agribusiness for africa’s prosperity
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Why agribusiness?Why now?
What challenges & opportunities?
John StaatzMichigan State University
Patrick KormawaUNIDO
Presentation at IFPRI, Oct. 25, 2011
Why agribusiness?
• Recent African growth:– Commodity boom– De-industrialization since 1970s– Agricultural growth largely through extensification– Cf. Asia. Is this growth sustainable?
• Key role of agribusiness in CAADP “Big A” Agriculture-led growth approach – Declining contribution of farming in SSA GDP (42% in 1965;
12% in 2008)– “Ag as engine of growth” argument depends on strong
backward and forward linkages as well as consumption linkages
Why agribusiness?
• Structural transformation as a shift in the locus of value added in the economy– From >60% in farming in poorest countries to
<10% in industrialized countries– Agricultural transformation inherently linked to
agribusiness and agro-industry transformation.
Why agribusiness?
• Potential contributions to vital objectives:– Employment generation (the big time bomb)– MDG 1 (hunger and poverty alleviation)
• Via employment generation• Contributions to dealing with the food price dilemma
– Lower unit costs of food– Market segmentation
– MDG 3 (empowering women)– MDG 8 (developing global partnerships for development)
• It is the basis of much of Africa’s current manufacturing capacity….but it is highly heterogeneous
Agro-industry as percentage of total manufacturing
value-added (selected countries, most recent year)
0
10
20
30
40
50
60
Senegal(2002)
Madagascar(2006)
Ethiopia(2006)
Ghana (2003)
Morocco(2006)
Mauritius(2004)
Kenya (2006)
Botswana(2006)
South Africa(2006)
Perc
enta
ge (%
)
Source: World Development Indicators , 2009
Characteristics Artisanal Semi-Artisanal Semi-Industrial IndustrialScale Micro-enterprise Small enterprise Medium enterprise Large enterprise
Labour Family or social Family Large and moderately specialized
Large and specialized
ProductsTraditional products, often “humid” with a
short shelf-life
More or less standardized products,
stable shelf lifeDiversified products with stable shelf life
Products that meet grades and
standards; branded products
OrganizationInformal enterprise.
Little of no organization (embryonic)
Beginning to be organized
Formal; separated functions of employees;
accounting systems
Very modern (Administrative
units, divisions and departments)
InvestmentsSmall to none. Operations are
essentially manualSome machines Important
mechanizationImportant and
modern
Production Low level of production
Regular and larger level of production
More mechanized processes
High capacities for production
Types of Markets Local and very targeted Local distribution
National distribution and sometimes
subregionalAll markets (local, regional, overseas)
DistributionShort distribution
channels; direct sales to consumers
Direct sales and/or by intermediaries
Long distribution channels
Long and professional
channelsEst. % of total
processing firms in West Africa
75% 20% 5%
Characteristics of different types of processing firms in West Africa
Source: Ilboudo and Kambou (2009)
Why now?
• Growing demand– Internationally, particularly in emerging economies– Regionally– Nationally
• National and regional markets often receive less attention but are largest immediate markets
• Regional markets under-exploited due to intra-Africa trade barriers
Projected increases in intra-Africa demand 2000-2030
38
50
10 10.5
150
2.9 1.6
30
0
20
40
60
80
100
120
140
160
High-value exports Commodities Urban foodstuffs
US
$ bi
llion
2000
2030
Potential smallholderincome from meetingthis demand
Source: NEPAD Secretariat (2005)
Structure and size of Sub-Saharan Africa’s agricultural market
Eastern Africa
Southern Africa
Western Africa Total Africa
Traditional exports to non-Africa (%) 10 13 15 13
Non-traditional exports to non-Africa (%) 6 15 7 9
Other exports to non-Africa (%) 2 4 3 3
Intra-African trade (%) 2 6 1 3
Domestic markets for food staples (%) 80 63 74 73
Total market value (billions of US $) 22 19.1 27.2 68.2
Source: Diao, et al. (2006)
Why now?
