Development of Agribusiness and Agro-industries in Africa II
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
Fortunately, the policy environment and technological capability needed to facilitate the transformation of the agri-food system are more favourable than ever. Rapidly growing demand in the international, regional and domestic markets offer potentially profitable markets for agro-industrial products. Taking advantage of these opportunities requires, however, that problems of market access, constrained by high transport and transaction costs, can be overcome. It also requires that trade capacity can be built so that compliance of strict standards and norms in importing countries, can be established.
Key stakeholders need to focus on investment and policy changes that “crowd in” private investment and enable business organizations to resolve problems of horizontal and vertical coordination that impede the growth of agro-industries. A strengthening of the eight key pillars in the agrifood system will help to unlock the enormous potential of agro-industries to contribute to the continent’s long-term prosperity.
Indeed this is already happening, and several examples of a successful development of agribusiness value chains in Africa come to mind. These include: Fish in Uganda; Organic coffee and cocoa in Uganda; Fruit and vegetables in Kenya; Pineapple in Ghana; Dairy and cassava products in Kenya, Uganda and Zambia; Furniture in South Africa; Wine in South Africa; Cotton garments in Mauritius and Madagascar; and Biofuels in a number of countries.
In this approach we can no longer think globally and act locally but are forced to think globally and act regionally in order to make Africa a vibrant industrial centre. We should look at the dramatic breakthrough achieved by the recently initiated North-South Corridor of 8 African countries in reducing the cost of production and cost of doing business. Regional cooperation should go in that direction.
There is no single path to a transformation of African farming and agro-industry. An exclusive focus on the smallest firms in agro-industry is unlikely to lead to a successful path of economic growth and poverty reduction. Some of the greatest growth potential for African agro-industry lies in small and medium enterprises, especially in assisting them to expand and capture (or recapture) national and regional markets. To promote this transition involves viewing value addition, both in farming and in agro-industry, within the context of a structural transformation of the economy.
This should not exclude the promotion of large-scale agro-enterprises, however, especially in situations where there is a potential for significant economies of scale (e.g. in the production of fertilizer and agricultural machinery) and where there is scope for attracting foreign direct investment or accessing export markets. Such large-scale firms can have important poverty-reduction impacts. What is essential is to avoid policies, such as subsidies on labour-saving technologies, that bias technology choice in favour of large-scale, highly mechanized operations that are not aligned with the prevailing factor endowments and would not be competitive with more labour-intensive operations.
Policy approaches to micro-enterprises also need to be carefully considered. These firms are often part-time family operations oriented to a very local customer base and generating very low levels of income. While constituting and element of the survival strategies adopted by poor families, their growth prospects over the medium and long term are slim. It may be more effective to use public resources to foster growth in other segments of agro-industry and then tax some of those earnings to finance programmes that enable the owners of the micro-enterprises to move into higher-earning opportunities in the labour market – e.g. by working in medium-sized or large agro-enterprises.
This brings me to the closely connected issue of farm size. Obviously, there are significant economies of scale in large-scale farming provided that land ownership is available without depriving smallholders of their livelihoods, and further provided that food security is not endangered and environmental sustainability is assured. Indeed, large-scale farming can contribute to food security, employment and income for many, including smallholders, the rural unemployed and the poor. The critical policy choice is between productivity improvement on the one hand, and issues related to land ownership, environmental sustainability and food security, on the other. Land acquisition through foreign investors must therefore be carefully considered and strictly scrutinized in light of these criteria. Above all, established and future proprietary rights must be respected and enforceable by the legal system. I should perhaps also add that experience in several European countries has shown that over the long term smallholdings have been amalgamated into larger agricultural units through acquisition, lease or joint farming.
The emergence of a region-wide enabling environment within the framework of the North-South corridor presents a unique opportunity for the regional groups to embark on a geographical expansion of the commodity belts through value addition to the benefit of all stakeholders across countries. Such a complementary strategy towards agribusiness has a number of benefits, and is sustainable because it complements other strategies being implemented to promote the structural transformation, upgrading and diversification of the African economies.
