Input Markets

A market is often assumed to mean a specific place, where people meet together periodically to buy and sell goods. Here, we use an alternative meaning as "a geographical area or section of the community offering opportunities for transactions between sellers and buyers of a particular commodity or service". A market may therefore exist in a particular rural locality for a commodity, such as eggs, or for a service, such as the hire of rams for breeding purposes.

Input Delivery Systems Animal Health Services Extension Advice Breeding Material Credit Fodder and Feeds References and Further Reading

Just as there are markets for many livestock and other agricultural products, markets also exist for commodities and services used as inputs. For instance, a market may exist for the sale and purchase of particular drugs and medicines, or for the hire of animal health services. Some services, such as extension and animal health advice, might be offered free of charge, but a transaction agreement must be reached between the supplier and the user even in this case. Hence it is convenient to discuss all input service provision under the general heading of "input markets".

The problems of poor communications, inadequate transport systems and lack of competition among traders generally result in high costs and delivery problems for farm inputs such as drugs and vaccines, and support services such as animal health care and extension advice. In the past basic services, in many developing countries, were provided by the Ministry of Agriculture and Livestock Development staff. The quality and standard of the services provided has always been open to criticism and subject to budgetary constraints. In the more remote, semi-arid zone areas, where grassland based pastoral systems are prevalent, input delivery problems are particularly severe.

With market liberalization Government services have been cut back and the private sector is expected to play a greater role in service provision. Non-government organizations (NGO's), such as 'Intermediate Technology' and 'Vétérinaires sans frontières', are making a significant contribution in some areas. Governments are attempting cost recovery by charging farmers and livestock producers for goods and services provided.

Traditional, indigenous smallstock production systems require very few external inputs. The land is often communally owned, or individually controlled by the producer, while the family is the main source of labour. Animal health care and extension advice, are the primary areas where external inputs can assist in raising productivity. Further intensification of production, through the introduction of new breeding material, will necessitate improved management and health care and possibly require credit provision and access to purchased feeds.

 

It is estimated that livestock contribute to the livelihoods of at least 70 percent of the world's population of rural poor (FAO 2002, LID 1999). The control of animal disease and the provision of animal health services have an important impact on livestock productivity and the risks of loss. It is estimated that up to 30% of livestock production in developing countries is lost as a result of disease (FAO 1990). For smallholders and pastoralists, losses due to animal disease may prove disastrous. Technology is available for the control or treatment of many tropical livestock diseases but the delivery of veterinary services is beset with severe institutional problems.

The provision and dissemination of information on animal diseases and their control is an important part of the overall provision of animal health services, but is too often overlooked or not given as high a priority as it deserves.

Many governments encouraged private veterinarians to set up practices in rural areas. This policy was adopted in Kenya, but private veterinary practices have only been established and survived in areas of intensive livestock production see (Otieno-Oruko, Upton & McLeod 2000). The costs of establishing a practice are high, and must be recovered, along with travel and other operating costs, from livestock producers. In remote areas, with relatively sparse livestock populations and high transport costs, there may not be enough business to justify the private provision of animal health services. Where private practices have been established, each will probably be a monopoly service provider and will need to charge high prices.

Para-veterinarians are animal health service providers who have been trained in the basics of animal health care, at a lower and less rigorous level than professional veterinarians. They often live within the community served, so transport and transaction costs are minimized, and they are paid less than the professional veterinarians and are better able to win farmer confidence. Hence cost saving is possible where essential services can be provided by para-veterinarians. They may provide valuable contributions, in delivering drugs and vaccines, within national government and NGO veterinary services, but are not always formally licensed or subjected to quality assessment. They should complement the services of professional veterinarians rather than competing for business.

Thus for most rural smallstock producers, access to veterinary services, whether from the Government, private veterinarians, para-vets or NGOs, is limited. Producers wanting treatment for their animals must meet not only the price of the service but also the cost of travel to the source. Collaboration and group action by livestock keepers may provide better access to animal health services. Public goods, such as the control of disease vectors or even local eradication, (of diseases such as "peste de petits ruminants"') may be delivered by communal action. Alternatively, the service may be delivered by the Government with cost recovery from collective subscriptions. Economies of scale are derived, which may facilitate contracting with a veterinary service provider, which would not be possible for individual livestock owners. Examples are given by Holden, Ashley and Bazeley (1996).

