CFAF/mt) excluded Parity Price in Abidjan (CFAF/mt milled rice) 335,888 Abidjan to Bouake Distance(km) 350 Transport cost (CFAF/mt milled rice) 43 Transport (CFAF/mt milled rice) 15,134 Price in Bouake (CFAF/mt milled rice) 351,022 Bouake to Korhogo Distance(km) Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Price in Korhogo (CFAF/mt milled rice) Transport, Korhogo to Sikasso Distance(km) Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Transit costs Price in Sikasso (CFAF/mt milled rice) Sikasso to Bamako Distance(km) 138 300 43 12,972 363,994 233 43 10,075 3,000 377,069 384 BURKINA Bobo Appendix Table 16 (cont’d). Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Handling and storage costs in Bamako Price in Bamako (CFAF/mt milled rice) Bamako to Niono Distance(km) Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Price in Niono (CFAF/mt milled rice) Transport, Korhogo to Bobo Distance(km) Transport cost (CFAF/mt milled rice) Transport (CFAF/mt milled rice) Road taxes (2500FCFAF/100 km), Bobo Handling and storage costs in Bobo Price in Bobo (CFAF/mt milled rice) Gate price in point of sale (CFAF/mt milled rice) Wholesale marketing margin (5%) Wholesale price at point of sale (CFAF/mt milled rice) Point of sale to Village in Bas-fonds (assumed negligible distance from Sikasso) Distance(km) Transport cost (CFAF/mt milled rice) Minus Transport (CFAF/mt milled rice) Gate price in village (CFAF/mt milled rice) Minus Wholesale marketing margin (5%) Wholesale price in the village with margin deducted (CFAF/mt milled rice) Minus Retail marketing margin (5%) Retail price in the village (CFAF/mt milled rice) 43 16,604 3,000 396,673 346 43 14,961 411,634 335,888 351,022 16,794 17,551 352,682 368,573 363,994 377,069 396,673 411,634 18,200 18,853 19,834 20,582 382,194 395,922 416,507 432,216 287 43 12,410 2,500 1,000 379,904 379,904 18,995 398,899 883 533 43 43 -38,181 -23,047 314,501 345,526 -15,725 -17,276 233 0 384 391 43 43 43 43 -10,075 0 -16,604 -16,907 372,119 395,922 399,903 415,309 -18,606 -19,796 -19,995 -20,765 177 43 -7,653 391,246 -19,562 298,776 328,250 -14,939 -16,412 283,838 311,837 353,513 376,126 379,907 394,544 -17,676 -18,806 -18,995 -19,727 335,837 357,320 360,912 374,816 371,683 -18,584 353,099 139 Appendix Table 16 (cont’d). Retail price in the village with margin deducted (CFAF/kg milled rice) Milling rate (%kg milled rice/kg paddy) Minus Milling costs of paddy (CFAF/kg of paddy) Import parity price in village (CFAF/kg paddy) 284 0.63 -12 167 312 0.63 -12 184 Source: Adapted from various datasets from USDA/ERS, OMA, IER, and ECOWAS 140 336 0.63 -12 200 357 0.63 -12 213 361 0.63 -12 215 375 0.63 -12 224 353 0.63 -12 210 Appendix Table 17: Import Parity Price of Fertilizers for Imports through the Port of Dakar, 2009 Village in Bas-fonds (367km from Bamako) FOB price milled rice ($/mt milled rice) Ocean freight (CFAF/mt) Insurance (0.2% of FOB) CIF price, Dakar, $/mt Real exchange rate (CFAF/$) -- 25% overvalued CIF price, Dakar, CFAF/mt Port charges, CFAF/mt Transit costs, Dakar Customs and import duties, Dakar (CFAF/mt) excluded Transport, Dakar to Bamako (1420km @34.6 mt/km) Transit costs in Bamako Handling and storage costs in Bamako Gate price in Bamako (CFAF/mt) Wholesaler/importer marketing margin (CFAF/mt) (5%) Wholesale price in Bamako Transport Bamako to point of sale (rehabilitated perimeter in Niono348km; bas-fonds in Sikasso: 384km @34.6mt/km ) Gate price in Village (CFAF/mt) Wholesale margin (5%) Wholesale price in village Retail margin (5%) Retail price in village (CFAF/mt) Import parity price in Village (CFAF/mt) Import parity price in