• Shifts in share of agro-processing from industrial countries over past 30 years
• Potential future shifts due to increasing costs of water in parts of US and Asia
• Business environment improving in Africa– Macroeconomic reforms– More political stability– Real moves towards regional integration, although
much remains to be done
1990 1995 2000 2005 2006 Growth rate (%)
Processed and preserved meat
Industrialized 30.5 45.9 42.5 63.3 67.4 4.58
Developing 2.0 7.8 7.7 17.2 18.5 13.26
World 32.5 53.78 50.2 80.5 85.9 5.68
Processed and preserved fish
Industrialized 14.8 18.9 19.3 27.9 29.6 4.25
Developing 7.0 18.6 22.1 30.4 34.8 9.29
World 21.8 37.4 41.3 58.4 64.4 6.4
Processed and preserved fruit and vegetables
Industrialized 10.4 17.4 16.9 25.9 29.4 5.97
Developing 3.8 8.0 8.5 14.4 16.3 8.58
World 14.2 25.4 25.4 40.4 45.7 6.8
Vegetable and animal fats and
oils
Industrialized 7.2 13.3 10.9 19.7 20.8 6.46
Developing 5.4 17.0 14.5 28.9 30.9 10.07
World 12.6 30.4 25.3 48.6 53.7 8.3
Processed food exports for selected production categories 1990-2006 (US $bn)
Source: Industrial Statistics Yearbook (UNIDO,2009a)
What challenges and opportunities?
• Basing agro-industrialization on comparative advantage (value addition vs. value subtraction)
• Where to focus among different types/scales of firms?
• Success depends on sectors outside of agriculture, especially:– Electrical power– Transport– ICT
What challenges and opportunities?
• Ease of doing business environment (nationally & regionally)– Contract enforcement– Land tenure rules for foreign investment– Platforms for multi-actor dialogue (e.g., Value-
Chain Participant Councils & other professional organizations)
• Making regional integration real – e.g., the implementation of ECOWAP
What challenges and opportunities?
• Human capital development– Vocational and agricultural higher education– Greater focus on off-farm parts of food system—
e.g., food science, packaging, logistics– Managerial skills for various levels/types of firms– Policy analysis skills for agribusiness issues within
government. • Financing. Limits of:– Traditional bank financing– Microcredit
Importance of selected determinants of competitiveness in the four economies of agriculture
Determinants of Competitiveness
Production, Assembly, Transformation (Processing) & Final Distribution of:Undifferentiated Primary
CommoditiesDifferentiated Primary
Products Semi-Processed Products Consumption-Ready Products
Natural Resource Advantage, Factor
EndowmentsGenerally critical, but the mobility of technology is likely
reducing its importance.Little importance, but
varies with the mobility of primary outputs.
Little importance, but varies with mobility of
primary and semi-processed products
Cost-Reducing TechnologyMandatory, but
technology is increasingly mobile.
Some importance, but product differentiation requires certain characteristics be reflected in production practices; technology is generally mobile.
Human Capital and Managerial Expertise
Some importance; skills application of production technology important, many people involved.
Great importance; skills are critical, especially in organization and coordination of activities, with fewer
people involved.
Quality-Enhancing Technology
Some importance: Quality, transportation, etc.
Some importance: Quality, transportation, etc.
Great importance; end-use characteristics most important
Product Characteristics and Non-price Factors
Some importance: grades and standards provide
information
Moderate importance: product differentiation
possible through quality differences
Great importance: degree of product differentiation and other activities determine the amount of value added.
Firm Strategy Minimum cost is only feasible strategy.
Some importance: cost and differentiation are
possible strategies.Great importance: cost leadership and product
differentiation, or a combination may be pursued.
Industry StructureInput Supply, Marketing
and Distribution
Some importance: markets provide vertical
coordinationImportance varies; policies greatly influence competitiveness and trade patterns. But,
often the policy impacts are indirect. Technical barriers matter most
Infrastructure Important to cost competitiveness. Important to cost competitiveness, product differentiation, and innovation.
Regulatory Environment and Trade Policies
May determine trade patterns
Importance varies; policies greatly influence competitiveness and trade patterns. But often, the policy impacts are indirect. Technical barriers matter most.
Source: Abbott and Brehdahl (1993)
Lessons from others’ successes—e.g., Brazil, Thailand, Malaysia
• Policy Reforms• Market orientation in line with comparative
advantages • Use of trade negotiations and agreements• Investment in agro-industrial research and
extension services• Challenges of social inclusion and
environmental sustainability
Contentious issues
• Role of GMOs• Small vs. large farms and firms• Climate change• Development of biofuels value chain• Regional integration vs. national interests• Land tenure/ “land grabs”
7 pillars of agribusiness development
1. Enhancing agricultural productivity2. Upgrading value chains3. Exploiting local, regional and international demand4. Strengthening technological efforts and innovation
capabilities5. Promoting effective and innovative sources of financing6. Stimulating private sector participation7. Improving infrastructure and energy access
Cross-cutting issue: Mechanism for partnerships—Policies and institutions
Summary of UNIDO’s agenda for action: Synopsis of program framework for agribusiness development in Africa
1. Public-private sector dialogue on agribusiness development
2. Technical cooperation for agribusiness development
3. Aid for trade for agribusiness exports4. Global agribusiness partnerships5. Agribusiness knowledge and information
sharing6. Program governance
Thanks very much!
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