In 2004, the then Secretary-General of the United Nations, Kofi Annan, called for a “uniquely African Green Revolution in the 21st Century,”⁽²⁾ signalling a need for African countries to refocus their attention on the agricultural sector. Following food crises in West and East Africa, the idea of a ‘green’ revolution, based on agricultural production, has continued to gain attention. Having been characterised by a lack of resources for decades, the agricultural sector in most countries has withered, making African countries net importers of food, despite agriculture employing the majority of the population. The need to reinvest in agriculture to reverse this trend has become evident. This reinvestment holds a number of opportunities, not only for increased food security and the improvement of livelihoods, but also for economic growth and private sector development. Signs of a shift in approach are present. In 2009, Africa’s agriculture experienced the first increase in production in decades ⁽³⁾ and initiatives like the Comprehensive Africa Agricultural Development Programme (CAADP) have brought the continent’s agriculture into public and political discourses.⁽⁴⁾ This focus on rejuvenation raises a number of important questions: How can a reinvestment in agriculture improve livelihoods? What opportunity does agri-business hold for growth in Africa? And finally, what actors are best placed to instigate and support change in this sector?

This CAI paper investigates the link between agriculture, the private sector and Government. It shows that commercial agriculture holds high potential and offers significant returns on investment in Africa in a way that can also improve livelihoods. It finds that while improvements have been made over the past few years to revitalise African agriculture, the potential remains by and large underexploited. It then specifies what opportunities are available through this sector. Finally, it looks at which actors should be involved in the commercialisation process, particularly focusing on the State and the private sector. It argues that while the State has significant responsibility to support agriculture, the private sector should be given significant room to provide products and services that could successfully complement this support and encourage agricultural production and distribution.

The role of agriculture in the economy

Following independence, developmental theories advocated an agricultural revolution as a way of stimulating African economies. However, the success of policies in the 1960s and 1970s that aimed to encourage agricultural production was limited. In the 1980s, annual agricultural production grew by an average of just 2.3%.⁽⁵⁾ This has since improved and the World Bank has reported that, from 2000-2005, agricultural production in Africa grew at an average of 3.8% per annum.⁽⁶⁾ However, this figure, while encouraging, remains low. Indeed, in most African States, agriculture is mainly subsistence-based and made of small-holder farms,⁽⁷⁾ and African farm yields are the lowest in the world.⁽⁸⁾ This is a reflection of the resources that have been diverted to the sector. Over the past two decades, there was a gradual decrease in the amount of resources allocated to agriculture from Government budgets.⁽⁹⁾ Between 2005 and 2009, only 10 African countries had allocated over 10% of Government budget to agriculture.⁽¹⁰⁾ In addition, 18 countries allocated less than 5% over the same period.⁽¹¹⁾ These figures are striking when one considers that agriculture remains the largest employer, employing over 60% of the population in the majority of countries (Figure 1).

Contribution to GDP

Figure 1: Contribution of agriculture to gross domestic product (GDP) and population employed in the agriculture sector for selected African countries (%) ⁽¹²⁾

As Figure 1 illustrates, with the exception of South Africa, despite employing a significant percentage of the population in most countries, agriculture also contributes relatively little to overall gross domestic product (GDP). In Angola agriculture contributes only 9.5% to the country’s GDP despite employing over 80% of the population. Similarly, in Kenya, agriculture makes up less than 20% of GDP while employing 70% of the national labour force. These figures are comparable across Africa. Indeed, agriculture employs an average of 65% of the total African labour force.⁽¹³⁾ This suggests a significantly large labour force in place that remains small-holder and mainly subsistence-based. In Nigeria for example, most farms are between 0.5 and 3 hectares, with a national average of 1.2 hectares.⁽¹⁴⁾ This small-scale farming contributes little to the economy and makes the development of economies of scale difficult to achieve.

A further concern lies with the deficit of the trade balance. Most African countries import more food and agricultural products than they export.⁽¹⁵⁾ According to a report by the Organisation for Economic Co-operation and Development (OECD), Africa imported 25% of its food grains in 2008.⁽¹⁶⁾ This is an unwelcome situation particularly for food security. Indeed, the growing demographics on the continent signal a continuously increasing demand and little means of sustainably feeding populations domestically.

