Enhancing Livelihoods of Poor Livestock Keepers through Increased Use of Fodder: Credit through traders – enabling the poorest to engage in cattle fattening
CREDIT THROUGH TRADERS- ENABLING THE POOREST TO ENGAGE IN CATTLE FATTENING
Trương Tấn Khanh1, Nguyễn Ngọc Anh2, Werner Stur3
1: Tay Nguyen University, Buon Ma Thuot, Daklak, Vietnam.2: National Institute of Animal Science, Ha Noi, Vietnam.
3: International Center for Tropical Agriculture (CIAT), P.O. Box 783, Vientiane, Lao PDR
TAN 853 CIAT:
TECHNICAL ADVISORY NOTE FOR IFAD
(2011-07-25)
ABSTRACT
The transition of smallholder farmers from cattle keepers to cattle producers in Ea Kar, Daklak, Viet Nam and the process of upscaling fodder development have been described in separate TANs1. Using farm-grown fodder, farmers were able to save time and improve the growth of their animals. A short-term cattle fattening system, „buy thin – sell fat‟, emerged and was adopted by more than 500 households.
Unfortunately, very poor households without cattle and cash reserves could not easily participate in cattle fattening unless credit facilities were available to them. In Ea Kar, 26% of all households were classified as „poor‟ but only 6% of the households who had adopted fodder production and cattle fattening were in the poor category. Adoption was particularly low among indigenous E De and other ethnic minority groups.
In consultation with community groups, local government, traders, banks and other key stakeholders the project discussed the reasons for low adoption by very poor households and agreed on finding ways to enable them to engage in and benefit from cattle fattening. In a test case, the local government arranged a low-interest loan for one local trader to buy 10 thin cattle for fattening. The trader entered into a contract with five poor households from the indigenous E De group. Each household agreed to fatten two animals for three months (and repeated for a second cycle with new animals). Technical training and support was provided by the extension office. The farmers successfully fattened cattle, achieving high growth rates, and received a payment of USD 107 for each animal fattened. The return to labour was USD 1.08 per hour, which was more than double
the prevailing labour rate in the district.
Both the trader and farmers were very enthusiastic about the scheme and the local government is exploring ways of upscaling the test case. Three of the five poor farmers managed to accumulate sufficient capital to continue cattle fattening by themselves.
Credit for short-term cattle fattening is a novel scheme which has great potential. Often, credit for cattle production has been provided for cow-calf production which requires many years of investment, entails considerable risk and only provides benefits to farmers after several years. Credit for cattle fattening, on the other hand, is a low-risk short-term investment with immediate financial benefits to poor farmers.
Website: http://mahider.ilri.org/handle/10568/4748
Existing linkages with other IFAD initiatives:
The research project „Enhancing livelihoods of poor livestock keepers through increased used of fodder. (FAP), collaborated closely with the IFAD investment project „Improving Market Participation of the Poor. (IMPP) which operated in poor districts in Ha Tinh province. IMPP capitalized on experiences from Ea Kar and introduced fodder production and cattle fattening in their project areas which were located in the poorest communes and districts in Ha Tinh. The project is in the process of establishing cattle fattening as a proven intervention suitable for poor smallholder farmers in Ha Tinh.
Conditions for uptake
Providing credit to poor farm households through traders has potential in situations where other, slightly more affluent smallholder farmers have successfully engaged in and benefit from cattle fattening but poor households cannot participate because of their situation. It is not suitable for new interventions, or risky areas but only for robust, proven situations where training and support services are available.
PROGRAMME IMPLEMENTATION
Beneficiaries
The target group for this activity was poor households from the indigenous E De ethnic group.
Early in the project it was noted that „Poor. households had not adopted fodder production to the same extent as households that were „Average. or „Better-off., as defined by the Viet Nam government. While „poor. households represented 26% of the population of Ea Kar, they only made up 7% of fodder adopters in 2007 (Table 1). It was also noted that adoption was lower among indigenous (E De) and other ethnic minority groups (Tay, Nung, Muong, Thai, Hmong, Mang and Dao) than the majority Kinh ethnic group. Indigenous groups made up 11.5% of the population of Ea Kar but only 2% of adopters (Table 2). Fewer still had adopted cattle fattening.
Process and results
In 2007 the project conducted a comprehensive survey of forage adoption in Ea Kar which identified the issue of low adoption by poor households and by indigenous and other ethnic minority groups.
Consultations with individual stakeholders
The project team consulted widely with poor farmers, farmers‟ and women‟s unions, local government, traders, social bank and other local key stakeholders to discuss the possible reasons for low adoption by these groups.
and to find ways to enable these groups to engage in and benefit from cattle fattening. The main reasons cited for low adoption of forages were:
Many poor people have no or very few cattle
Many poor households are engaged in subsistence food production for their own needs and had little land available to grow other crops or forage
Small farm size
Often poor households lived in the more remote areas of the district and had access to grazing areas that were sufficient for keeping small native cattle so there was less incentive to plant forages compared with areas that had little access to grazing land
Lack of capital reserves to buy cattle.
