Market Analysis and comparing different Business models for two wheeled Tractors in Zimbabwe

1. Market Analysis and Business models for
2WTs in ZIMBABWE
Mid Term Review
9-13 February 2015

2. Presentation Structure
I. Objective 2 outline and Progress to-date
II.Market Analysis for Small Scale Mechanization-
Key Findings
III.Business Models-Key Findings
IV.Conclusion
V. Way Forward

3. Outline of Objective Two
No Output/Activities Milestones Outputs
Output
2.1
Country and site-specific market analysis of small scale mechanization
2.1.1 Country-level literature
review
Report on sector profile
and sector organization
Conducted
2.1.2 Interview of national
and local actors
Report of performance
and constrains of sector
Interviews with
actors and FGD
conducted
2.1.3 Multi-stakeholder
roundtable to identify
underlying causes for
market systems
weaknesses
Report on identification
of key services and
interventions
Recommendations on
strategies enhancing
markets and service
deliveries
A consolidated
report produced
on Market
Analysis of Small
Scale
Mechanization in
Zimbabwe

4. Objective Two Progress
No Output/Activities Milestones Outputs
Output
2.2.
New or upgraded business models designed and re-designed
2.2.1 Focus group discussions with each
actor to prioritize critical success
related to actor linkages and
supporting services
Prioritised list
of
interventions
Activity
incorporated in
business model
report *
2.2.2 Multi-stakeholder roundtables to
secure action plan on design of
new business models or upgrading
of new ones
Draft
agreements
To be conducted
2.2.3 Ex ante business study potential
impact of new/upgraded BM
Economic
analysis
Conducted-
Incorporated in
BM
2.2.4 Focus group discussions to
demonstrate incentive of economic
benefits
Reports of
FGD
To be done –in
this coming
quarter
2.2.5 Annual multi-stakeholder
roundtable in each IPP to evaluate
Minutes of
roundtable
To be conducted

5. Market Analysis
Process
● Literature review
● Meetings with key experts/key informants
● Compilation of key market actors list
● Interviews with local market actors-local importers,
manufacturers, financial institutions, mechanics, government
institutions
● Focused group discussions with ox-drawn service providers
● Focused group discussions with farmers
● Key informant interviews at local level –local stakeholders

6. Market Analysis Small Scale Mechanization –
Key Findings
Country Context
Classification of farming systems:-
● Communal (<3ha),
● A1 (5-6ha arable),
● A2 (>10ha arable)
● Large estates
Mechanization
● Country dominated by 4WT actors
● and limited 2WT actors

7. FI
Grownet
ATA
China, Japan, IndiaManufacturers
Importers
Local
manufacturers of
implements
Distributors Provincial Distributors
Hastt
Local retailers/hardware shops
Total Tractors
&Equipment /Bain
Agent
Honda Centre
Small Scale farmers (communal , A1) and A2 farmers
2WT Market Actors
Retailers
Government -
RBZ
End users
ADMA
Mealie Brand
Services
Rule
Mechanics
Ministry of Agriculture, Mechanization and Irrigation Development; Ministry of
Industry and Commerce

8. 2WT Importation Trends
Company Name Brand/
source
HP 2WT imports
last 5 years
Import
forecast
ATA (20 units/yr) China-
Changfa
diesel
16-20 100 20
RBZ once off - - 30
Bain New Holland
Agent-Total Tractor
and Equipment
China -
diesel
12-16 12 45
Honda Centre Honda-
petrol
7 3
Total units
imported/forecast
145 65

9. 2WT Importers
● There are few importers of 2WTs in the country and
manufacturers of 2WT implements
● Need for more importers of 2WTs critical to create
competition and innovative solutions
● Current main player ATA, limited services offered to
farmers in terms of after-sale and technical support
services.

10. Mechanization-Gaps Identified
● Enabling environment - should promote viability and growth
of the businesses (importers/dealers, manufacturers and
end-users).
● Access and uptake of viable and sustainable mechanization
inputs (2WT) and services amongst smallholder farmers and
service providers
● Capacity Building – in mechanization and management
● Access to Credit-for the actors along the supply chain

11. Business Models
Process of Business Models Identification
● Interviews conducted with the dealers/manufacturers to
identify customers, critical success factors,
● Interviews conducted with farmers and potential service
providers
● Mapping of business models, developing upgrading
strategies
● Economic analysis of the models
● Roundtable meetings

