Economic Transformation Masterclass (3) – Agriculture

Parts One and Two of the African Economic Transformation MasterClass, published in the January issue, explained why Africa’s future depends on root and branch economic transformation; and also on the need for a fine balance between the state and the private sector in this endeavour. (See Masterclass 1 and Masterclass 2)

The power of agriculture

This part introduces perhaps the most critical component in the African economic transformative process – agriculture and the role it must play in delivering this. It argues that while raising the continent’s low productivity levels is essential, this is a more complex matter than has often been projected.

Francis Mulangu

Productivity is the key

Historically, the countries that have managed to pull out of poverty are those that have been successful in increasing agricultural surplus and using that as a basis for diversifying their economies away from agriculture based activities. A surplus-generating agricultural sector can provide cheap food, ensuring adequate nutrition for the population, including its workforce, and also increase the amount of disposable income left to individuals and families after the food bills have been paid.

This generates demand for other goods and services, creating direct and indirect jobs. Surplus production is also used to provide raw materials for industry, setting off a positive chain reaction including production, marketing, distribution and all the other value additions involved

Agricultural surplus encourages stable societies which historically has led to more permanent infrastructure including housing. Perhaps of even greater significance is that agricultural surplus leads to psychological stability, which encourages planning and building for the future.

It is interesting to note that during and immediately following the end of World War II, many European countries, including Germany, France and Britain suffered severe food shortages and imposed rationing for a considerable time.

The reaction to this was the creation of the Common Agricultural Policy (CAP) which used subsidies and tariffs to encourage local farmers and discourage imports of food from cheaper producers such as the US and Canada.

This policy resulted in the EU’s wheat, butter, meat and wine mountains and led to criticisms that it was encouraging inefficient farming and costing taxpayers too much. The policy has been reformed several times to make it conform to current realities but the point was that the European countries did not ever want to be in a position of such food vulnerability again.

Strategic agriculture production and storage is still very much a central policy of many countries despite the vast increase in trade through globalisation.

The lesson to draw from this is that agricultural surplus, or even self-sufficiency, makes for wealth as well as strength and the opposite almost invariably leads to poverty and weakness.

However, we must note that there are many exceptions to the rule. Countries endowed with natural resources such as oil, gas and minerals can become very wealthy even if they have no agricultural bases at all. Saudi Arabia and the United Arab Emirates are classic examples of this; in Africa, Botswana, which is mostly semi-desert but rich in diamonds, is another example. Without these resources, and global demand for them, most of these countries would have remained poor – although the Batswana, with their cattle and their attractive natural environment might disagree.

Many other countries have also risen from poverty to wealth despite the lack of agricultural surplus through other channels. Singapore immediately comes to mind; in Africa, Rwanda and Cabo Verde are positioning themselves as digital, trade and finance hubs while Mauritius has steadily moved way from dependency on sugar to focus on industry, financial services and business outsourcing.

That said, the principle of generating surplus, or even sufficient food, as a necessary element of poverty reduction and wealth creation holds true for most African countries.

African productivity

Agricultural productivity in Africa is about one third of comparable Asian smallholder farmers. Why is this so? Many factors affect agriculture productivity and these differ by product and by country. Productivity gaps may exist for many reasons. For example, farmers may lack knowledge of the more productive methods and technologies that exist. Or while farmers may know about better methods, they may not have the financial means to acquire the required inputs or avoid bottlenecks in the input supply chains. Another reason is that farmers in Africa often do not have access to markets – which makes adoption of the more productive technologies uneconomic.

Yet another cause is that farmers in Africa, confronted with natural challenges such as irregular rainfall, often adopt risk minimisation strategies, for example, multi-cropping, that militate against adoption of better technologies. As a result, agricultural surplus is reduced, leading to continuing widespread poverty and weak economic transformation.

Therefore when one talks about agricultural production in Africa, it is important to avoid a one-size-fits-all attitude. Africa is a vast continent with widely differing topography, soil constitutions and climatic conditions. These range from dense rainforests, savannah grasslands, Mediterranean-type mountain valleys, flood plains, arid deserts and all other shades in between.

The type of crops cultivated, livestock raised, and the farming traditions also vary dramatically from country to country and often within countries, for example, the coastal belt in Kenya differs to the highlands further east and the Lake Victoria region near the border with Uganda.

