Memoire Online - Agribusiness management skills for agricultural smallholders in Africa

The idea of applying multiple performance criteria at the farm level is not to evaluate performance in terms of profitability alone but to find a balance and examine the farm system in relation to the 5 criteria.

4.2.1 Productivity

In the present case productivity is measured in Kilograms per Unit pivot or hectare (Kg/unit pivot) or (Kg/ha) as shown in the following table:

Table 1 shows the significant improvements in production. These improvements are the results of the application of GAP, better management and adjustment of farm system components and efficiency in the use of resources to increase yield. The remarkable increase in yield 33.33% for the potato, 40% for the onion and 200% for the peanut can be explained at this level by using certified and recommended seeds, fertilizers, which are better adapted to the medium and give extreme high yield in comparison with the local variety.

4.2.2 Profitability

The profitability of a farm enterprise defined in the part 3.5 Methodological Approach is measured in monetary terms as total gross revenue minus total costs over the course of a campaign. To measure the economic profitability; gross margin is one of the performance criteria in the current case.

The purpose of these parameters is to evaluate the system, the process and the performance of an activity of a small agricultural enterprise. This type of evaluation is widely used to structure agricultural development projects.

The following table consists of a budget which is applied to the potato production in the current and improved to evaluate the impact of the improved production on the profitability. To make the comparison, all the parameters which change by adopting the improved production should be taken into consideration. These changes also include additional yield, labor use and reduced transport cost. The result of these changes is an increase in the gross margin.

The next table for the main product contains a gross margin, return on investment and unit cost calculation which are performance factors of a farm, and a quick tool to make a comparison between several scenarios.

The gross margin is hence obtained by subtracting the total income from the variable costs. Fixed costs are excluded here because it can enter the production of another activity or for several years of production. Unit cost is determined by dividing the cost of production by the number of units produced. The Return on Investment (ROI) is the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio.

Input	Unity	Current Scenario			Improved Scenario			Change
Input	Unity	Quantity (kg)	Price (DZD)	Total (DZD)	Quantity	Price (DZD)	Total (DZD)	%
Input
Seeds	Kg	2,000	150	300,000	3,000	150	450,000	Quantity: +50%
organic manure	Kg	20,000	4.5	90,000	30,000	4.5	135,000	Quantity: +50%
Fertilizer NPK	Kg	1,200	105	126,000	800	105	84,000	Quantity: -33.33%
Tractor Service	Fixed Price	-	40,000	40,000	-	40,000	40,000	No change
Ammonite 33%	Kg	-	-	-	150	6	900	+100%
Potash (K)	Kg	-	-	-	200	195	39,000	+100%
Chemical fertilizer	Kg	3	4,000	12,000	1	4,000	4,000	Quantity: -66.66%
Treatment ser- vices	l	-	-	-	8	7,500	60,000	+100%
Irrigation water	m³	5,000	4	20,000	8,000	4	32,000	Quantity: +60%
Packaging bag	bag	300	260	78,000	400	260	104,000	Quantity: +33%
Transport Service	Fixed price	3	25,000	75,000	1	28,000	28,000	Quantity: -66.66% Total: -62.66% Price: +12%
Electricity	Invoice	1	50,000	50,000	1	10,000	10,000	Price: -80%
Labor	Man-day	105	1,500	157,500	114	1,500	171,000	+9 Man-day
Total Variable Cost		948,500			1,157,900			+22%
Output
Gross Revenue	DZD	30,000	33	990,000	40,000	34	1,360,000	Yield: +33.33% Price: +3% Revenue: +37%
Gross Margin	DZD	41,500			202,100			+387%
ROI	(%)	4%			17%			+13%
Unit Cost	DZD	31.62			28.95			-8.4%

Table 2 shows a comparison of the costs for the two scenarios. In fact, an increase in seeds costs by +50% for seeds are noticed. This is due to the increase in the quantity of planting. These varieties of seed are of better quality than the one used in the current scenario and shows better yields. Also, for irrigation water, 60% additional quantity

was added in the improved scenario for more efficiency and therefore 60% additional cost at a fixed price per cubic meter. Some treatment services and fertilizer additives such as ammonite 33% and potash (K) are also added for the improved scenario marked by + 100% in order to ensure better growth of tubers. Less than 66% of NPK fertilizer and chemical fertilizer are used for the production and therefore less cost during the tuber growth face. The objective is to reduce residues and ensure good potato quality. Regarding the transport service, at a slightly increased price + 12% and a better service, there was a need for at least operation -66% and therefore a reduction in costs of 62%. Following the adoption of the improved scenario, a further significant reduction in the price of electricity by 80% and consequently 80% in costs reduced is noticed. For labor, a slight increase in man-day needed + 9 and hence additional employment.