12. Business Models Identified
Business Models identified
● Dealer led –Total Tractors and Equipment Company
● Importer/Dealer led- Bain New Holland
● Manufacturer led – Grownet
● Service Provider - led (Entrepreneur)
New Business Models
● Farmer led - Group of farmers (FACASI supported)
● Private Individual-led (Cash crop farmers, Agro-
dealers/Entrepreneurs)
● Contractor led- Contract farming Alliance Cotton Ginnery

13. Business Models
Model
Potential
stakeholders
Functions/
Services
Interventions for
upgrading
Model
1
Dealer/
agent
-Dealer
-Service
providers
- Financial
institutions
- Spare parts
stockist
- Imports
-Sells units to SPs
and farmers
- Provides service
support,
- Technical back-
up services
- Provision of spare
parts
-Manufacture
equipment
- Availability of finance
- Training of SPs
linked to the dealer
Model
2
Bain-
New
Holland
- Dealer
- Manufacturer
- Branches and
agents
- Service
providers
- Agro-dealers
- Finance
- Imports
- Supplies spare
parts
- manufacture
attachments
- dealership with
manufacturer
- Branding, dealership
agreements
- Training/certification
for SPs
- Manufacturing of
attachments
- Availability of finance

14. Business Models
Model
Potential
stakeholders
Functions/
Services
Interventions for
upgrading
Model 3
Grownet
-Manufacturer
- Service provider
- Mechanics/
workshops
- Agro-dealers
- Financial
services
- Manufacture
spare parts
Manufacture
attachments
- Provides
support services
- Developing
linkages to SPs
- Manufacture
attachments
- Training of SPs
- Access to finance
Model 4
Service
Provider
- SP
- Importer/ dealer
- Mechanic
- Farmers
- Finance
- Offers
mechanization
services to
farmers and
2WT SPs
- Stocking spare
parts
- Training of SPs and
operators
- Access to finance

15. New Business Models
● Farmer led- Group of Farmers supported through
FACASI
● Private Service Provider Led- Include agro-dealers,
tobacco farmers, professionals within the locality
● Contractor led- Alliance Cotton Ginnery, works with
smallholder farmers on contract basis. Provide inputs
such as fertiliser, seed and chemicals. To provide
mechanization as part of the inputs.

16. Economic Analysis -BM
● Importer Level- average profit margin 10%
● Service Provider Level- various attachments can be
utilised or total package
● Farmer Level- beneficiaries of 2WT for the following
services:-
 Tillage –CA; single row planter/double row planter,
2BFG100, VMP
 Top dressing
 Spraying-boom sprayer
 Harvesting-cutting of maize, cotton/soya-bean stalks
 Water uplifting
 Shelling/threshing
 Transportation

17. Economic Analysis
Own farm
operator
•
•
Own farm
operator and
hiring
Custom
Hiring
only
•

18. Economic Analysis
Assumptions
● Work rates
● Farm types
● Constant yields –mechanization/conventional methods
● 2WT working hours based on the season lengths
● Custom hire charges
● Market Demand -45%
● Discount rate – determined by the bank lending rates
● Profitability index- present value of cash flows in
relation to the initial investment

19. Economic Analysis
● Break Even analysis
Implement
Purchas
e price
Potential annual
use (h/yr)
Actual
hrs./ yr.
Break-even
point (h/yr)
Break-even
point (ha)
Ripping/ seeding
(single row)
3,200 344 137.6 76.75 34
Ripping/ seeding
(double row)
5,500 344 137.6 75.12 76
Seed drilling 3,500 344 153.6 39.22 17
Top dress fertilizer
application
2450 384 153.6 35.60 31
Cutting bar 2,500 576 230.4 26.97 27
Water lifting 350 1440 153.6 27.44 82
Sheller (2WT
transported)
3,200 576 230.4 68.41 41
Sheller/ thresher
(own power source)
2,000 576 230.4 38.54 24
Transportation (to
market)
3,800 864 345.6 94.96 -

20. Economic Analysis
Economic
Indicators
Shelle
r with
trailer
Sheller
without
trailer
Cutter
bar
Transpo
rtation
Seeder
double
row
Seeder
single
row
NPV @20%
discount rate
($) 3699.7 6223.1 1741.2 22996 2850 2205
B/C ratio 2.06 2.06 1.34 2.56 1.44 1.48
IRR 34% 48% 30% 73% 32% 35%
Profitability
Index (PI) 1.53 2.21 1.32 5.02 1.45 1.57
Ranking
based on PI 4 2 6 1 5 3

21. Economic Analysis
Analysis
● Transportation and shelling have high profitability
index;
● Phasing-in of other attachments possible, will
enhance the profitability of the business- provides
competitive advantage for the full package (various
attachments);
● The entry point for the 2WT based on profitability
index is in post-production processes:-
transportation and
shelling.

