th4_improving food security through rice value chain upgrading in africa:

Improving Food Security through Rice Value Chain Upgrading in Africa:

What Can We Learn from Experimental Economics?

Matty DemontSenior Economist, Market Research and Value Chain Specialist,

International Rice Research Institute (IRRI), Los Baños, Philippinesm.demont@irri.org

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Three types of countries

• Coastal countries strongly exposed to urban bias (Senegal, Liberia, Cote d’Ivoire, Ghana, Togo, Benin, Nigeria, Cameroon)

• Coastal countries not yet strongly affected by urban bias or with comparative advantage in rice demand (Gambia, Guinea, Sierra Leone, Kenya, Tanzania, Mozambique, Madagascar)

• Landlocked countries (Mali, Burkina Faso, Ethiopia, Rwanda, Zambia)

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Observation

• In many import-biased countries endowed with a port, domestic rice fails to compete quality-wise with imported Asian rice

• As a result of urban bias, urban consumers have become used to the superior quality of imported Asian rice and developed preferences for it

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Observation

• Domestic rice clearly differentiated from imported rice– Quality-wise– Packaging, branding, image– Word-of-mouth– Status considerations (foreign = cool)f-mouth– Status considerations (foreign = cool)

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Which ones are domestic rice?

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Research hypothesis

• Domestic rice now not only has to compete quantity-wise, but also quality-wise, but how?

• In the absence of strong consumer attachment to domestic rice, best short- and medium-term option = dedifferentiating domestic from imported rice– Quality-wise– Packaging, branding, image

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Research hypothesis

• Proposed three-stage investment sequence for upgrading rice value chains in import-biased countries strongly exposed to urban bias:

Quality upgrading, processing infrastructure, certification, branding, ...

Quantity increase, scaling up, aggregation and storage infrastructure

Advertizing and generic promotion

Value-adding

Demand-lifting

Supply-shifting

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

How can we test this hypothesis?

• Can experimental economics help?• Experimental auctions enable assessing

consumers’ response to upgrading of1. Intrinsic quality attributes:• Post-harvest quality upgrading• Varietal improvement

2. Extrinsic quality attributes:• Labeling and branding• Information (radio, video, word-of-mouth)

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Case studies

Mini-Symposium 4, Sub-Theme 3: Rice processing and marketing, Hall 3, 14:30–16:001. M. Ndour: Branding of local rice in Senegal2. M. Ouedraogo: Consumers’ response to local

quality rice in Burkina FasoThis presentation:3. Dedifferentiating imported from local rice in

Cameroon

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Rice quality upgrading in Cameroon

• Institute of Agric. Research for Development (IRAD), Cameroon developed uniform steam distributed (USD) parboiling technology

• Mimics high-grade imported rice in physical and eating characteristics:– Whiter– Lower broken fracture– Fewer cracked grains– Absence of burnt grains and impurities– Higher swelling ratio during cooking

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Rice quality upgrading in Cameroon

IRRI Seminar, International Rice Research Institute (IRRI), Los Baños, Laguna, Philippines, 4 April 2013

Research questions

• Do consumers perceive the IRAD rice as being similar to imported rice?

• Are they willing to pay price premiums for it? Relative to– Traditionally parboiled local rice– Improved non-parboiled local rice

• Did IRAD technology successfully quality-dedifferentiate domestic from imported rice?

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Targeting urban market: Yaoundé

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Setting up laboratory setting

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Choosing products to be auctioned• Kept the varietal component constant• Using a single rice variety: Tox 3145• Processed into four different end-products

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Upgrade 3: improved parboiled rice (IRAD)

Upgrade 2: traditionally

parboiled (TRAD) rice

Upgrade 1: non-

parboiled homoge-nous

(NPH) rice

non-parboiled broken (NPB)

rice (benchmark)

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Randomly recruit shoppers

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Start the experimental session

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Explain auction mechanismFive principles:1. Endow-and-upgrade2. First price buys & pays second price3. Real transaction (bids are binding)4. Random drawing (1 product & 1 round)5. Anonymous

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

benchmark

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Descriptive results

0%

20%

40%

60%

80%

100%

Willingness to upgrade

020406080

100120140

Willingness to pay

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

“Perceived dedifferentiation” is measured through a quiz question: “Which rice variety(ies) are imported?”

63%

16%

12%

5%

Correct answer = “none”: only 3%

IRADimp01110010101101…

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Econometric results

Determinants of consumers’ WTP to upgrade non-parboiled broken rice to alternative rice types Variable First hurdle: propensity of upgrading Second hurdle: amount paid

Coefficient SE Marginal effect Coefficient SE Marginal effect NPH 0.524** 0.233 0.123** –115.492*** 34.526 –32.754*** IRAD 0.593*** 0.207 0.139*** 5.081 21.266 15.648 Pre-tasting 0.498*** 0.180 0.117*** 1.014 18.800 11.885 Post-CIT –0.040 0.117 –0.009 –1.987 16.956 –1.700 NPH × pre-tasting –0.528*** 0.206 –0.124*** –29.346 28.524 –23.588 NPH × post-CIT 0.001 0.138 0.000 19.530 22.450 7.615 IRAD × pre-tasting 0.051 0.239 0.012 3.034 15.055 2.357 IRAD × post-CIT –0.094 0.165 –0.022 21.677 14.413 6.238 IRADimp 0.564*** 0.205 0.132*** –60.981** 27.894 –10.661** NPH × IRADimp –0.424* 0.223 –0.099* 0.672 27.082 –9.519 IRAD × IRADimp 0.127 0.224 0.030 62.015** 24.921 27.010** Morning 0.060 0.189 0.014 –27.298 18.225 –9.220

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Conclusion

• Consumers are 14% more likely to upgrade to improved parboiled rice (IRAD)

• Those who perceive IRAD rice as being imported (63%)– Paid 5% price premiums for IRAD rice– Discounted traditionally parboiled rice by 2%

• Major value of IRAD technology = ability to successfully quality-dedifferentiate domestic from imported rice in urban markets in Cameroon

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013

Thank you!

Matty DemontSenior Economist, Market Research and Value Chain Specialist,

International Rice Research Institute (IRRI), Los Baños, Philippinesm.demont@irri.org

Third Africa Rice Congress, Yaoundé, Cameroon, 21–24 October 2013