The impact on livelihoods of an agriculturally more productive Africa

In this context, a refocus on agriculture that works to meet domestic demands could have a significant impact on Africa’s food security. As well as reducing foreign dependence on food imports and lowering domestic food prices, it could also create important opportunities for tackling unemployment and increasing household incomes. Unemployment is high in a number of countries. Between 2010 and 2011, unemployment figures in Nigeria and Angola stood at 23.9% ⁽¹⁷⁾ and 26% ⁽¹⁸⁾ respectively. Youth unemployment accounts for the majority of this. In Kenya young people make up 70% of the total unemployed population.⁽¹⁹⁾ In such cases a rejuvenation of the agricultural sector that were to see a shift from small-holder and subsistence farms to commercial farming could potentially absorb a large percentage of the unemployed youth.

The potential to change perceptions

A shift towards a more commercial and market-oriented agriculture could also serve to raise the prestige of the sector, making it more attractive for young people searching for employment. At present, the image of agriculture and farming as financially unrewarding and physically taxing serves to discourage young people from working in the sector.⁽²⁰⁾ This image also dissuades young people from pursuing studies in agriculture. The effect is especially damaging on future productivity and the lack of students and researchers in agricultural disciplines is a major impediment to the development of the sector.⁽²¹⁾ Indeed, an agricultural sector that challenges outdated perceptions of ‘backwardness’ by providing opportunities for growth, financial reward and personal development will greatly benefit from the input of a country’s best and brightest.

The significant potential for return on agricultural investments

The large and ever-increasing demand on the sub-continent, the number of people already employed in the sector, the lack of competition for economies of scale, and the substantial arable lands available for large scale farming suggest that opportunities for agri-business are remarkable. Furthermore, there is already a history of success in some African countries where conditions are appropriate.⁽²²⁾

This history of success does not, however, mean that in places where conditions are not currently optimal no opportunity may be possible. Indeed, there may be significant potential to create advantage. To this end, there could be great scope to provide services that would help to create conducive conditions on land that is met by challenging natural endowments. For example, in countries where land is suffering from poor mineral soil content, companies could provide services to local farmers that enrich that soil content.⁽²³⁾ In this way, the creation of advantage through the production and delivery of value-adding products and services to the agricultural industry could be extremely rewarding. An example of an additive industry is the production of quality fertiliser for local producers. Importing fertiliser is costly in inland African countries and farmers can easily pay up to twice as much as European farmers for fertiliser due to high transport costs.⁽²⁴⁾ In this context, there is a great opportunity for domestic fertiliser producers. Another example lies in helping to improve quality. For African farmers looking to move from subsistence to commercial farming, one of the major challenges is meeting international standards for trade. Indeed, many farms lack the infrastructure and capacity to meet highly stringent international regulations.⁽²⁵⁾ In this situation, the development of mechanisms and services aimed at supporting small-holder farmers seeking to produce commercially to meet international quality standards could be especially beneficial.

The role of Government and the private sector

Due to the interconnected nature of development and agriculture, an important question arises regarding what role the State should play in the sector. The past decades have shown that market forces alone are not sufficient to generate the resources and infrastructure needed to encourage the agriculture sector.⁽²⁶⁾ Furthermore, the link between food security and agriculture is too close to allow for total privatisation. This is not to argue for the adoption of nationalised farming policies. It is to argue that a shift to commercial agriculture should not be entirely out of the State’s control and that the State has an important role to play in encouraging agricultural production through incentive schemes and supportive policies.

The CAADP is a positive move in this direction. Led by African Governments, the CAADP aims at increasing agricultural productivity by 6% a year, as a means of encouraging food security and increasing incomes. The CAADP has encouraged countries to identify key areas for their country’s investment agreement and sign ‘compacts’. Through these compacts, Governments set out individual road maps for their country’s agricultural development and commit to investing 10% of their national budgets to agriculture.⁽²⁷⁾ The results so far have been patchy, with only a handful of countries contributing the agreed amount, but the initiative has successfully placed agriculture back in public and policy discourses,⁽²⁸⁾ as well as reinstating Government’s role in the sector.