As a result of these changes in the potato production activity as announced in part 4.3.1 productivity an excess production of 10,000 Kg is noticed, Furthermore, a remarkable and logical increase in the Gross Revenue more than 37% following this better productivity and a 3% higher price. What is very interesting, we notice that only the excess of the gross margin in the improved scenario is equal to 160,600 DZD almost 4 times the gross margin in the current scenario. Concerning ROI, for each DZD invested in the current scenario, it gives 0.04 DZD. On the other hand, regarding the improved scenario, it gives 0.17 DZD, more than 4 times. Again, there is a reduction in the unit cost, which shows that the changes are profitable. The next Figure 8 provides an overview of all changes in production costs and the farmer's margin.

This analysis was for the primary product, the following is the same analysis for the secondary products in a shortened form. The following table shows the performance analysis of onion production in the current scenario and the improved one.

Input	Unity	Current Scenario			Improved Scenario			Change
		Quan- tity (kg)	Price (DZD)	Total (DZD)	Quan- tity	Price (DZD)	Total (DZD)	%
Input
Input Cost	DZD	520,000			611,100			+17.5%
Labor	Man- day	95	1,500	142,500	101	1,500	151,500	+6 Man-day
Total Varia- ble Cost		663,100			762,600			+15%
Output
Gross Revenue	DZD	50,000	20	1,000,000	70,000	21	1,470,000	Yield: +40% Price: +5% Rev- enue: +47%
Gross Mar- gin	DZD	336,900			707,400			+110%
ROI	(%)	50%			92%			+42%
Unit Cost	DZD	13.26			10.89			-18%

For onion production, table 3 shows a 17.5% increase in input costs and a 6.3% increase in labor costs. Following these changes in production, a remarkable increase in gross margin of 47% in the improved scenario is observed. Thus, an increase in labor (6 man-day). Moreover, one DZD invested in this production gives 0.5 DZD in the current scenario and 0.92 DZD in the improved scenario. Likewise, the unit cost evolution shows a notable reduction from 13.26 DZD in the current scenario to 10.89 DZD in the improved scenario. The next Figure 9 provides an overview of all changes in production costs and the farmer's margin.

Input	Unity	Current Scenario			Improved Scenario			Change
		Quantity (kg)	Price (DZD)	Total (DZD)	Quantity	Price (DZD)	Total (DZD)	%
Input
Input Cost	DZD	168,200			257,600			+53%
Labor	Man-day	47	1,500	70,500	47	1,500	70,500	No change
Total Variable Cost		238,700			328,100			+37%
Output
Gross Revenue	DZD	1,000	260	260,000	3,000	260	780,000	+200%
Gross Margin	DZD	21,300			451,900			+2022%
ROI	(%)	8.9%			137%			+128.1%
Unit Cost	DZD	238.7			109.37			-54%

For Peanut production, table 4 shows a 37% increase in input costs and 200% increase in peanut production. Following these changes, a remarkable increase in gross margin +430.600 DZD in the improved scenario is observed. Besides, one DZD invested in this production gives 0.089 DZD in the current scenario and 1,37 DZD in the improved scenario. Likewise, the unit cost evolution shows a notable reduction from 238,7 DZD in the current scenario to 109,37 DZD in the improved scenario. The next Figure 10 provides an overview of all changes in production costs and the farmer's margin.

Finally, to get a global overview and based on the different performance criteria, the following figure 11 summarizes the evolution of the parameters GM, ROI and UC of the 3 agricultural activities (Potato, onion, peanut).