Limited access to information (technical and market information) and services such as extension and animal health services.
Three key areas that needed to be addressed so that poor households would be able to engage in cattle fattening were: (i) arranging access to capital for buying animals, and (ii) building capacity of farmers to profitably engage in fodder production and cattle fattening, and (iii) managing disease risks.
During these consultations the project found that several traders had developed contract farming arrangements for cattle fattening based on fodder production with farmers in Ea Kar. The traders ensured that farmers had sufficient areas of forages planted and supplied thin cattle for fattening. The trader provided the funds (fully or partially) for buying the thin animals. Farmers fattened the animals for 2-3 months and traders then sold the fat animals. The financial gain, i.e. the increase in value of the animal, was shared between the trader and farmers in different ways. Some traders charged farmers 15% interest (for the 3 month period) on the funds invested by the trader to cover the cost of capital, time and risk, while the farmers received the increased value of the animal; other traders paid farmers 30-50% of the value increase achieved during fattening.
There were at least 30 farmers who had fattened cattle based on contract farming arrangements with traders. Although there are no records, many of these farmers would have been households classified in the „poor‟ or „average‟ wealth category as more affluent households would have used their own capital.
Stakeholder analysis and agreement
Following consultations with individual stakeholders, the project facilitated a stakeholder workshop to report on the result of the individual consultations, and discuss and agree on interventions designed to enable the poor to engage in cattle fattening. Workshop participants included representatives of poor and indigenous farmers, local government, traders, extension office and the social bank responsible for providing credit to the poor. The participants agreed on and highlighted the following issues:
Poor farmers. The lack of capital was a key constraint. Poor farmers had difficulties accessing credit despite the government‟s program of providing credit with low interest to poor households through the Social Bank. Many poor households explained that they had had difficulty in repaying funds to the bank for a previous loan and so were not eligible for new loans, or were afraid to ask. Many poor farmers had had experience with cattle production even if they currently had no animals. They often worked off-farm for very low rates to generate cash for household needs and were keen to use their labour more productively. They were willing to allocate a small part of their land to fodder production (approx. 10% of farm land) which would be enough to fatten 2 cattle at any one time. They were keen to explore options for contract farming with traders but were worried about high interest rates.
Traders. The stakeholder workshop included both small and large traders. Small traders bought and sold a small number of animals locally. Large traders mostly bought a large number of cattle from both small traders and directly from farmers for sale in the provincial capital, Buon Ma Thuot, and in other provinces. It was the large traders who had developed contract farming arrangements for farmers in Ea Kar. They were unable to fill the demand from bigger markets and were always looking for more fat animals. Traders lacked capital to expand their contract farming operations. They frequently provided technical and market information to farmers on how to grow forages, fatten cattle and what type of animal the slaughterhouse wanted to buy. Traders were very interested in developing more contract cattle fattening with poor households lacking capital but requested backup from the project and local extension office to provide support to farmers with technical information and training.
Social Bank. The representatives of the Social Bank explained how they offered credit to poor farmers and disadvantaged groups at very low interest rates (0.6% per month). Loans offered by the Social Bank rangedfrom USD 160 – 1,600 for periods of 12 – 36 months. They commented that providing credit to poor farmers was risky as many farmers had difficulty or were unable to repay loans. They were very interested in finding ways for making credit for poor households more effective and successful, but they also reiterated that under their current rules they could only provide loans to poor households, not to traders.
Local government. The local government recognised the difficulties for many poor farmers in accessing credit and the risk of not being able to pay back loans. They were keen to explore options for providing credit through traders to enable poor households to benefit from cattle fattening, and suggested that the project should test and evaluate credit provision through traders. They asked the project and district extension office to prepare a proposal for a credit through traders‟ test case, and asked the Social Bank to provide a low-interest loan from government funds for poverty alleviation initiatives for indigenous groups for the test case. They also asked the representatives of the Social Bank to work with the project to monitor and evaluate the test case.
The project and district extension office. The project agreed to work with very poor households to strengthen their capacity to produce fodder and fatten cattle. The project, in co-operation with the district extension office and the Social Bank, also agreed to monitor and evaluate progress of cattle fattening by poor households, and report the results to the local government and other stakeholders.
