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By mapping the gaps and opportunities in equipment financing, STARS discovered a new pathway to improve access to agricultural equipment, while creating jobs for young entrepreneurs to act as service providers to farmers. In this blog, read more about how this could look like.
Agricultural equipment can reduce yield losses for maize and rice farmers, improve yield quality, provide better drying practices while reducing contamination from fungal diseases and reduce workload for farmers. But most farmers in Rwanda do not have access to equipment. This is why STARS in Rwanda is currently developing a business model for an asset-financing pilot that will mobilize young entrepreneurs to provide fee-based mechanization and maintenance services to farmers.
By guaranteeing these agri-financing services on demand, STARS expects that MFIs are willing to finance agri-assets and farmers are motivated to buy or lease the machines from an equipment provider, which will improve yield quality since access to post-harvest equipment helps Producer Organizations (POs) to significantly reduce rice or maize post-harvest losses. The improved yields will result in increased cash flow for the farmer, which will help him/her to repay loans to the MFI.
The pilot, that will be tested in 2020, is a follow up from STARS activities in 2019, where STARS already started to link POs to the post-harvest equipment supplier JAAR. “Thanks to the partnership, we sold 21 equipment to the PO, providing access to winnowing and threshing machines to 5,000 rice farmers. We did a lot of learning; we now understand that farmers need after-sale support such as equipment usage and maintenance,” said Vital Ntaganira, CEO of GIAT (a member of JAAR).
Linking farmers to an equipment supplier was needed because farmers used manual agricultural practices that were often not effective. Manual rice threshing, for example, causes losses of up to 30% due to poor collection, and damaged grains rejected by processors. Poor drying practices and other post-harvest handling operations in the maize value chain resulted in lower prices for the growers, and contamination in as little as 24 hours from fungus.
“The main learning of using the 21 machines, was that maintenance is the cornerstone of the success of agri-mechanization,” Patrick Birasa, STARS Country Lead in Rwanda explains.
When machines cannot be maintained properly, MFIs will hesitate to provide loans for farmers to finance the expensive equipment.
“We saw that if the machine breaks down, farmers abandoned it which resulted in yield losses and a default on their loan. And because the asset is not well maintained, there won’t be a secondary market. Also, there is a lack of adequate insurance as the premiums are high and the locally made machines lack identification serial numbers required to make agri-asset finance and leasing work,” CEO of MFI Umutanguha Finance PLC adds.
At equipment supplier level, STARS in Rwanda learned that there are no appropriate machines on the market with the right processing capacity. Most local manufacturers do not have the financial capacity or knowledge to develop highly-performing machines.
At farmer level, STARS noticed that there is a lack of proper knowledge to use the equipment.
“In most cases, farmers were not properly trained to use the equipment. For instance, farmers need the knowledge and the equipment to measure the moisture level before threshing, which is currently lacking. Also, the farmers who participated in the trainings, were not always the ones using the machines. Machines are moved from one zone to another and those trained are not always available,” Patrick Birasa, adds.
Most importantly, STARS learned that equipment has the potential to reduce the yield losses, improve quality, and reduce workload for farmers. Vice chairperson of the cooperative Codervam explains that
“using equipment improved the quality of rice supplied to the processor. Last season all ped rice yield was ranked grad 1, which is the highest standard for rice. In addition, the cost of threshing and winnowing has reduced in terms of labour.”
The Strengthening African Rural Smallholders (STARS) program is a five-year program (2017-2021) implemented by ICCO Cooperation in partnership with Mastercard Foundation. Through a market systems development approach it focuses on improving access to finance and markets for 210,000 smallholders in Ethiopia, Rwanda, Senegal, and Burkina Faso.