The volume of output and the level of modernisation across Africa is also astonishingly varied. North African countries such as Tunisia, Algeria and Morocco as well as Southern African countries such as South Africa and Namibia are much more highly mechanised and modernised than the rest of Africa and consequently produce greater agricultural volumes.

Countries such as Kenya vary between large commercial plantations and subsistence farmers. Yet smallholders dominate the lucrative tea, coffee and market vegetable sectors. So again, this shows the dangers of adopting a simplistic approach to African agriculture.

The agricultural pattern in Nigeria is a study in itself with vast differences between the east and west as well as the south and the semi-arid north. Equally fascinating variations are to be found in Ghana, Senegal, Côte d’Ivoire, Burkina Faso, DRC, Mali and so on.

Therefore while it is generally accepted that on average agricultural output in Africa is currently the lowest in the world, the actual status quo for each country and region has to be individually examined, and methodologies to increase output or improve the quality of output have to be tailored for each case.

This is the approach that we have taken at the African Center for Economic Transformation. We are currently working on the African Transformation Report II, which focuses on agriculture and how this vital sector can be energised to become the engine for growth and economic transformation for the continent.

Agricultural transformation

Agricultural transformation starts with higher productivity. Higher productivity implies that households will have enough food for their own consumption and surpluses to sell to the market to acquire cash to diversify their diets and satisfy their non-food needs.

As productivity increases even more, households acquire more assets and become confident enough to release their labour into value-addition activities which should further increase income and improve poverty status.

Another reason to focus on agricultural transformation is that agriculture has strong indirect effects on growth in other sectors. Recent research demonstrates that the effect of agriculture on wider growth is likely to be substantial.

Christiaensen et al (2010) looked at the direct and indirect effects of agriculture growth and argue that while agriculture in general tends to grow more slowly than non-agriculture, the indirect effects of agriculture on non-agriculture are substantially larger than the reverse.

These effects arise from linkages to agro-processing and input production, for example, as well as from the ‘wage good effect’, whereby lower food prices resulting from increased agricultural production would imply an increase in saving at a given level of income and can stimulate demand for goods produced by the non-agriculture sector.

However, generating agricultural surplus can come at a cost to the environment. Land degradation in Africa is a recognised threat to the environment, small-scale African farmers, and other poor rural people who directly depend on agriculture.

Global assessments of soil degradation estimate that 65% of African agricultural land, 31% of permanent pasture land and 19% of forest and woodland is degraded.

Causes of soil degradation in Africa were reported as overgrazing (49%), agricultural mismanagement (28%), deforestation (14%) and overexploitation of vegetation for domestic and industrial use (13%).

Climate change threats also undermine efforts at increasing surpluses. However, it is estimated that while tubers and roots such as yam and cassava may experience a 19-33% productivity loss, productivity of Carbon-4 plants such as maize, sugarcane, millet and sorghum may increase because higher CO2 in the atmosphere will ameliorate the photosynthesis process.

In addition, newly developed ‘climate smart’ techniques such as conservation agriculture can attenuate some of the negative effects of climate change.

While there are those who argue that too much emphasis is being placed on raising productivity levels without sufficient attention being paid to other factors such as mechanisms to support prices, or the opening of commodity exchanges or the commercial processing of the surplus for both domestic and export purposes, the critical issue for most of sub-Saharan Africa today is to raise productivity without losing quality of product, inflicting damage to the environment or degrading the land.

Other countries that have successfully transitioned from agrarian to fully fledged industrialisation faced similar problems and found means to overcome them – and so will Africa.

Clearly, scaling up agro-processing across the continent must be the way to go in the transformative process. The increase in demand for raw materials in itself will drive up production and the profits to be made across the value chain should see a rise in investment and entrepreneurial skills being directed into agriculture.

The demand for natural resources and minerals will rise and fall – as we see now with oil and iron – but the demand for food will continue to increase worldwide. The food industry, according to the World Bank, is conservatively estimated at $10 trillion per annum and counting. Africa is perfectly well placed to join this lucrative stream. But first, productivity must rise – and quickly.

Francis Mulangu is an agricultural economist at ACET.

2 Comments

  1. Nicolai Schulz says:

    Thank you for this excellent post!

    Is there yet any indication when the ATR 2 will be launched? I am really interested in hearing your opinions on how to address the important issues you named in this post.

    • Amazing Grace Danso Amazing Grace Danso says:

      Hi Nicolai,

      Thanks for your question. The ATR2 will be launched in the first quarter of 2017. The exact date will be communicated later.

      Best,

      ACET

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