Providing credit for cattle fattening
The project selected a local trader who worked closely with the Chu Cuc farmer club (for cattle fattening) in Ea Kmut commune. Five „Poor. households belonging to the indigenous E De ethnic group volunteered to participate in the test case. The district extension office employed an indigenous person as a commune extension worker to provide support for cattle production to indigenous households. With assistance and training from the extension service the five farmers established forages on their farms that were sufficiently large to fatten two cattle. The Social Bank provided a loan of VND 75 million (USD 3950) to the trader to purchase 10 thin cattle (2 animals / household) at an interest rate of 0.6% per month. The trader entered into a contract with the five farmers detailing the agreement and responsibilities of each party. The contract was witnessed by the commune peoples. committee and the agreement stated that the farmers would receive 90% of the benefit of the increased liveweight gain during the fattening period. The trader would benefit from trading and receive 10% of the value of the weight gain generated to compensate him for his time and cost of loan. The trader was responsible for the health of the animals for the first
2 weeks after delivery, after this it the farmers were fully responsible and liable for the animals.
The trader bought 10 thin cattle, recorded the purchasing costs and delivered two cattle to each of the five households for fattening. The project measured the liveweight of each animal at the start and end of the fattening period, and monitored expenses and labour inputs. The district extension office provided support for animal health and fodder production, and ensured that the five farmers were linked to more experienced farmers who had already fattened many cattle to ensure local backup and support. Farmers fattened the animals for 3 months, then the trader collected the animals and sold them for slaughter, recording the buying and selling costs. Together, the trader and farmers calculated the increase in body weight and value of each animal and the trader paid farmers 90% of the increase in weight of the animals.
This was then repeated for a second fattening cycle before the trader returned the loan plus interest payment to the local government. The results of the two fattening cycles and the experiences of all participants in the test case were reported to stakeholders.
Outputs and impacts
All five farmers successfully fattened the thin cattle supplied by the trader. The average weight gains of cattle fattened was high (775 g/day) and similar to weight gains achieved by experienced farmers in the district (Table 3). This resulted in a high return for farmers. Following fattening for 3 months farmers received a gross return of USD 107 for each animal fattened (Table 3).
Production costs were relatively low as farmers were able to grow their own fodder (i.e. forage grasses) and mix their own concentrate feed using mostly farm-grown ingredients such as cassava and rice bran (Table 4). On average, farmers fed 31kg of fresh forages and 1 kg of concentrate per animal per day. Other inputs were nitrogen fertiliser to stimulate forage growth, animal health inputs and labour to cut forages, weed and fertilise forages, feed and water animals, clean the pen and handle animals.
Farmers received income from the weight gain of cattle fattened (90% to farmers; 10% to trader) and from sale of manure. The net return for fattening two cattle for three months was USD 98.70 and the return to labour was USD 1.08 per hour which was more than double the prevailing labour rate in the district (Table 4).
The participating farmers were very pleased with the result of cattle fattening and three of the five farmers were able to continue cattle fattening by themselves after the end of the test case. Poor farmers benefited from contract farming as they were able to engage in cattle fattening without having to invest their own capital; they did not have to source thin cattle or find buyers for their fat animals; cattle fattening generated manure for their crops or for sale; and it provided an opportunity for generating a cash income. Similarly, the trader was very positive and wanted to continue the „credit through traders'
scheme.
He felt that he benefitted from:
- Access to capital (the loan) with low interest, which benefitted the poor households.
- Controlling of the quality of the cattle, as he bought and sold the animals, and knew the feeding system - Knowing the number of high quality cattle available for sale, so he could make supply contracts with traders in destination markets.
- Additional income, as he was able to sell fat rather than thin animals.
Constraints faced during the implementation
There were no major constraints during implementation that could not be managed by the extension workers and trader. Employing a local person, from the same ethnic group as the participating farmers, as the extension worker assisted effective communication and understanding among the stakeholders involved in the test case. The key constraint was in finding ways to arrange credit for the scheme.
Sustainability, Acceptability and Accessibility
The test case showed that very poor and indigenous households could successfully engage in cattle fattening provided they had access to (i) capital with low interest, (ii) training and technical support in fodder production and cattle fattening, (iii) animal health interventions to limit risk of disease, and (iv) traders willing and interested in working with the poor.
Three of the five households were able to continue cattle fattening on their own after the end of the test case. This is an indicator of the financial benefits that accrued from cattle fattening.
Both the poor farmers and the trader were very keen to continue with this model of providing credit for cattle fattening, however, the question of who can provide funding for the scheme is unresolved. While the Social Bank was able to provide the loan for the test case, it could not provide low-interest loans to traders on a larger scale. Its charter is clearly limited to providing loans directly to poor households and disadvantaged groups.
The local government felt that the test case showed that cattle fattening can enable farmers to escape poverty and is determined to find ways of expanding the „credit through traders‟ scheme. One avenue explored by the local government is to engage with NGOs which may not be constrained by the same regulations as government institutions.
