Why is the development of agribusiness important for Africa?
• Lucy Muchoki is the CEO of the Pan African Agribusiness and Agro-Industry Consortium (PanAAC).
Agriculture is a dominant sector in Africa, and is essential for economic development. It employs over 60% Africa’s labour force, contributes 17 % of aggregate GDP, and accounts for 40% of total economic output. Furthermore, the GDP growth generated by agriculture has been shown to be at least twice as effective in reducing poverty as GDP growth in other sectors. Accelerated agricultural growth is crucial for reducing hunger and poverty, empowering youth and women, and achieving a global partnership for development – the Millennium Development Goals, one, three, and eight.
In the context of growing global food demand, the Food and Agriculture Organization of the United Nations (FAO) estimates that an extra six million hectares need to be brought under cultivation every year for the next 30 years. Africa is estimated to hold up to 60% of the world’s remaining uncultivated land suitable for farming. Also, the global market for agricultural products is expanding, opening up new opportunities for African produce. The potential for Africa’s agriculture is definitely looking good, but there is an urgent need to focus investment in agriculture as a business.
The rural population of sub-Saharan Africa will never be able to farm its way out of poverty, nor act as an engine for broader economic growth, in the absence of dynamic, growth-oriented agribusiness. Yet today, the majority of Africa is still dominated by small-scale agriculture, by farmers who practice subsistence farming. Ninety per cent of agricultural output in sub-Saharan Africa comes from smallholdings. A shift from subsistence to commercial agribusiness is more crucial than ever before.
Does agribusiness have a particular relevance for young people in Africa?
Sixty per cent of the rural population is made up of young men and women between 15 and 24 years of age. Depending on which way you look at it, this is either a potential opportunity for tomorrow’s food producer or a time-bomb waiting to explode in urban areas. The rural youth are busy migrating to the urban areas in search of jobs which are not available, and – perhaps not surprisingly – there’s an accelerating crime rate in the urban areas.
At the same time, according to an FAO report, the average age of the African farmer is approximately 60. This means, there’s a big generation gap that needs to be addressed immediately. Investing in rural youth is an investment in the future of African agribusiness. New technologies – getting away from the old-fashioned methods that rely on manual labour and exhaust the soil – these can only be brought in by way of the young, modern generation! Clearly a lot of jobs can be generated from the development of agribusiness.
What are the main challenges facing African agribusiness?
Well, there are many, starting with low productivity in the agriculture sector due to the lack of farm inputs, such as chemicals, equipment, feed, seed, and energy, inadequate technology, and poor storage for produce. Agribusiness itself suffers from a lack of affordable finance and of access to credit, and from underinvestment in infrastructure. There needs to be more investment in water sustainability, food storage, IT, new sciences, and relevant education.
While globalization opens up new markets for African produce, it also poses a potential threat to agribusiness in Africa in the form of competition from foreign markets which are usually highly protected and subsidized – for example, the European Union and United States. Competition under such conditions can be very difficult for small and developing agribusinesses in Africa. China will also pose a huge potential market threat for the region’s agricultural products as evidenced by the influx of many Chinese agricultural product exports into Africa, especially into Angola and, to a lesser extent, Mozambique.
We also lack the ability to deliver food solutions all year round, which could be achieved by the adoption of advanced global sourcing and logistics methodologies. And we need a better understanding of future needs and requirements concerning product presentation, sustainability, and traceability, so that we can deliver these in advance of competitors and lock in price premiums.
Finally, African governments are not implementing viable policies that would make agribusiness attractive to investors. There’s a lack of emphasis on the importance of agribusiness, inadequate budgetary allocations to agriculture, and inappropriate legal and regulatory frameworks that lead to multiple taxes on agricultural inputs and farm produce.
It must also be noted that since independence, African countries have, as a matter of policy, continued to pursue liberalization programmes under which they have reduced their support to agriculture. This was predicated on the erroneous assumption that market forces would pick up the incentives thereby created. The expectation that market forces would lead to agricultural efficiency should not have arisen. This, to me, has remained a big challenge because the private sector, which was supposed to fill the gap left by government, was not ready.
What should be done to develop an efficient and competitive private agribusiness sector?
Governments need to prioritize good policies and to improve the climate for investment in agribusiness. Private investors must have the right environment within which to operate – transparent, robust institutions, and an efficient and clear business regulatory environment. We need investment in, and construction of, the infrastructure that will prepare African agribusiness for a future where it can compete in low price, commodity markets with producers from other countries that have increasingly got a significant low cost advantage over our producers.
New partnerships with other parts of the world would enable African agribusiness to access and adopt new technology, and to find new markets and much-needed financial investment.
The agribusiness sector also needs to unlock the full potential of the small and medium enterprises which are the bedrock of the African private sector. Realizing the full potential of the SMEs is critical to maximizing private sector output and to job creation.
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