We have already gained valuable experience, skills and technical know-how in agribusiness. We are also rapidly building the preconditions for growth and competitiveness in terms of industrial capacities and capabilities, and in terms of establishing a suitable business environment and putting in place the other drivers of agro-industrial development. We can also draw on the experience of the East Asian countries in agribusiness development. These advances notwithstanding, we still face the challenge of catching up with other developing countries in many areas to compete successfully.
As I mentioned earlier, regional African markets are becoming increasingly important as a source of demand growth for food products. Regional agricultural exports, particularly of food staples, are likely to be the largest source of demand growth for the agri-food system in Sub-Saharan Africa in the coming decades. In addition, rapid urbanization is leading to burgeoning demand for food products within countries. This is in sharp contrast to the almost exclusive focus in the 1990s on exports of value-added food products to overseas markets.
More recently, there is increasing recognition that meeting the quality and traceability standards established by private importing firms (frequently large retailers) in developed countries constitutes an important barrier to market access, particularly for small- and medium-sized firms. Therefore, it is important for African countries to build trade capacities and to remain engaged in international trade negotiations to reduce trade barriers. However there are many other obstacles to trade that need to be addressed, such as high transport costs, lack of information on products and reliable suppliers in other countries, inadequate systems of contract enforcement and dispute adjudication, and numerous non-official barriers such as roadblocks and bribes.
The new approach that I am proposing for Africa has several distinctive features. These may be summarized as follows:
Ø A sharper focus on agribusiness, which is wider than agro-industry and affects a larger majority of the African people.
Ø An integrated and holistic approach to regional and sub-regional agribusiness development.
Ø New trade strategies towards the development of regional and continent-wide value chains.
Ø Stronger efforts to stimulate the development of private enterprise.
Ø Regional approaches to technology and innovation.
Ø Innovative financing mechanisms.
Ø A focused strategy on removing constraints in infrastructure, energy and other areas.
Improved governance in all parts of the value chain is also needed for competing in agribusiness. Visions, strategies and policies need to be conceived for agribusiness competitiveness and orientation towards food security. This should be viewed as new transformation process of economic integration, coordination and harmonization.
A major challenge will be to mobilize key stakeholders to implement these plans. These include farmers, entrepreneurs, support institutions in various fields, policy makers, and the donor community. Public-private partnerships can play a particularly important role in this context. To this end, it is important to enhance the adaptive capabilities of all stakeholders to conceptualize, formulate, implement, monitor and audit policy instruments and programmes for value chain development.
As I have pointed out in a new book (Africa Our Neighbour), it is critical to convert challenges into opportunities and opportunities into realistic sources of wealth creation. Our response to convert challenges into opportunities is a discovery process.
It is equally important to note that opportunities are not guarantees of wealth creation. For example, the emergence of green industry is an opportunity. Will greening of industry foster inclusive growth? It depends upon the particular shade of green that is compatible with inclusive growth. This calls for substantive research and practical action to achieve the unique blend of ecological compliance and inclusive growth.
In this context I would also like to mention the important issue of climate change, which poses a critical challenge to increasing agricultural productivity and agribusiness in Sub-Saharan Africa for a number of reasons:
Fluctuations in weather patterns are likely to increase, implying higher risks for farmers and others involved in agri-food systems, and often affecting people who have the least capacity to bear such risks. Increased risks of droughts and floods are likely to lead to greater crop losses.
Agriculture in Sub-Saharan Africa will be more seriously affected from higher temperatures and reduced rainfall than in other regions of the world, partly because some crops grown in Africa are already produced at the limits of their heat tolerance.
The impacts across Africa will not be uniform; the Sahel and parts of Southern Africa are already becoming drier, while rainfall levels are likely to increase in some other areas, such as parts of East Africa.
These challenges transcend national borders and require new global and regional solutions, which at the core involve industrial development. Indeed, in the 21st century Africa needs to “produce and trade itself out of poverty”, thereby converting comparative advantages into competitive advantages at the regional level.
Martin Luther King never said that he had a nightmare. He had a dream. In the same vein I unhesitatingly declare that I have a dream of
There are indeed strong reasons for making optimistic claims about Africa's potential for achieving rapid economic transformation through agribusiness development.
Can it be done? Yes, I am confident that we can change. Together we can make a difference. The difference will be inspired by innovative thoughts and deeds.
By Dr. Kandeh K. Yumkella, UNIDO Director-General.