Village (CFAF/kg) DAP 323 120 6 450 579 260,184 10,300 10,000 Urea 250 120 5 375 579 216,795 10,300 10,000 Village in Niono (Irrigated perimeter 343km from Bamako) DAP Urea 323 250 120 120 6 5 450 375 579 579 260,184 216,795 10,300 10,300 10,000 10,000 61,401 3,000 3,000 347,885 61,401 3,000 3,000 304,496 61,401 3,000 3,000 347,885 61,401 3,000 3,000 304,496 17,394 365,279 15,225 319,721 17,394 365,279 15,225 319,721 16,604 381,883 19,094 400,977 20,049 421,026 421,026 421 16,604 336,325 16,816 353,141 17,657 370,798 370,798 371 15,048 380,327 19,016 399,343 19,967 419,310 419,310 419 15,048 334,768 16,738 351,507 17,575 369,082 369,082 369 Source: Adapted from various datasets from USDA/ERS, OMA, IER, and ECOWAS 141 Appendix Table 18: Import Parity Price of Seeds for Imports through the Port of Dakar, 2009 Village in Basfonds (367km from Bamako) FOB price milled rice, $/metric ton Ocean freight (CFAF/mt) Insurance (0.2% of FOB) CIF price, Dakar, $/mt Real exchange rate (CFAF/$) -- 25% overvalued CIF price, Dakar, CFAF/mt Port charges, CFAF/mt Transit costs, Dakar Customs and import duties, Dakar (CFAF/mt) excluded Transport, Dakar to Bamako (1420km @34.6 mt/km) Transit costs in Bamako Handling and storage costs in Bamako Gate price in Bamako (CFAF/mt) Wholesaler/importer marketing margin (CFAF/mt) (5%) Wholesale price in Bamako Transport Bamako to point of sale (rehabilitated perimeter in Niono: 343km; bas-fonds in Sikasso:367km @34.6mt/km milled rice) Gate price in Village (CFAF/mt milled rice) Wholesale margin (5%) Wholesale price in village Retail margin (5%) Retail price in the village (CFAF/mt milled rice) Retail price in the village (CFAF/kg milled rice) Milling rate (%kg milled rice/kg paddy) Milling costs (CFAF/kg of paddy) Import parity price in Village (CFAF/kg paddy) 412 120 8 540 579 312,664 10,300 10,000 Village in Niono (Irrigated perimeter 343km from Bamako) 530 120 11 661 579 382,322 10,300 10,000 49,121 3,000 3,000 388,085 19,404 407,489 49,121 3,000 3,000 457,743 22,887 480,630 13,283 420,772 21,039 441,811 22,091 463,901 464 0.63 12 304 12,038 492,668 24,633 517,301 25,865 543,167 543 0.63 12 354 Source: Adapted from various datasets from USDA/ERS, OMA, IER, and ECOWAS 142 Appendix Table 19: Economic Profitability of Rice Paddy – Intensive Bas-fonds Production System in Sikasso, 2008/09 – Base Scenario Amount Fixed costs (CFAF/ha) -- water utilization fee Family labor (person-day/ha) cleaning plowing planting weeding fertilizer application harvesting threshing Total family labor costs 228 539,038 218 115 94 3 30 304 371 421 6,580 250 66,328 42,642 39,366 16,450 7,394 98 1,000 98,328 281,878 1 89,549 89,549 7 8 7 5 4 14 12 57 Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Interest on working capital (13.8%) - 6 months Hired labor (person-day/ha) Total operating costs Value per ha 2,366 Revenues Yield (kg paddy/ha) Unit value 1,000 56,833 Performance Measures (CFAF/ha) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 371,427 428,260 167,612 110,778 Performance Measures (CFAF/kg) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 157 181 71 47 Notes: Economic profitability of paddy in intensive BF system in Sikasso – Base scenario Source: Computation of author using Appendix Tables 1, 13-18 143 Appendix Table 20: Economic Profitability of Rice Paddy – Intensive Irrigated Production System in Rehabilitated Perimeters in the Office du Niger in Niono, 2008/09 – Base Scenario Amount Unit value Value per ha 5,747 287 1,649,821 60 213 163 0 72 354 369 419 6,580 250 21,252 78,430 68,138 0 17,959 10 45 13 30 70 168 1,000 167,500 Fixed costs (CFAF/ha) Tillage