Figure 11 shows that the evolution of the GM, UC and the ROI in the improved scenario are mostly very important for the secondary products than for the main product, This may look contradictory, but this is explained by the advantage of potato production, for example, having 3 harvests throughout the year, the importance of this product in the eating habits of Algerians and the remarkable increase in its consumption in recent years, in addition to the orientation of industrial operators to engage in transformation and the start of exporting this product to Russia. As a consequence, and due to the state policy aimed at the development of the agricultural land, the cultivated potato land has increased from 300 ha in 1993 to 33,000 ha in 2000 and the number of potato producers has increased from 800 to 5,000 between 2000 and 2014. This can largely confirm the choice of potatoes as the main product. (Chambre d'agriculture Algeria, 2014).

To get an idea on the distribution of the gains concluded from the three activities and the improvement of the incomes. The chart in Figure 11 shows the composition of the smallholder farmer's income in the two scenarios and shows how many times the income has increased.

Figure 12 highlights the profit composition of the 3 crops in both scenarios. The total income from agricultural production increased more than three times. As far as income distribution is concerned, a great disparity of income between the 3 products in the

current scenario is noticed, but in the improved scenario, the distribution is more equitable. This is of great importance to practice this crop rotation system with a stable income with potato and Peanut in the first year and onion in the following year.

This last budgeting analysis is valid only at a certain time interval, any change in price and cost of production can directly influence the market and the introduction of a new technology such as the irrigation pivot by the farmer which can also cause changes in costs and prices.

It would be better to anticipate future changes and make a risk analysis and determine the influence of a price change on the gross margin in both scenarios. In this study more importance is given to the main product, the potato, and one of the most significant parameters, which has a great effect on the budget which is the price of potatoes. Already there is a large fluctuation of potato wholesale prices in Algeria, which alternates between 33 and 45 DZD per Kg. As a result, a simple equation of this parameter (potato price) can be established.

Figure 13 highlights the effect of changing potato prices on GM. In fact, the increase in potato prices has a very important impact, which highlights the importance of investing in potato storage, or else, smallholders should get updates on the prices each week. Then, they could decide how many batches they produce, the quantity of each batch and the time of planting, harvest and selling.

Concerning the unit cost and after moving to the improved scenario, an important reduction of the cost of production for the 3 crops is noticed as shown in the following histogram (Figure 14). This allows farmers to increase their competitiveness.

Through the results found above, the productivity of capital and labor productivity can be deduced as shown in the following table 5.

The comparison of capital and labor productivity shows a large increase in the improved scenario as a result of a good allocation of production resources. This large

gap between the two values as shown in Table 5 shows how absolute effective the improved scenario is. This productivity is increased thanks to the introduction of high-performance innovations, efficient work, training of the labor in new techniques and almost importantly by improving the production process and adopting GAP.

At this level, this type of last analysis, budgeting and the variable costs considered indicate to retain the necessary adjustments in production costs to increase profitability and also to highlight the direct impact of the GAP application, the improvement of technical, managerial and thus economic skills. It is all a complex process and with the adjustment of these parameters together, the profitability of the farm can be greatly increased. Moreover, additional employment has been realized after adopting GAP.

With regard to job creation, Ould Rebai et al. (2017, p.7) has enumerated from a sample of farmers surveyed, which distinguishes three types of investors, who specialize in potato production using the new mini-pivot technology. These are large investors, small investors and cultivators). The table 6 shows the number of pivots used for each category during a potato and Onion production campaign and then deduced the number of additional jobs created. (Production lasts two years)

Source: ould Rebai. 2017. An incremental innovation: design and diffusion of an artisanal center pivot for irrigationin the Souf (Algerian Sahara).

The number of jobs created varies between 30 and 180 man-days depending on the type of investor. This shows only the direct employment after the adoption GAP. Other indirect employment could be proclaimed, such as maintenance services, all the trainer from the training centers, who work in the mini-pivot production chain, the supply companies and importers of parts necessary to produce mini-pivot. This technology (mini-pivot Irrigation) has created a dynamic in the region starting with the return of investors, providing income to the local population, employing young people (majority of small investors, Table 6) and opening agro-supply businesses.

Agribusiness management skills for agricultural smallholders in Africa

4.2 Comparative analysis

4.2.1 Productivity

4.2.2 Profitability