Development of Agribusiness and Agro-industries in Africa

Published on 22nd March 2010

A particularly critical question that we are asking ourselves is whether the recovery from the severe financial and economic crisis that we have recently experienced will generate inclusive growth or whether the growing fears of a jobless global economic recovery will be fulfilled.

This question is especially important for African countries, as they struggle to achieve rapid economic transformation, with priority given to empowering the people in the process. The success or otherwise of this struggle will largely be determined by the ability to participate in local, regional and global value chains on the basis of the continent’s huge reservoir of agricultural resources. This is the harsh reality for Africa today.

For Sub-Saharan Africa, the crisis has underscored the fragility and lack of sustainability of a commodity price-led economic growth-path, which many countries of the continent experienced in 2004-2008.  This growth path was rooted in a continued excessive dependence on the production and exports of unprocessed primary commodities and the neglect of the intra-African trade potential.  It was insufficient to put the region on the right track towards achieving the Millennium Development Goals (MDGs), while at the same time increasing its vulnerability to the crisis.

As a result of the crisis, poverty has increased in Sub-Saharan Africa. GDP per capita declined in 2009 for the first time in a decade.  Unemployment increased while social safety nets were either inadequate or unavailable.  While the high rates of economic growth in earlier decades lifted millions out of poverty in the first and second generations of newly industrializing countries, mainly in Asia, the commodity-boom led growth in Africa did not have the same effect despite the high windfall profits that it generated in some countries.  It is high time that we all embark on a massive programme for fostering sustainable value addition as a means of wealth creation, from which all those involved in the agribusiness value chain – farmers, producers, distributors, consumers – can derive improved livelihoods and the other economic and social benefits that we all aspire to.

Africa should not be a passive bystander in the face of volatilities in today’s dynamic globalized economy.  We need to be able to respond proactively to any crisis that may threaten our future prospects, and reassess our development strategies in accordance with the Action Plan for the Accelerated Industrial Development of Africa (AIDA) approved by the African Heads of State and Government in 2008.   In doing so, we need to focus on increasing the prosperity of Africa’s people, enhancing the sustainability of Africa’s economic and social development, and speeding up progress towards achieving the Millennium Development Goals.

A renewed focus on agribusiness is an important complementary strategy to the existing approaches being followed for the structural transformation, technological upgrading and economic diversification of African economies.  Agribusiness is the key determinant of overall economic growth and poverty reduction in most countries of Sub-Saharan Africa, as it harnesses the critical linkages between agriculture, industry and services.  The accelerated development of agribusiness will benefit a large majority of the African population – it will be “people-oriented” because it will enhance the well-being of both producers and consumers, and generate employment, income and food security.

Indeed, there is a growing consensus that a development path based on increased productivity growth throughout the entire agribusiness value chain – covering farms, firms and markets – is the most effective means of achieving rapid and widely shared economic growth and poverty reduction.
 
Empirical evidence shows a strong correlation between the growth of agribusiness and the overall level of economic development.  The ratio of the share of GDP generated by agribusiness, compared to the share generated by farming, thus increases from 0.57 for a sample of nine “agriculturally based countries”, all located in Sub-Saharan Africa, to 1.98 for a set of eleven “transforming countries”, located mainly in Asia.  The corresponding figure for a sample of twelve “urbanized countries” amounts to 3.32, while for the USA it stands at 13.

In this connection I wish to emphasize that prosperity is not due to resource endowment and poverty is not due to the lack of resources. Prosperity is the outcome of value addition.  Resource-rich countries remain poor due to the lack of value addition.
 
Thus, it has also been shown empirically that 63 percent of the value added in the agri-food system was created on the farm in agricultural countries that have not undergone a structural transformation.  In the USA, by contrast, farming accounted for only 7 percent.  The remaining value added in the US agri-food system was created by input producers, agro-industries, transport firms, retailers, restaurants, and others in the agribusiness system.

This situation changes as economies are transformed.  The sources of economic growth depend increasingly on knowledge, skills, new technologies, management practices and institutions.  In the early stages of agriculture-led growth, agricultural production and exports tend to be dominated by bulk commodities, for which natural resource endowments (and transport infrastructure) are more important determinants of comparative advantage.  As countries move more into the production of higher-value agri-food products, comparative advantage is increasingly determined by investments in human capital, technology, R&D, and logistics.  Thus transformation usually involves a shift from inherited comparative advantages based on resource endowments to created competitiveness based on capabilities.

African states, through the African Union, have pledged to invest a minimum of 10 percent of budgetary resources in the agricultural sector, and the G-8, meeting in L’Aquila, Italy in 2009 renewed the commitment of the donor community to the Comprehensive Africa Agricultural Development Programme.  This Programme has set an annual agricultural growth target of 6 per cent to achieve the Millennium Development Goal of halving poverty by 2015.

This high rate of agricultural growth would provide a strong platform for developing agribusiness value chains, and raising productivity in all of the individual links in these chains.  This is a formidable challenge and will involve development interventions in three principal areas:

First, improving agricultural productivity through improved industrial inputs.  This is the first element of agribusiness.  The low productivity of the agricultural sector in Sub-Saharan Africa is due in large part to the low use of industrial inputs such as tools, machinery and equipment, fertilizers, crop protectants, and irrigation systems that affect the quality, quantity and sustainability of the agricultural raw materials flowing into agro-industries.  The increased use of such inputs is critical to increasing farm-level productivity, incomes and sustainable competitiveness.

Second, increasing the industrial processing of agricultural raw materials and food products. This conversion of commodities into products is the second component of agribusiness; The inability of many agro-industries in Sub-Saharan Africa to assure themselves a stable supply of raw agricultural products of consistent quality represents a major constraint to the ability of these firms to grow, and to pass the benefits of that growth on to farmers and the community at large.  If this obstacle is overcome, it would enhance income opportunities for the farmers and serve as an important paths out of poverty for those employed in downstream activities in the value chains.

Third, strengthening industrial production of processing machinery, equipment, tools and packaging materials, and improving the storage and transport infrastructure.  This forms the third component of agribusiness.  It involves the production of industrial equipment for processing, packaging and storage, as well as the introduction of quality control, transportation and communications systems that affect the ability to preserve the quality of processed products and distribute them to consumers.   Such equipment and technology can be produced in Africa at the regional or continental level based on technology acquired through South-South cooperation, especially from resource-based Asian economies

Such a strategy focusing on accelerating agribusiness development requires a strong emphasis on eight critical pillars of growth consistent with the Action Plan for the Accelerated Industrial Development of Africa.  These are:

  1. Enhancing agricultural growth for agribusiness;
  2. Upgrading value chains in agribusiness;
  3. Targeting commodities and producers for value addition and social inclusion;
  4. Strengthening technological effort, innovation capacity and capacity building;
  5. Stimulating private enterprise development and investment;
  6. Facilitating innovative financing for agribusinesses;
  7. Improving agro-industrial infrastructure and access to sustainable energy; and
  8. Exploiting local, regional and international demand.

Agribusiness in Africa needs to undergo a profound structural transformation and technological upgrading during the next twenty years in order to generate jobs and income so urgently needed by Africa’s growing population.  It also needs to adjust to the pressures of rapidly changing consumer demand and new technologies in order to enable Africa to catch up with other developing countries in the competitive race.

To be continued

By Dr. Kandeh K. Yumkella, UNIDO Director-General.

 


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