An examination of the ways in which Sub-Saharan Africa's smallholding farmers can use private sector investment and increased cooperation amongst rural producers to grow the region's agribusiness sector. First published in June, 2014.
Seventy per cent of Sub-Saharan Africa’s farmers are smallholders. The market for agricultural produce in the region is, as a result, highly fragmented. This fragmentation in supply has hindered smallholder access to the key food processing and distribution networks. The problems for smallholders are compounded by a lack of investment in research and development, technology, equipment and basic infrastructure (eg irrigation systems) leading to poor crop quality and yield.
It is not enough to focus narrowly on boosting agricultural productivity. Instead, a broader approach that also supports the establishment of viable linkages between rural producers and markets is essential.
Increased coordination and cooperation is required amongst sub-Saharan Africa’s smallholding farmers to attract and make best use of private sector investment and to generate substantive increases in crop yield and quality. It is the increased reliability in supply – in terms of quality and volume – that will be the catalyst for the investment necessary to integrate Africa into the global supply chain for agricultural products.
There is first and foremost a need to secure cooperation and coordination between individual smallholders connected geographically and by crop type. The formation of cooperatives amongst smallholders is key to effective coordination and cooperation at this grass-roots level. It will enable any investment in technology, distribution of equipment and other inputs, such as fertilizers, to be properly coordinated and directed. It will also allow smallholders to take advantage of economies of scale and to communicate with other stakeholders as a single voice, enabling smallholder interests to be better represented.
Cooperation and coordination amongst smallholders alongside targeted investment into cooperatives will help to achieve reliability in supply. Without reliability in supply, it is difficult to see how there can be any justification for capital investment in the processing and distribution networks necessary to connect sub-Saharan Africa’s farmers to the global markets.
When it comes to private sector participation in investment initiatives, the first requirement will be to assess the potential revenue generation coming from any investment of this kind. This may be undertaken by a private sector entity alone or in combination with government or quasigovernmental organisations through the incorporation of a joint venture development company. One instance of this type of collaborative approach is the signing in 2014 of a public private partnership between IFAD (the International Fund for Agricultural Development) and Unilever. This partnership will plan and deliver investment into smallholdings to lift productivity and sustainability and to provide a means by which smallholders may link into the global markets.
Once a feasibility analysis has been completed and any necessary front end investment made into the smallholding sector, the private sector may decide that the required level of ‘reliability in supply’ has been or will be achieved to support investment in the processing and distribution networks.
Investment in food process infrastructure may be undertaken by the private sector alone, but there would be good reason for the private sector to again partner with the public sector to ensure that appropriate support can be secured at a governmental level and to take advantage of the local knowledge base. If a partnering arrangement is adopted, the public sector strategic partner may wish to invest equity in the infrastructure, taking a risk share in its development and operation. This will provide obvious advantages to the private sector investor and its financiers. It will also provide the public sector entity with a say in the development and operation of the facility.
There are a large number of issues to be considered by parties when looking to finance and deliver complex and high value process plant infrastructure in sub-Saharan Africa. These issues will be addressed in a future edition of Cultivate.
Given the level of capital required to deliver process plant infrastructure and more general logistics requirements, it is entirely feasible that this could be financed and delivered on a standalone basis by a small number of parties. More challenging will be securing investment in the infrastructure required to transport unrefined raw materials from field to process plant and, in particular, from process plant to the domestic and international market. Transportation infrastructure in the region is severely lacking and any investment is likely to require a collaborative approach involving a number of stakeholders.
Any proposals need to be aligned with a wider infrastructure strategy incorporating economic benefits for the country (or countries) as a whole. This type of strategy is not commonplace in Sub-Saharan Africa; the extent of crossborder trade and cooperation in the region has traditionally been limited.
In the short term, therefore, private sector companies operating in this area will need to work with existing infrastructure: this will of course mean that development will be constrained geographically.
It is likely that transport infrastructure – located within a wider strategic development plan – will need to be developed by a number of stakeholders in collaboration. These may include governmental organisations, mining companies and food producers. Buy-in from these parties at outline design stage will be necessary if individual requirements are to be met. Wider incentives under local tax regimes, for instance, may encourage participation. On completion of design, there may then be scope to invest equity in the infrastructure along with a private sector delivery partner (who may construct and operate the infrastructure on a concession basis).
Access to the infrastructure may be regulated under the terms of the concession arrangements and through independent regulation. The local government will need to secure open access; this may be done through preferential tariff setting and subsidies. It will want to avoid the monopolistic approach taken by mining companies seeking first mover advantage seen in certain parts of Africa.
Delivering infrastructure on this basis is not without its challenges and the above represents only suggestions as to how this may be achieved. It is clear, however, that the success of any such strategy will require international cooperation and planning, starting at central government level. This must be used to foster public and private sector investment, participation and innovation to properly harness the potential that Sub-Saharan Africa has to offer.