Credit for short-term cattle fattening is a novel scheme which has great potential. Often, credit for cattle production has been provided for cow-calf production. This requires many years of investment, entails considerable risk and only provides benefits to farmers after several years. Credit for cattle fattening, on the other hand, is a low-risk short-term investment with immediate financial benefits for poor farmers.
Gender and ethnic dimensions
In Viet Nam smallholder farm households usually consisted of a married couple and their children; occasionally households also included a grandmother and/or grandfather living in the household. All family members contributed to livelihood activities to the best of their abilities. The husband and wife usually worked full-time on the farm and, traditionally, children (and older people) performed the very time-consuming task of supervising the grazing of cattle (4-8 hours each day). Cattle fattening, based on fodder crops and stall feeding, required much less time. With the introduction of forages as fodder crops, farmers could feed and manage stall-fed cattle quickly (2 hours each day for 2 animals) and this work was generally performed by the husband and wife team. Children were still responsible for taking cattle for a walk 1-2 hours a day, but this was a much shorter task than when they had had to spend 4-8 hours a day supervising cattle grazing.
Reaching marginalized people and enabling them to participate in projects is not easy but, as this case study showed, there are novel ways to ensuring that they too can benefits from promising interventions.
Dissemination pathways
Not yet tested at larger scale.
The local government in Ea Kar is explored options for engaging with NGOs to upscale the credit through traders scheme. In Ha Tinh, the IMPP project is in the process of establishing smallholder cattle fattening as a proven intervention suitable for poor smallholder farmers in Ha Tinh.
Further research needs
The test case showed that the „credit through traders‟ scheme enabled poor farm families to engage in and substantially benefit from cattle fattening. This was, however, implemented on a small scale and the test case was embedded within a research project that had already strengthened the capacity of local stakeholders to support smallholder cattle production.
There is a need to develop a larger development project which not only provides credit but also builds the capacity of key stakeholders such as traders and the extension and veterinary services to support successful cattle fattening and marketing.
USEFUL INFORMATION
References / Further information
Khanh T.T., Stür W., Dzung, V.T. and Ha N.V. (2010). Assessment of cattle marketing in Ea Kar district, Daklak, Vietnam in 2008. Fodder Adoption Project Working Paper Series (14 June 2010).Stür W. and Horne P. (2001). Developing forage technologies with smallholder farmers – How to grow, manage and use forages. Published by ACIAR and CIAT. ACIAR Monograph No. 88, 94p. http://aciar.gov.au/publication/mn088
Connell J., Stür W. and Horne P (2010). Forages and Farmers – Case studies from Southeast Asia. Published by ACIAR and CIAT. ACIAR Monograph No 142, 120p. http://aciar.gov.au/publication/MN142
Horne P. and Stür W. (2003). Developing agricultural solutions with smallholder farmers – How to get started with participatory solutions. Published by ACIAR and CIAT. ACIAR Monograph No. 99, 120p. http://aciar.gov.au/publication/mn099
Khanh T.T., Stür W., Ha N.V. and Duncan A. (2009). Developing innovation capacity through effective partnerships: Moving from subsistence cattle raising to market-oriented beef production in Daklak, Vietnam. Innovation Asia-Pacific Symposium, 4-7 May 2009, Kathmandu, Nepal.
Contacts
Dr. Truong Tan Khanh, Tay Nguyen University, Buon Ma Thuot, Daklak, Viet Nam. Project coordinator for Daklak. Email: tankhanh.dhtn@gmail.comDr. Nguyen Ngoc Anh, National Institute of Animal Science, Thyphuong, Tuliem, Hanoi, Viet Nam. Project coordinator for Ha Tinh. Email: anhnguyenngoc9@gmail.com
Dr. Werner Stür, Warrawilla, 22 Seventh Ave., Windsor, Qld 4030, Australia. Formerly CIAT; project leader for Viet Nam until May 2010. Email: stur@warrawilla.com.au
Dr. Tassilo Tiemann, CIAT, P.O. Box 783, Vientiane, Lao PDR. Project leader for Viet Nam. Email: t.tiemann@cgiar.org
Dr. Alan Duncan, ILRI, Addis Ababa, Ethiopia. FAP project coordinator. Email: a.duncan@cgiar.org
Useful links
http://fodder-adoption-project.wikispaces.com/
http://fodderadoption.wordpress.com/
Acronyms
CIAT International Center for Tropical AgricultureFAP Fodder Adoption Project – short for TAG 85„Enhancing Livelihoods of Poor Livestock Keepers through Increased Use of Fodder‟
IFAD International Fund for Agricultural Development
IMPP Improving Market Participation of the Poor
ILRI International Livestock Research Institute
NGO Non-Government Organisation
NIAS National Institute of Animal Science
TAN Technical Advisory Note
TNU Tay Nguyen University
Year of publication 2011
Exchange rate used: VND 19,000 = USD 1.00
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