National disease eradication and control programmes, must involve all parts of the country. Since it is difficult to ensure that all livestock producers will contribute to the cost, public sector funding is likely to be needed. Even though the main economic benefits will be derived in mixed farming areas, with dense livestock populations, surveillance and control measures must be applied everywhere, very often most rigorously in the remote areas around the national borders.

Meat inspection is desirable to protect human health, but given the paucity of qualified veterinarians or meat inspectors, it may not take place at many rural slaughter slabs. In urban areas, and at officially recognized abattoirs, sanitary measures, including meat inspection, are feasible.

For intensive pig and poultry production systems extension and (veterinary) public health services are, theoretically, more likely to be delivered privately without extensive public intervention. Given that the objectives of intensive livestock systems are oriented towards production optimization, the producer should be motivated to ask for the services and to pay for them.

Extension, or the diffusion and spread of information on new technology, is an important input for improving agricultural productivity and efficiency. Yet some have argued that extension advice, and the research and development on which it is based, should be provided by private agencies and paid for by farmers and livestock producers. If the innovation being 'extended' to farmers is embodied in a new form of capital, such as day old chicks, improved breeding stock, a drug or drench, so that costs can be recovered from sales income, then private provision may be justified.

However, new knowledge offered by advisers is less easily sold, since it lacks physical form and may be readily passed on to other users so cost recovery is infeasible. In fact diffusion of new knowledge to others renders it a 'public good' (Umali & Schwartz 1994).

Where poverty relief is a key objective, advice on productivity improvement may be seen as a 'merit good', which would further justify public provision. Overall there is widespread acceptance that, in the developing countries, Governments must be involved in the provision of extension services.

In many developing countries, Non-Governmental Organizations (NGOs), are increasingly involved in providing agricultural extension services. NGOs can make a valuable contribution, especially in disadvantaged areas, in acting as intermediaries between research organizations and poor producers (Amanor & Farrington 1991). However, it is desirable that the Government should retain a coordinating and regulatory role over extension service provision.

Farming Systems Research with on-farm testing, and other farmer participatory approaches, provide a direct link between the researcher and the farmer and as such may be seen as extension methods (Collinson 1998). However, the local specificity of these approaches, though highly beneficial to the participants, limits the area covered and creates problems of 'scaling-up'. With improvements in communication technology there is increasing scope for reliance on cost-effective mass-media such as TV and radio for delivery of advice.

The organizational framework, for the delivery of extension advice to livestock producers, raises special issues. Given the importance of crop-livestock interactions in mixed farming systems, and pasture production in grassland-based production systems, close links are needed between agronomic advisers and livestock production specialists. Indeed, in many countries, extension staff members are general agricultural and livestock advisers. However, it is equally important that close links are maintained with the veterinary services in providing advice on animal health measures.

The most effective way of raising livestock productivity through genetic improvement is by introducing, and possibly cross-breeding with, exotic breeds. Since the animals produced from these breeding services are private property, the services are also private goods. The market for day-old chicks is well established among intensive poultry producers. Artificial insemination is generally only used for breeding dairy cows, and many schemes have required heavy subsidization. However, projects to raise the productivity of small stock such as sheep, goats and pigs, have been based on introducing breeding males of often exotic higher yielding breeds. The "small ruminant CRSP" programmes are based on providing foundation stock of a new breed of dual-purpose goat (McCorkle et al 1989).

Many such schemes have been limited in the number of producers reached. Many producers prefer using local male animals for breeding, simply because access is easier. Only in the case of intensive poultry production, for eggs or for broiler chickens has there been widespread adoption of new breeds or cross-breeds. In some countries the same may be true for pigs. There are growing concerns that, with the growing use of a few specialized breeds, many traditional breeds and their genetic material will be lost. Traditional breeds are generally well adapted to local conditions and are therefore more hardy than newly introduced breeds.

Apart from the cost of the new breeding stock, additional input costs are likely to arise for better management, housing, health care and feeding. These additional inputs are generally needed in order to achieve the potential performance of the new breed. To afford all these costs some form of credit is likely to be needed.