Puddling Water charges Cleaning of tertiary canals Scarecrows Extension costs Land rental cost Irrigation infrastructure fees Total fixed costs 1 1 1 1 1 1 1 1 25,000 25,000 67,000 10,000 5,000 40,000 160,000 522,367 25,000 25,000 67,000 10,000 5,000 40,000 160,000 522,367 854,367 Family labor (person-day/ha) 0 1,000 0 Revenues Yield (kg paddy/ha) Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Interest on working capital (13.8%) - 6 months Hired labor (person-day/ha) nursery preparation transplanting weeding harvesting threshing Total hired labor costs Total operating costs Performance Measures (CFAF/ha) Total production cost Net margin 1,219,225 430,596 Performance Measures (CFAF/kg) Total production cost Net margin 212 75 Source: Computation of author using Appendix Tables 2, 13-18 144 Appendix Table 21: Economic Profitability of Rice Paddy – Intensive Bas-fonds Production System in Sikasso, 2008/09 – Assuming a Low Yield Scenario Amount Fixed costs (CFAF/ha) -- water utilization fee Family labor (person-day/ha) cleaning plowing planting weeding fertilizer application harvesting threshing Total family labor costs 228 182,261 218 115 94 3 10 304 371 421 6,580 250 66,328 42,642 39,366 16,450 2,500 98 1,000 98,328 276,984 1 89,549 89,549 7 8 7 5 4 5 4 40 Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Interest on working capital (13.8%) - 6 months Hired labor (person-day/ha) Total operating costs Value per ha 800 Revenues Yield (kg paddy/ha) Unit value 1,000 39,625 Performance Measures (CFAF/ha) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 366,533 406,157 -184,271 -223,896 Performance Measures (CFAF/kg) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 458 508 -230 -280 Notes: - A “low yield” represents a decline of 66% for BF to reflect actual yield variations Source: Computation of author using Appendix Tables 3, 13-18 145 Appendix Table 22: Economic Profitability of Rice Paddy – Intensive Irrigated Production System in Rehabilitated Perimeters in the Office du Niger in Niono, 2008/09 – Assuming a Low Yield Scenario Amount Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Interest on working capital (13.8%) - 6 months Hired labor (person-day/ha) nursery preparation transplanting weeding harvesting threshing Total hired labor costs Total operating costs Fixed costs (CFAF/ha) Tillage Puddling Water charges Cleaning of tertiary canals Scarecrows Extension costs Land rental cost Irrigation infrastructure fees Total fixed costs Family labor (person-day/ha) Performance Measures (CFAF/ha) Total production cost Net margin Performance Measures (CFAF/kg) Total production cost Net margin Value per ha 4,500 Revenues Yield (kg paddy/ha) Unit value 287 1,291,838 60 213 163 0 56 354 369 419 6,580 250 21,252 78,430 68,138 0 14,063 10 45 13 23 55 146 1,000 145,791 1 1 1 1 1 1 1 1 25,000 25,000 67,000 10,000 5,000 40,000 160,000 522,367 0 1,000 25,000 25,000 67,000 10,000 5,000 40,000 160,000 522,367 854,367 0 1,193,619 98,220 Notes - A “low yield” represents a decline of 22% for ON to reflect actual yield variations Source: Computation of author using Appendix Tables 4, 13-18 146 265 22 Appendix Table 23: Financial Profitability of Rice Paddy – Intensive Bas-fonds Production System in Sikasso, 2008/09 – Assuming a High Yield Scenario Amount Unit value Value per ha 3,000 228 683,481 218 115 94 3 38 304 371 421 6,580 250 66,328 42,642 39,366 16,450 9,375 98 1,000 98,328 283,859 Fixed costs (CFAF/ha) -- water utilization fee 1 89,549 89,549 Family labor (person-day/ha) cleaning plowing planting weeding fertilizer application harvesting threshing Total family labor