There are numerous ways that Governments can support agricultural production in their territories. Government can re-introduce price-support systems and act as buyers of last resort.⁽²⁹⁾ This would guarantee farmers that their production will be bought, thus encouraging productivity. Subsidies provide another option. Following a food crisis in 2005, Malawi’s former president Bingu wa Murtharika re-introduced subsidies to farmers for fertilisers and seeds. Despite being met by significant criticism from international donors, the policy has since seen a significant increase in the country’s agricultural production. The doubling of fertiliser use in the country as a result of the subsidy saw a 2 t/ha rise in maize yields between 2005 and 2009.⁽³⁰⁾ This has caught the attention of other countries and Zambia and Rwanda have both introduced support schemes. The results have been significant. Rwanda, which has since 2006 been subsiding the cost of fertiliser transport, has similarly seen an increase of 16% and 73% for wheat and maize yields respectively.⁽³¹⁾

Despite Government intervention, there remains great scope for the private sector to complement, work and support such policies. Governments which buy bulk products from small-holder farmers can provide new opportunities for private firms to offer services such as packaging, preservation and storage facilities for purchased products. In this way, Government support systems can also work to create new avenues for those within the private sector. The Rwandan model is an example of how this cooperation can function. Rwanda’s farm support is different from Malawi’s one in that the Rwandan Government actively encourages the fertiliser distribution industry. The scheme serves as a good example of the possible avenues for cooperation between Governments and the private sector.

Nonetheless, while State support to farmers should be encouraged, it need not extend to all those involved in the sector. Indeed, small-holders may require more support than large-scale farms, in the form of subsidies and grants in order to become competitive on world markets and meet international quality standards. This is especially the case when one considers the scale of subsidies received by European and American farmers through schemes such as the Common Agricultural Policy (CAP) in the European Union (US$ 74.9 billion in 2011) ⁽³²⁾ and American farm subsidies (over US$ 20 billion in 2011) ⁽³³⁾ which serve to create an unfair playing field in agricultural production for those competing on the world market. Large-scale farming however may not require such extensive support and research has shown that interventions can actually impede their development.⁽³⁴⁾ Such large-scale agricultural farms may benefit significantly more from external forms of structural State intervention. To this end, quality infrastructure to transport goods, secure property rights backed by a rule of law that instils confidence in settling land claims and disputes and reliable power supply to rural areas, may prove more helpful than subsidies and tax cuts. Indeed, unlike most small-holder farms, large-scale farms are already able to meet international standards and require much less direct support from Government.⁽³⁵⁾ This is illustrated clearly by the horticulture industry in Kenya and Senegal where large-scale producers are significantly more capable of meeting international standards than small-holder farmers. This mainly stems from large-scale firms’ augmented ability to adapt to changing standards through the adoption of new technologies that support international regulation and to shifts in the production process. Such flexibility remains difficult for small-holder farmers.

Finally, Governments should divert resources towards supporting agricultural research in African institutions. It is only through the production of locally relevant knowledge that the green revolution can be “uniquely African” ⁽³⁶⁾ and that agricultural solutions can be generated in ways that serve to avoid the dominance of one-sided perspectives on research outcomes, policy design and actual intervention.⁽³⁷⁾

Concluding remarks

Africa has the potential to develop a strong comparative advantage in agriculture through the shift from subsistence to commercial agriculture. It could have significant positive consequences on domestic food security and job creation, helping African countries to reverse decades of trade deficit and (youth) unemployment. Furthermore, agriculture holds significant business and investment opportunities. While greater attention is being given to agriculture by Governments and donors, there is relatively little competition for large-scale agriculture and farming supportive systems on the continent but significant demand. In this situation, high return on investments are possible and the opportunities for development and improved livelihoods significant. Governments, working with the private sector, are in a position to provide the necessary support, whether it be direct or indirect, to ensure that the conditions for success are fertile and capitalised on.