Credit is another important input, needed particularly for consumption smoothing, or coping with disasters, and for investment in new livestock enterprises. The launch of a new livestock enterprise, or the introduction of new genetic material, requires funding, either from domestic resources or by using credit. In addition investment may be needed in specialized buildings and equipment and funding to cover circulating capital needs. Improved livelihoods for the rural poor are heavily dependent on credit inputs.

Costs and risks, associated with provision of credit to small and scattered livestock producers in rural areas, are high. Poor producers lack suitable assets for use as collateral security for loans. Formal lending institutions, such as banks, have often needed subsidies to support rural lending, at low interest rates and have tended to concentrate their lending with large-scale commercial producers. Informal, local moneylenders have the advantage of personal knowledge and ability to screen potential borrowers. However, they generally charge high interest rates to cover costs and restrict lending to short-term loans only.

Many commentators believe that micro-finance institutions, offer the best prospects for improving the access of rural people to credit, saving and possibly insurance facilities. These are generally privately or NGO funded agencies aimed at providing small loans, often focused on rural women or other disadvantaged groups. For example, 40-50% of Grameen Bank loans are extended to landless farmers to acquire and raise livestock (Jabbar, Ehui & von Kaufmann 2002). (The Grameen Bank, in Bangladesh, which originated as an NGO, has now been taken over as a public sector institution). The objectives are to generate productive income streams, to reduce poverty and to support sustainable rural financial institutions. Many have achieved sustainability by combining high repayment rates with interest charges at the market rate. The risks and costs of individual loans are often reduced by group lending (Hulme 2000). However, despite the poverty orientation of these institutions, there is a natural tendency to concentrate on the more credit-worthy and by-pass many of the poor.

With increasing commercialization, linkages may develop between the processing and marketing agency's purchase of the product and the provision of necessary inputs on credit. For instance inputs of day-old chicks and pre-mixed concentrate feeds may be provided, together with veterinary services and advice, in this way to broiler producers, by the commercial processor. However, small-holder producers may lack business skills and experience and therefore be at a disadvantage in negotiating contracts.

The alternative of credit in kind, is adopted in some development projects, usually funded from overseas aid or NGO activity. Under such schemes, foundation stock are provided free initially, but farmers are then required to return some of the progeny to the project, as a form of repayment. In some cases interest is paid, in that more than one offspring is returned to the project pool. However, this type of initiative does not generally allow for the event of animal illness or death. As a consequence, borrowers might accumulate high debt levels if the animal dies or has reproductive problems so that an offspring cannot be "reimbursed" to the project. Heifer in trust schemes have been widely adopted with reasonable success in promoting smallholder dairy production. Similar arrangements were made for the introduction of dual purpose goats under the "Small Ruminant CRSP" schemes.

Livestock-dependent poor in developing countries face serious risks of losses from animal disease, theft and accidents. Livestock producers therefore adopt many risk avoidance strategies, such as prophylactic parasite or vector control, and practices, such as care-taking of animals that allow for sharing of risk. Formal livestock insurance schemes, such as exist under state-funding in many Asian countries, are beneficial in reducing risk but are difficult to administer and are often restricted to the more commercial livestock producers.

Many smallstock producers, particularly the landless, may need to purchase forage and other crops for feed. Other farmers that produce a surplus of crop by products, such as straw and legume haulms, supply these products and markets develop. These markets are probably quite competitive and no outside intervention is needed, beyond the provision of extension advice on animal nutrition and forage and pasture crops.

However, for the more intensive, "landless" pig and poultry production systems to develop beyond the "scavenging" stage, cereals and other concentrate feeds are needed. Since these are also items of human diet, markets are very likely to exist for these products. The profitability of the livestock enterprise is then very dependent on the price of feed grain relative to the livestock product price. A similar situation may arise with stall feeding and fattening of small ruminants.

For the most intensive production systems, pre-mixed, balanced concentrate feeds are desirable. There may be problems, for smallholder producers, in ensuring a regular supply of pre-mixed concentrate feed (Sumberg 1998).

Livestock in Development. (1999). Livestock in poverty-focused development. Crewkerne, UK.