costs 7 8 7 5 4 18 15 64 1,000 63,800 Revenues Yield (kg paddy/ha) Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Interest on working capital (13.8%) - 6 months Hired labor (person-day/ha) Total operating costs Performance Measures (CFAF/ha) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 373,408 437,208 310,073 246,272 Performance Measures (CFAF/kg) Total production cost, excluding family labor Total production cost, including family labor Net margin, excluding family labor Net margin including family labor 124 146 103 82 Notes: - A “high yield” represents an increase of 27% for BF to reflect actual yield variations Source: Computation of author using Appendix Tables 5, 13-18 147 Appendix Table 24: Economic Profitability of Rice Paddy – Intensive Irrigated Production System in Rehabilitated Perimeters in the Office du Niger in Niono, 2008/09 – Assuming a High Yield Scenario Amount Unit value Value per ha 6,640 287 1,906,179 60 213 163 0 83 354 369 419 6,580 250 21,252 78,430 68,138 0 20,750 10 45 13 35 81 183 1,000 183,062 Fixed costs (CFAF/ha) Tillage Puddling Water charges Cleaning of tertiary canals Extension costs Scarecrows Land rental cost Irrigation infrastructure fees Total fixed costs 1 1 1 1 1 1 1 1 25,000 25,000 67,000 10,000 40,000 5,000 160,000 522,367 25,000 25,000 67,000 10,000 40,000 5,000 160,000 522,367 854,367 Family labor (person-day/ha) 0 1,000 0 Revenues Yield (kg paddy/ha) Operating costs (CFAF/ha) Seeds (kg/ha) Urea (kg/ha)) DAP (kg/ha) Herbicide (l/ha) -- Roundup Sacks (80kg) Interest on working capital (13.8%) - 6 months Hired labor (person-day/ha) nursery preparation transplanting weeding harvesting threshing Total hired labor costs Total operating costs Performance Measures (CFAF/ha) Total production cost Net margin 1,237,577 668,602 Performance Measures (CFAF/kg) Total production cost Net margin 186 101 Notes: - A “high yield” represents an increase of 16% for ON to reflect actual yield variations Source: Computation of author using Appendix Tables 6, 13-18 148 Appendix Table 25: Detailed Computations for Economic Costs of Transport Transport cost per ton-km, paved road (CFAF) 32.50 Transport cost per ton-km, all-weather road (CFAF) Transport cost per ton-km, unpaved road (piste) (CFAF) Vehicle load factor (%) Trans. cost, econ. paved road, 30-ton truck, per ton-km Cost per vehicle-km, US $, class 4 48.75 Annuaire Statistique des Transport, 2004, pp 32& p. 3-4 Note sur le trans. at back same source as above 65.00 same source as above Cost per truck Cost per ton-km, US $ Cost per ton-km, CFAF Cost adjusted for load factor Trans. cost, econ. unpaved road, 30-ton truck, per ton-km Cost per vehicle-km, US $, class 4 Cost per truck Cost per ton-km, US $ Cost per ton-km, CFAF Cost adjusted for load factor Trans. cost, econ. paved road, 10-ton truck, per ton-km Cost per vehicle-km, US $, class 3 Cost per truck Cost per ton-km, US $ Cost per ton-km, CFAF Cost adjusted for load factor Trans. cost, econ. unpaved road, 10-ton truck, per ton-km Cost per vehicle-km, US $, class 3 Cost per truck Cost per ton-km, US $ Cost per ton-km, CFAF Cost adjusted for load factor 60.0% 32.56 60.0% 1.08 30.00 0.04 18.72 31.20 31.20 2.14 30.00 0.07 37.09 61.82 Manuel Bernard Based on calculations by Manuel Bernard Taxes on vehicles/parts/fuel removed 61.82 Based on calculations by Manuel Bernard 0.66 10.00 0.07 34.32 57.20 57.20 1.32 10.00 0.13 68.64 114.4 0 114.4 0 Source: Eric Crawford, Agricultural Economist at Michigan State University 149 BIBLIOGRAPHY 150 BIBLIOGRAPHY Africa Rice Center (WARDA). 2008. 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