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Agricultural value chains in Sub-Saharan Africa. From a development challenge to a business opportunity

Agricultural value chains in Sub-Saharan Africa. From a development challenge to a business opportunity . Job creation is one of SSA’s top challenges and agriculture accounts for over half of total employment.(January 15 th, 2015)

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Agriculture holds the key to broad-based economic growth, poverty reduction and food security in Sub-Saharan Africa (SSA). This is due to the importance of the sector for SSA economies, the extent of rural poverty and the dependence of 50 million small farms on agricultural incomes.

It is well documented that growth generated by agriculture in SSA is several times more effective in reducing poverty than GDP growth in other sectors. In many African countries, agriculture is the predominant sector of the economy, accounting on average for 25% of SSA’s GDP and well above this level for many countries (see chart 1 in the document).

Given that agriculture creates jobs, generates income, produces food and contributes to social stability, the sector is essential to SSA’s development. Expanding it judiciously can pave the way to a future where Africa can feed itself and feed the world. In an effort to encourage countries to increase food security, reduce poverty, promote economic growth and create wealth through agricultural growth, the African Union has declared 2014 the year of agriculture and food security in Africa.

 

Job creation is one of SSA’s top challenges and agriculture accounts for over half of total employment (see chart 2).

 

Given that 63% of the population in Sub-Saharan Africa is rural and lives largely off agriculture, the extent and path of agricultural development has enormous economic and social implications.

History shows that there are few pathways from an agrarian economy which do not involve an early agricultural revolution. Hence the arrow on chart 1 illustrating the likely future path for most SSA economies: grow the agricultural sector before other sectors take over.

  • Smallholder farming accounts for 80% of all farms and most of the land cultivated in SSA.
  •  These 50 million small farms produce the majority of agricultural goods and contribute in some countries to 90% of production.
  •  More than 75% of agricultural outputs in Kenya, Tanzania, Ethiopia and Uganda are produced by smallholder farmers.
  • Some countries, such as Zambia, Mozambique, Kenya, Rwanda and Nigeria, have a relatively large number of commercial farms with some very large corporate farms in addition to a majority of small farm
  • Farms are very small, on average, in most of SSA (see chart 38 for selected countries). In West Africa, sizes tend to be slightly bigger but households as well.

 

Half of employment growth between 1999 and 2009 in SSA is due to growth in agriculture, according to the Food and Agriculture Organisation (FAO).

Increased agricultural productivity generates employment. Indeed, in many parts of SSA, rather than through capital-intensive technologies, farming is done through small-scale, labour-intensive technologies which are difficult to mechanise – for example cotton hand-picking, tea harvesting, horticulture (cultivation of garden plants) and floriculture. Thus, rather than driving lower demand for labour, higher agricultural productivity creates jobs.

Given the important role of agriculture in SSA’s economies and its position as the largest employer, it is central to structural transformation. Referring to the reallocation of economic resources from activities of low productivity to more productive ones, structural transformation includes both the rise of new, more productive activities and the movement of resources and labour from traditional activities to these newer ones. This can happen all along the agricultural value chain. For instance, once agricultural production has reached high levels of reliability and quality, value addition can be gained through the processing of agricultural commodities.

  • Developing the broad agricultural sector is also key to Sub-Saharan Africa’s future – generating jobs, incomes and food.
  • Most of the world’s uncultivated arable land is in Sub-Saharan Africa (SSA) yet many African countries rely on imports to feed their people.
  • This provides in turn a strong case for investments in SSA’s food value chain. On top of new productive land and large yield gaps, SSA offers fast-growing consumer markets.
  • In Sub-Saharan Africa, around 25% of the population is undernourished and this share has declined less than in other regions over the past two decades or so (see chart 5).
  • The number of people affected by hunger is actually increasing in SSA (see chart 6). Based on its current agricultural productivity rates, SSA would meet 25% of its food needs by 2030.

 

Small-scale farmers in developing countries often do not have stable land tenure and this is not conducive to investing in soil fertility and other sustainable agricultural practices. (This is an important issue further discussed in Foreign investment in farmland. Schaffnit-Chatterjee. DB Research. September 2013 )

  • First, population is increasing faster than in any other region.
  • Currently estimated at 925 million, SSA’s population is forecast to reach 1.2 billion in 2025 and 2 billion in 2050 (see chart 7).
  • By 2050, one in five people in the world will live in SSA, by 2100 one in three – up from one in 7.6 currently – according to forecasts by the UN (Medium-fertility variant).
  •  SSA has vast amounts of uncultivated arable land: 200 million hectares, close to half of global availability (see chart 35).
  • This means that in Africa, unlike many other parts of the world, there is room for agriculture to expand.
  • The African countries with the most significant amounts of uncultivated cropland are displayed in chart 36.

 

Bringing additional land into production can be challenging. These areas tend to have very low population densities but some of them are located hours away from the next city and will need major infrastructure development to have easy access to markets.

  • In some cases, the environmental cost can be high.
  • Most importantly, property usage rights are often unclear.
  • There is growing foreign interest in the untapped potential of Africa’s fertile land (and water availability).
  • Two-thirds of the global farmland area of interest to foreign investors is located in Africa – mostly in Sudan, South Sudan, Mozambique, Tanzania, Ethiopia, Madagascar, Liberia, DRC and Zambia.
  • Rights to land and natural resources need to be recognised, clearly defined and enforced.

 

In the meantime, investors and governments have to screen investments for responsible practices, in order to maximise opportunities and minimise risks – economic, social and environmental.

Arrangements with existing land users (see D1 on page 17), to enhance their productivity without transfer of land, is usually the most efficient way to invest.

SSA needs investment in agriculture and agribusiness to ensure efficient and sustainable agricultural production. This can drive economic growth and poverty reduction in SSA and fulfil both domestic and global demand for agricultural products.

In spite of well-known risks, SSA offers both huge agricultural potential and fast-growing markets. There is increasing investor interest in SSA along the whole food supply chain. Challenges remain in terms of infrastructure, trade, skills and financing but there is increased commitment from governments and other partners for a sector with strong growth opportunities.