Written by Leah Gatt ⁽¹⁾

NOTES:

(1) Contact Leah Gatt through Consultancy Africa Intelligence's Industry and Business Unit ( industry.business@consultancyafrica.com).
(2) ‘Secretary-General calls for ‘uniquely African green revolution in the 21st century’, United Nations Press Release SG/SM/9405 AFR/988, 6 July 2004, http://www.un.org.
(3) Flora, C.B., 2010. Food security in the context of energy and resource depletion: Sustainable agriculture in developing countries. Renewable Agriculture and Food Systems, 25(02), pp. 118-128.
(4) Brüntrup, M., ‘CAADP: Revitalising Africa’s agricultural sector’, Rural21, May 2010, http://www.rural21.com.
(5) ‘Factsheet: The World Bank and agriculture in Africa’, World Bank, 2011, http://worldbank.org.
(6) Ibid.
(7) Poulton, C., et al., Commercial agriculture in Africa: Lessons from success and failure, Background paper forcompetitive commercial agriculture in sub-Saharan Africa study, World Bank, 2008.
(8) ‘Factsheet: The World Bank and agriculture in Africa’, World Bank, 2011, http://worldbank.org.
(9) Bonaglia, F., Labella, P and Marshal, J., 2009. Promoting commercial agriculture. OECD Journal, 5(1/2), pp. 32-40.
(10) Brüntrup, M., ‘CAADP: Revitalising Africa’s agricultural sector’, Rural21, May 2010, http://www.rural21.com.
(11) Ibid.
(12) ‘The World Factbook’, CIA, 2011, https://www.cia.gov.
(13) ‘Factsheet: The World Bank and agriculture in Africa’, World Bank, 2011, http://worldbank.org.
(14) El-Rufai, N., ‘Fixing Nigeria’s agriculture’, Think Africa Press, 16 September 2011, http://thinkafricapress.com.
(15) Flora, C.B., 2010. Food security in the context of energy and resource depletion: Sustainable agriculture in developing countries. Renewable Agriculture and Food Systems, 25(02), pp. 118-128.
(16) Bonaglia, F., Labella, P and Marshal, J., 2009. Promoting commercial agriculture. OECD Journal, 5(1/2), pp. 32-40.
(17) ‘Survey shows Nigeria’s unemployment rate at 23.9% in 2011’, Business Day, 25 January 2012, http://businessdayonline.com.
(18) ‘Angola’, African economic outlook, 22 June 2012, http://www.africaneconomicoutlook.org.
(19) ‘Kenya’, African economic outlook, 22 June 2012, http://www.africaneconomicoutlook.org.
(20) ‘Championing Africa’s food revolution’, BBC News, 30 May 2012, http://www.bbc.co.uk.
(21) Hughes, D., ‘Revitalising agricultural research in Africa’, Institute of Development Studies (IDS), 4 February 2011, http://www.ids.ac.uk.
(22) Poulton, C., et al., Commercial agriculture in Africa: Lessons from success and failure, Background paper forcompetitive commercial agriculture in sub-Saharan Africa study, World Bank, 2008.
(23) Gilbert, N., ‘African agriculture: Dirt poor’, Nature, 28 March 2012,http://www.nature.com.
(24) Ibid.
(25) Bonaglia, F., Labella, P and Marshal, J., 2009. Promoting commercial agriculture. OECD Journal, 5(1/2), pp. 32-40.
(26) Flora, C.B., 2010. Food security in the context of energy and resource depletion: Sustainable agriculture in developing countries. Renewable Agriculture and Food Systems, 25(02), pp. 118-128.
(27) Ibid.
(28) Brüntrup, M., ‘CAADP: Revitalising Africa’s agricultural sector’, Rural21, May 2010, http://www.rural21.com.
(29) El-Rufai, N., ‘Fixing Nigeria’s agriculture’, Think Africa Press, 16 September 2011, http://thinkafricapress.com.
(30) Gilbert, N., ‘African agriculture: Dirt poor’, Nature, 28 March 2012,http://www.nature.com.
(31) Ibid.
(32) ‘EU Budget’, Official Journal of the European Union, 15 March 2011, http://eur-lex.europa.eu.
(33) ‘EWG farm subsidies’, Environmental Working Group, 2011, http://farm.ewg.org.
(34) Poulton, C., et al., Commercial agriculture in Africa: Lessons from success and failure, Background paper forcompetitive commercial agriculture in sub-Saharan Africa study, World Bank, 2008.
(35) Ibid.
(36) ‘Secretary-General calls for ‘uniquely African green revolution in the 21st century’, United Nations Press Release SG/SM/9405 AFR/988, 6 July 2004, http://www.un.org.
(37) Hughes, D., ‘Revitalising agricultural research in Africa’, Institute of Development Studies (IDS), 4 February 2011, http://www.ids.ac.uk.