Some thoughts on unlocking the potential of the agriculture sector in Africa

This month I thought I would turn to the agriculture sector in Africa. This came off the back of my colleague, Jeremy Cape, and I travelling to Kyiv, Ukraine (yes Kyiv) to talk to some Ukrainian clients who want to access the African agriculture market.

Ukraine is the breadbasket of Europe. And, as the plane descends into Kyiv airport, you can see vast expanses of cultivated farmland with closely packed crops. This is a very different view to what you get when flying over most African agricultural land, where the cultivation levels are low and fields look a lot less dense. (By the way, if any reader in West Africa is interested in importing chicken from the Ukraine, I know a man who needs a local agent/partner.)

Some of the content below is based on presentations given to the Ukraine Agriculture Forum and a round table discussion at our Kyiv office.

Live Aid was 30 years ago

13 July, 2015 will be the 30th anniversary of Live Aid. (I will do some reminiscing with some friends on that day - seems like a lifetime ago.) For those of you too young to know/remember, Live Aid was a seminal dual-venue (London and Philadelphia) concert held on 13 July 1985. It was organised by Bob Geldof (of the Boomtown Rats – best known for their hit single “I don't like Mondays”) and Midge Ure (of Ultravox – remember “Vienna”?) to raise funds in aid of the Ethiopian famine.

The images of millions of people starving in Ethiopia that were the catalyst for that concert are etched on my brain. The concert itself was fantastic (to an avid music lover) and one of my great regrets was that I watched it on TV in my living room in Kuala Lumpur instead of being there live at the Wembley or the Kennedy Stadium.

Ethiopia has come a long way since then with the IMF ranking Ethiopia as among the five fastest-growing economies in the world – with average GDP growth rate of more than 10 per cent per annum with a 10.3 per cent growth rate in 2013/14.

Food – the crisis today

Whilst Ethiopia is no longer faced with famine, the number of African countries facing severe food shortages has doubled over the past two decades. The United Nations reports that the factors that have contributed to this include extreme weather conditions, natural disasters and insurgencies.

According to the UN, as many as 24 countries are contending with food crises across sub-Saharan Africa. Nearly 240 million people in sub-Saharan Africa, or one person in every four, lack adequate food for a healthy and active life. And record food prices and drought are pushing more people into poverty and hunger.

These problems are only going to get worse as the upward trajectory of urbanisation casts its shadow across most of Africa, which will require more food to be transported and distributed within cities, increase demand for water and also increase demand for agricultural and food products.

The demand for food staples is predicted to double by 2020 as urban populations grow by 4 per cent each year. Much of that growth is made up of low-income earners who spend the majority of their pay on basic food items.

Africa is a net importer of food

Today, Africa does not grow enough food to feed its own population and African countries have tended to satisfy increasing demand through more expensive imports from the global market. The agriculture sector in many African countries is in a parlous state. It's a situation primed for hunger and unrest.

It is stating the bleeding obvious that the solution to the food crisis in Africa is for Africa to grow more food locally. However, Africa has the ability to grow enough food not only to feed itself, but also to help solve the worldwide food deficit.

The good news

Many African countries have the advantages of fertile soil and the possibility of year-round farming and more than one harvest per year. This, together with the fact that a successful agriculture sector can have a multiplicator effect and the potential to create significant employment and transform a country's economic fortunes, is seeing African governments actively promoting the agricultural sector.

What role can agriculture play in Africa's economic transformation?

Agricultural growth doesn't only benefit the people in rural areas and farmers. It also benefits the rest of the economy and creates employment for large numbers of people, thereby curbing youth unrest, and the pull factors that result in high rates of urbanisation.

In many developing countries, the money that goes into the pockets of consumers comes primarily from agriculture. This, in turn, produces the wealth to sustain local manufacturing and the purchase of local produce as well as stimulate export growth.

Agriculture can be the “cow” that feeds the people in the early decades of a country's economic development. As agricultural output increases, there will be associated benefits, including opportunities for the manufacturer and marketing of products such as fertilisers, pesticides and seeds as well as a demand for food processing services such as grain refining.

The opportunity and the potential

Yet the problem of food supply in Africa is also the reason the folks in Kyiv were interested in African agriculture and why there are growing numbers of companies and private equity funds looking to invest in African agriculture. Some have already successfully tapped into this market (including traders like Cargill, Bunge and ETG). As always, one person's problem can be an opportunity for another and the statistics illustrate the point:

  • only 5 per cent of grain consumed in Africa comes from African farmers;
  • yields are a third or half of yields elsewhere in the world;
  • there is only one tractor per 320 people economically active in African agriculture with 3.5 million more tractors needed to put Africa on a par with other agricultural economies;
  • 79 per cent of arable land in Africa remains uncultivated;
  • annual post-harvest grain losses in sub-Saharan Africa average US$4 billion;
  • most African farmers are smallholders with no access to capital, equipment, fertiliser and good farming knowhow.