22. Economic Analysis- Effect on farmer production
Gross Margin Analysis – for Makonde area based on 3ha arable (1 ha
cotton, 1 ha maize and 1 ha soya-bean)
Crop Yield
levels(kg/t
ons/ha
Gross
Income($/
Ha)
TVC
($/Ha)
Gross
Margin
($/Ha)
Share of
Labour
Costs (%)
Maize
Without
mechanization
3 tons 720 615 105 52
With
mechanization
3 tons 720 570 150 43
Cotton
With
mechanization
1000kg 500 490 10.5 66
Without
mechanization
1000kg 500 391 110 45
Soyabean
with
mechanization
1.5 tons 870 659 211 56
Without
mechanization
1.5 tons 870 474 396 29

23. Effect on farmer production
● Domboshava-
Crop Yield
levels(kg/ton
s/ha
Gross
Income($/
Ha)
TVC
($/Ha
)
Gross
Margi
n
($/Ha)
Share of
Labour
Costs
(%)
Maize
Without
mechanization
3 tons 720 615 105 52
With mechanization 3 tons 720 603 117 46
Tomatoes
Without
mechanization
20,000kg 10,0000 3698 6302 61
With mechanization 20,000kg 10,0000 3426 6574 58
Leafy
Vegetables
Without
mechanization
8,000kg 8,000 2957 5043 58
With mechanization 8,000kg 8,000 2691 5309 55

24. Economic Analysis
GMA
● There is labour saving with 2WT compared to
conventional.
● Plant Establishment Costs savings
● Conventional CA/Ripper/planter
● Ploughing ranges -$80-$110/ha $40.00 per
hectare
● Discing - $70/ha
● Planting- $50-$60/ha
● Total Cost ≈ $210
● Saving of 80% in crop establishment

25. Service Providers
Service Providers - initially farmers operating in the project
sites
Identified from the two sites:-
● Makonde ≈ 12 under A1 farming systems- tobacco farmers,
some have own savings, require credit facility
● Domboshava ≈10 prefer payments through instalments-
require credit facility.
● N.B the numbers will increase since more demonstrations
will be carried out,

26. Implementation of BM-Approaches
The prospective Service Providers segmented into the
following:-
● Cash Buyers- Buy over the counter mainly tobacco farmers
(small number 2 or 3 of them mainly from Makonde)
● Linked to Importers- Able to raise the 70% deposit
required by one of the importers and pay off balance on
instalments
● Project Assistance-Category of Service Providers can
utilise the 2WT through a soft loan or lease agreements.
They will in turn spread awareness of the technology to other
areas/farmers (50% of them)

27. Implementation of BM
Resources Required by the SPs
●Category Equipment Financial
Resources required
(USD)
Remarks
Tobacco
Farmers-
Makonde
2WT and
Double row
planter
$5,500/SP 3 farmers
interested
Importer-SP
linkages
2WT and
various
attachments
Ranges from
$2,800 to $5,500
Amount
varies
Project
supported
2WT and
various
attachments
Ranges from
$2,800 to $5,500
Amount
varies

28. Implementation of BM -Approaches
Support to manufacturers
● The credit availability affecting the manufacturers
● Expensive short term credit available not viable for the
sector
● Project support through provision of financial resources to
support manufacturing of implements in the form of soft
loans.
● Project support - funds may be channelled through local
banks to support the 2WT technology uptake.
● Funds to be administered as loan - to avoid market
distortions
● Administration costs to be covered by interests rates

29. Conclusion
Positive Effect of Mechanization on smallholder farmers
● Usage of mechanization services enhances crop margins
compared to utilisation of) mechanization especially for rain-
fed crops.
Business Model Implementation
● The new business models identified will be updated,
supported and developed fully as the project implementation
progresses. Women (including youths) entrepreneurs/service
providers will be encouraged to venture into the business.
● Interest in the technology observed

30. Conclusion
Options
● From the economic analysis the options for introducing the
2WT are transportation shelling and single row
ripper/planter with high profitability index. Other
attachments can be phased in with time. Issue of
seasonality should be considered.
Credit Requirements
● Provision of credit to enhance technology uptake is critical.
Credit facilitation with local financial institution to be
considered, although currently there are few favourable
options.
● If the project is to provide funds they should be provided as
revolving funds not grants to ensure sustainability and
avoid market distortion

31. THANK YOU