Author: Bobby Juuko
Site of publication: CNBC Africa
Type of publication: Article
Date of publication: October 2021
Despite many attempts on the part of African governments, international donors and local players over the last few decades, there has been no definitive answer to the African agricultural challenge. With an expected population of 2.5 billion in 2050, Africa is facing a task on an unprecedented scale in human history: feeding a population that will have doubled in 50 years.
By every estimate, the continent has enough resources to achieve this. Firstly, the unused arable land in Africa is estimated by the Food and Agriculture Organization to be in excess of 100 million hectares. Secondly, many of the countries on the continent still have a dominant rural population. Despite possessing both these assets, a series of unique challenges are holding the sector from truly taking off: major productivity gains are still to be made, land ownership policies and logistics issues hamper the development of commercial farms, agricultural subsidies in developed countries limit the global competitiveness of African agriculture…
Looking beyond cereals
Focusing on supplying the internal demand on the continent is key to boost the development of a modern agriculture in Africa. For decades, the focus has been on cereals, which are easier to harvest, move and store. But, while cereal yields increased sixfold in East Asia between 1961 and 2013, they only increased by 1.6 times in sub-Saharan Africa. Projections clearly show that the current yield increase trend is insufficient to close the gap on population growth.
As the continent begins looking beyond cereals for its needs, one agricultural sector which remains underexplored, the growing of fruit and vegetables, begins to appear more attractive. Prized for both nutritional qualities and yield rate, fruit and vegetables could be exactly what Africa needs to avoid a food crisis.
Division of labour in the agriculture value chain
Conventional wisdom holds that entrepreneurs must control the entire value chain and sell their products directly to the final consumer. But such an approach, while appreciated by those who seek ”authentic” products, is rarely beneficial to the farmer. Farming is a high-maintenance job in which even the smallest lapse in tending the fields can result in a compromised crop. Moreover, farmers are dependent on certain times of the year for harvesting different crops, which will not necessarily be in tune with the market.
Major productivity gains are still to be made, land ownership policies and logistics issues hamper the development of commercial farms, agricultural subsidies in developed countries limit the global competitiveness of African agriculture
Conversely, traders specialize not in cultivating fields, but in transporting and selling the products to the consumer. Often enough, between the farmer and the marketplace trader, the goods traverse an entire range of wholesalers and semi-wholesalers who act as logisticians and distributors. Sourcing their merchandise from several farmers allows them to offer a variety of products to their customers. Consequently, the producer-vendor pairing, if carefully implemented, makes it possible to meet the needs of the market by multiplying outlets and fluidly selling agricultural production, while limiting losses for the farmers.
Despite this, agricultural middlemen are regularly held in disdain by customers who accuse them of being the cause of the abysmal gap between the “field” price and the price paid by the end customer. While this is undoubtedly true sometimes, agricultural intermediaries are an indispensable part of the supply mechanisms.
Supply chains in Africa
This is all the truer in Africa, where distribution is fragmented into very small sales outlets, with street vendors dominating the rural areas and small kiosks more prevalent in towns and cities. These outlets are generally run by women, who do not have the financial and operational means to buy directly from the farmers. A wholesaler is much better equipped to buy large volumes and deal with the costly transport of goods from the place where they are produced to the urban and rural settlements where they are consumed.
This organization leads to intermediaries sometimes taking advantage of farmers by imposing prices or purchase conditions that do not let them improve their living conditions. For agriculture to flourish in Africa, a shift away from predatory middlemen is needed: professional suppliers who understand that their interest is not to crush the farmers, but to work with them in the long term need to take their place.
Obstacles remain, even locally
Despite being rarely mentioned, one of the largest obstacles to the development of these new, formal businesses is the crippling taxation system. They are subject to the same rules of VAT, corporate tax, and other taxes as conventional businesses, while having to operate in a sector dominated by an informal economy.
This is all the truer in Africa, where distribution is fragmented into very small sales outlets, with street vendors dominating the rural areas and small kiosks more prevalent in towns and cities. These outlets are generally run by women, who do not have the financial and operational means to buy directly from the farmers
Most of their competitors do not pay any taxes, which allows them to sell at aggressive prices and maintain an iron grip on much of the supply chain. New entrants, therefore, have no interest in going formal. This issue is to be addressed if the agricultural sector is to truly prosper.
These informal competitors are simple traders who buy and sell at the best prices, do not support the farmers over the long term, and do not seek continuous improvement in quality, with price as their only objective. The 20% mark-up incurred by the formal traders makes it very difficult for them to compete. The whole value chain suffers: upstream, the farmers who are not supported, and downstream, the consumers who are forced to buy lower quality products.
The fruit and vegetable sector is an exceptional opportunity for Africa to meet its gigantic food needs. African farmers have everything to gain if the sector is better organized. Virtuous intermediaries will professionalize the sector, providing important season pre-financing for farmers, quality logistics which reduce losses, stable outlets that enable farmers to plan for the long term, and a reduction in imports by offering cheaper local products.
Such a future for African agriculture is within grasp, but unfair competition and indiscriminate taxation seriously hamper the pace of modernization.
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