According to McKinsey, Africa is currently home to 60 per cent of the world's total uncultivated, arable land. That's the opportunity.

The not so good news – what's holding back the African agriculture sector?

Developing an agroeconomy (yes there is such a word) in most African countries requires improvement in education, infrastructure, power, access to markets, irrigation, seed, fertiliser, farming practice, land husbandry, mechanisation, finance, modernisation, technology, smallholders and getting more land into production. These seem like an intractable number of issues with finance being absolutely key (but to be covered on another day). So where do you start?

Africa can help feed Africa

In its 2012 report, "Africa Can Help Feed Africa", the World Bank looked at how the continent can prevent food shortages and unlock its massive agricultural potential. The basic premise is that regions in Africa have natural food surpluses in certain staples and deficits in others; the key is to maximise output and get the food to where it's needed. The attempts at national self-sufficiency have not worked.

It's an interesting (if long) read and has many recommendations. I would focus on a few key points below: 

Remove trade barriers: Trade barriers deny African farmers access to higher yielding seeds and better fertilizers available elsewhere in the world. For example, in some African countries, it can take two to three years for new seed varieties to be authorised/released, even if they are used elsewhere on the continent. As new varieties are introduced at a faster rate, Africa falls farther and farther behind in the use of modern seeds making it difficult to compete with imports from the global market.

Governments should remove trade barriers which will open up cross-border trade within Africa, increase Africa's potential food production, increase food security by improving access to food, and raise returns for small-scale farmers. It will also provide benefits to farmers, consumers and governments as farmers will make more money from meeting the rising demand and consumers will get cheaper access to food and other benefits such as jobs from a growing agricultural sector. Meanwhile, governments will be better able to deal with food security.

Deliver modern and competitive transport services: Regulatory reform that delivers more modern and competitive transport services is required. High transport costs and the lack of investment in modern trucking and shipping capacity limit the movement of surplus food to areas of strong demand. Transport infrastructure needs improvement – especially on cross-border routes and in linking smallholders to regional networks. Roads are not the major constraint (not sure I agree with this based on the roads I have been on).

Remove regulatory barriers: Regulatory barriers to trade and competition along the whole value chain must be removed. Among the factors affecting Africa's trade in staples are export and import bans, variable import tariffs and quotas, restrictive rules of origin, and price controls.

These are often determined without transparency, and are poorly communicated to traders and officials at the border. This creates uncertainty about market conditions, limits cross-border trade, and raises food price volatility. The way that standards are defined and implemented has a critical impact on the propensity to trade.

Make border crossings easier and safer: Reducing the number of agencies and officials at the borders and increasing the transparency and predictability of the policy regime is crucial to providing an environment in which traders flourish and expand their businesses.

Hundreds of thousands of Africans cross borders daily to deliver food staples from surplus areas to higher-priced markets. Most of these traders are women, and their activities provide an essential source of income to many households. But most border officials are men, and studies show that cross-border traders regularly suffer some sort of harassment. For example, in the Great Lakes region, poor women cross-border traders must routinely pay bribes, and a large number of them relate acts of violence, threats, and sexual harassment, most of which go unreported.

The lack of economic and physical security undermines the livelihoods of these traders and compounds their lack of access to finance, information and business knowledge.

Role of technology

No industry today can ignore the role that technology can play. There are all sorts of equipment and systems that can be used to drive efficiency, production and greater yields. The key here is to make sure that the chosen technology is suitable (ideally, proven to work on the ground) for the local environment. Issues like access to spare parts and support locally become critical the more remote the location of use is.

Africa's next millionaires/billionaires?

A few years ago I met a very polished gentleman called Akinwumi Adesina. Since then, he has been credited with helping to reform the Nigerian agriculture sector (named Forbes African of the Year 2013 for his reforms) and was recently elected as president of the African Development Bank. Signing off with a quote from him:

Africa's future billionaires and millionaires will make their money from agriculture.”

This is a sector that needs investment and can be the catalyst for growth and if some people get rich in the process, why not!

This article was first published in the July 2015 edition of Financial Nigeria magazine, a monthly development and finance journal. For subscription, please complete online subscription form at www.financialnigeria.com/journal