What are the key drivers to growing Africa’s agricultural sector?
Africa has vast agricultural potential, but there is a large leap from the current system, dominated by small-scale and subsistence farming, to commercial farming where the benefits of economies of scale can be reaped. Nevertheless, the answer lies not only with commercial farming, but also in reducing the potential that goes to waste with small-scale farmers’ lack of access to stable markets, technology and finance. Here the role of government and aid organisations is extremely important and we expect these bodies to be the main driving force behind expansion in the agricultural sector over the next five to ten years.
Overall there are seven key drivers to improving agriculture in Africa, namely:
The best policies for developing the sector are devised according to the doctrine of empowerment rather than dependency. To empower farmers African governments need to provide practical assistance at grassroots level, provide technology and general knowledge transfers, work in close co-operation with lower levels of government, eliminate corruption, offer a two-way learning process whereby donor organisations and experts also learn from local farmers, and involve local communities, which includes delegating responsibility to local structures.
This particular driver, arguably the most important of the lot, is discussed in detail here.
Unfortunately, governments on the continent cannot take on the task of reforming Africa’s agricultural sector alone. Outside help is critical. There are several major donor organisations – based mainly in the European Union (EU) and North America – working specifically on agricultural development in African countries. Examples of major African agricultural donors are One.Org, Farm Africa, a Self-Help Assistance Programme (ASAP) and Farming First.
The main areas where donors are involved include programmes to help young people to become farmers, the creation and maintenance of stable markets for them, and programmes and strategies to provide smallholders with the skills and support they need.
It is no secret that the key to unlocking Africa’s economic potential lies with addressing the severe infrastructure deficit. Specifically with regard to agriculture, the state of roads and storage facilities in Africa poses a significant hurdle for farmers. In an October 2012 publication, the United Nations Food Programme (UNFP) stated the following relating to the loss of food in the supply chain between farmer and consumer: “In developing countries, the major cause of food loss is the lack of infrastructure for processing, transportation, storage, and cooling of food. According to the World Resources Institute, up to 40% of food harvested in developing countries might be lost because of this gap in infrastructure”.
We expect the agricultural sector to be one of the main beneficiaries as the continent steps up infrastructure development over the medium to long term.
According to the International Fertiliser Society, average fertiliser use in sub-Saharan Africa is about 8 kg/ha compared with the international average of about 107 kg/ha. This is extremely worrying, given that the rate of soil depletion on the continent is estimated at 60 kg/ha. It is clear that the level of fertiliser use needs to rise if the continent is to increase agricultural output.
The fact is that many African farmers do not have the resources or know-how to properly use fertilisers. On the other hand, the subsidising of fertilisers is a controversial topic, with many experts suggesting that it is a costly exercise with only modest returns.
We agree that the effectiveness of fertiliser subsidies will vary from area to area. Case-by-case analysis is needed to decide on the appropriate channel to increase fertiliser use, be it traditional subsidies, demonstration packs, vouchers, matching grants, or loan guarantees. Whatever the channel, we expect increased use of fertilisers to be a key driver of agricultural development on the continent over the medium to long term.
Access to finance
Small-scale farmers generally lack access to financing, which in turn deters the use of improved cultivation techniques and fertilisers. In many instances, the smallholder farmers are under more traditional land tenure and cannot use their holding as collateral to borrow. Countries where land is leased from the government and therefore cannot be used as collateral for loans include Mozambique and Ethiopia.
According to the World Bank, small-scale farmers require access to four kinds of financing: 1) credit used as working capital; 2) savings for lean months; 3) transactional facilities; and 4) insurance of crops and livestock. As the prevalence of microfinance on the continent expands, we expect to see more and more smallholder farmers improve their operations. However, proper regulation of this sector is of the utmost importance as credit extension remains a double-edged sword, especially during a period of lean harvests.
Intra-regional trade on the African continent leaves much to be desired. Trade of agricultural products between African countries is still kept to a minimum. One of the reasons for this is the lack of product diversification; most neighbouring countries cultivate the same cereals and the largest portion of agricultural exports is destined for other parts of the world.
Furthermore, Africa has numerous overlapping regional trade arrangements (RTAs), making overall implementation of RTAs and reduction of tariff and non-tariff barriers to trade slow. Many countries have also drawn up long lists of sensitive products which are excluded from intra-RTA trade liberalisation.
Individual agreements between countries can hinder regional cooperation, as trade accords between two countries may come into conflict with the regional mandate. While there has been some success in removing import duties within regional communities, a range of non-tariff and regulatory barriers still raise transaction costs and limit the movement of goods, services, people and capital across borders.
According to a United Nations Conference on Trade and Development (UNCTAD) analysis, creating a single free trade area on the continent could see the share of intra-African trade in food and other agricultural products increase from 20% to 28.3% between 2010 and 2022. However, their analysis showed that although intra-regional trade will significantly increase if tariff barriers are dropped, the income advance is quite small given the loss of customs revenue. The answer lies therefore not only with the establishment of free trade zones. Non-tariff barriers need to be addressed before any real welfare impact is seen.
UNCTAD also calculates that halving the time goods spend at the continent’s ports would lead to positive exports and real income increases in all African countries.
FDI and agro processing
Agro processing on the continent is still very basic, or non-existent. According to the African Development Bank, the absence of agro-processing facilities leads to post-harvest losses of on average 35% – 50% of total attainable production of perishables like fruits and vegetables, while losses of grains vary between 15% – 25%.
While there has been a step up in investment in post-harvest value-adding infrastructure on the continent, much remains to be done. Despite the cumbersome business environment faced in some areas, foreign interest in Africa is growing with many companies setting up shop.
Unfortunately international interest in Africa has also been controversial. For the agricultural sector in Africa to truly prosper, the whole value chain would need to be addressed. The onus lies with the authorities on the continent to ensure the business environment improves in order to attract more foreign interest and increase the level of value-added post-harvest. At the same time, governments need to award contracts in a transparent way to prevent backlashes.