Sub-component 4.4 Support Market Infrastructure Development and Management

1.1.32Support construction and management of warehouses as well as storage, grading and packaging facilities.

An inherent characteristic of agricultural production is that it is seasonal whilst demand is generally continuous throughout the year. Hence, there is a need for storage to allow for a smooth, and as far as possible, uninterrupted flow of products into the market. Currently, a low percentage of most grain production is marketed. For example, only about 11% of Ethiopian maize produced by smallholders is marketed, and of this only 10% is marketed through cooperatives. This volume is constrained by several factors, among others, lack of existing storage capacity, access to financing and lack of proper cleaning and processing equipment. There is clear rationality for the AGP II to intervene in the construction of warehouses in the target areas.

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  Already high post harvest losses: Currently, post-harvest loss estimates range between 10-15%, with the majority occurring in on-farm storage. There is also clear evidence of cooperative level storage loss through rats, weevils and moisture. Moreover, there are potential quality losses due to build-up of Aflatoxin, as well as contamination when fertilizer and grains are stored together The constructing standard warehouse near farm gates, in high potential areas where products are relatively abundant, will reduce huge quantitative and nutritive losses, avoid distress sales and enhance economic status of the small farmers..
  

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  Increase in volume of expected agricultural products and Inputs: - Farmers deliver their harvested grain to cooperatives, which store the outputs and sell in bulk to the market. Also cooperatives are the primary licensed channel for seeds and fertilizer for smallholder farmers, which they purchase in bulk and gradually sell to farmers, which also require adequate storage capacity. As per the PDO, with the intervention of AGP II, the volume of inputs used and outputs produced will be expected to boost which require proper functioning storage and marketing systems. Warehousing is an integral part of an efficient marketing system of agricultural produce, which is necessary prevent the loss arising out of unscientific storage and to equip the farmers with a convenient instrument of credit as well as to provide storage place in the production area at the time of surplus (harvesting) and to the consumption area during the lean period (off season). Interestingly, with the expected increases in production of the VC commodities due to the program intervention in the upcoming years, especially maize and wheat, the need for proper storage capacity is strongly required.
  

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  Market failure: - In rural sector in general and in program target areas in particular, market for warehouse is either incomplete (where only the demand side is prevailing) or totally absent. Indeed, outside large cities such as regional capitals, there are few privately owned storage facilities available for rent but often they do not meet the required quality and capacity (only 200 to 500 tons) much lower than the capacity demanded by Farmers Cooperative Unions (> 6,000 tons). In some areas warehouse of large capacity with standard quality (6,000-10,000 tons) are available but owned either by Ethiopian Grain Trade Enterprise (EGTE) or the Ethiopian Commodity Exchange (ECEX), which are public and not available in the open market. The conclusion is that there is virtually no any private service provider for standard storage and warehouses in most of AGP woredas, where many primary cooperatives are concentrated on grain marketing. The private sectors have not been involved in such business that might be due to one or the combination of factors like lack of knowledge or information about the business, lack of capital, availability of better alternative businesses given their capacity and experience.
  

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  Supporting farmers' cooperatives would be most efficient to reach the masses: Lack of proper storage system is the problem of almost all smallholders, but addressing all the framers is not practically feasible. On the other hand, supporting the farmers' cooperative in the financing the construction of warehouse could be most efficient to reach and address their storage and marketing problem of the majority of the farmers, and the answer to the question of equity issue.
  

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  Cooperatives have limited capital: Currently the financial capacity of most cooperatives is very limited to invest on construction of stores. Unfortunately, the primary cooperatives don not have access to finance services (loans from banks) due to lack of collateral. Therefore, supporting construction of warehouses for the cooperatives will build up their capacity not only to collect and store agricultural inputs and products for proper marketing but also would serve them as collateral to access credit services from banks.
  

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  Cost sharing: - The stores/warehouses are built on cost sharing basis to serve as demonstration for a number of unions and primary cooperatives existing in the AGP II implementation regions. The number of stores and warehouses planned to be constructed is 100 and 35 respectively.
  

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  Exit strategy: Awareness creation and exposure visits will be organized for the remaining primary cooperatives and unions. Based on the lessons learned, they will be encouraged construct the same types of stores through creating access to credit from MFIs and RUSACOS. The program will also conduct awareness creation and promotion activities to attract private sectors to get involved in the sector by seeing the advantages and demand for the warehouse.
  

Based on the aforementioned justification and exit strategy, it is prudent at the moment to support cooperatives make investments in storage. Thus, it is planned to support 100 primary cooperatives out of 4264 (2.3%) and 35 cooperative unions out of 185 (18.9%) existing in AGP II regions through construction of warehouse on a cost sharing basis. The cost sharing will be 30% for cooperative unions and 10% for primary cooperatives.