Importance of MVA in GDP –(13.6% --wtd average for Africa—ranging from 5.4% in West Africa to 16.3% in Southern Africa)
Demand/ income growth – both in Africa and in other countries of the South. Although spending per capita on processed foods is still relatively low in the developing world at $143 per capita per year in lower-middle income countries and $63 in low-income countries, it is growing fastest in these countries—28 per cent annually in lower-middle-income countries and 13 per cent in low-income countries during the period 1996-2002 (Regmi & Gehlar 2005).
Ease of doing business—both nationally and regionally—both generally and sectorally—e.g., licensing rules, ease of forming professional organizations, trade rules—grades and standards, health regulations, etc. PPPs. African governments and their development partners need to focus on key investments and policy changes that ‘crowd in’ investment by private actors and open a political space for autonomous business organizations to work to resolve the problems of horizontal and vertical coordination that currently constrain the growth of agro-industry
Without an understanding of the issues, productive PPPs unlikely to emerge.
Market orientation in line with comparative advantages (incl. aligning technology choice with relative factor endowments)Use of trade negotiations and agreements (in African case, regional trade).Challenges of social inclusion and environmental sustainability (e.g., Brazil; exclusion of poor from supply chains)
Without an understanding of the issues, productive PPPs unlikely to emerge.
Why agribusiness? Why now?What challenges & opportunities? John Staatz Michigan State University Patrick Kormawa UNIDO 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 manufacturingvalue-added (selected countries, most recent year) 60 50 Percentage (%) 40 30 20 10 0 Senegal Madagascar Ethiopia Ghana Morocco Mauritius Kenya Botswana South Africa (2002) (2006) (2006) (2003) (2006) (2004) (2006) (2006) (2006)Source: World Development Indicators , 2009
Characteristics of different types of processing firms in West Africa Characteristics Artisanal Semi-Artisanal Semi-Industrial Industrial Scale Micro-enterprise Small enterprise Medium enterprise Large enterprise Large and moderately Large and Labour Family or social Family specialized specialized Products that meet Traditional products, More or less Diversified products grades and Products often “humid” with a standardized products, with stable shelf life standards; branded short shelf-life stable shelf life products Informal enterprise. Formal; separated Very modern Little of no Beginning to be functions of (Administrative Organization organization organized employees; units, divisions and (embryonic) accounting systems departments) Small to none. Important Important and Investments Operations are Some machines mechanization modern essentially manual Low level of Regular and larger More mechanized High capacities for Production production level of production processes production National distribution Local and very All markets (local,Types of Markets Local distribution and sometimes targeted regional, overseas) subregional Short distribution Long and Direct sales and/or by Long distribution Distribution channels; direct sales professional intermediaries channels to consumers channels Est. % of totalprocessing firms in 75% 20% 5% 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
Structure and size of Sub-Saharan Africa’s agricultural market Eastern Southern Western Total Africa Africa Africa AfricaTraditional exports to non- 10 13 15 13 Africa (%) Non-traditional exports to 6 15 7 9 non-Africa (%)Other exports to non-Africa 2 4 3 3 (%) Intra-African trade (%) 2 6 1 3Domestic markets for food 80 63 74 73 staples (%)Total market value (billions 22 19.1 27.2 68.2 of US $)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
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 Production, Assembly, Transformation (Processing) & Final Distribution of: Determinants of Undifferentiated Primary Differentiated Primary Consumption-Ready Competitiveness Semi-Processed Products Commodities Products Products Little importance, but Natural Resource Little importance, but Generally critical, but the mobility of technology is likely varies with mobility of Advantage, Factor varies with the mobility of reducing its importance. primary and semi- Endowments primary outputs. processed products Mandatory, but Some importance, but product differentiation requires certain characteristics beCost-Reducing Technology technology is increasingly reflected in production practices; technology is generally mobile. mobile. Great importance; skills are critical, especially in Human Capital and Some importance; skills application of production organization and coordination of activities, with fewer Managerial Expertise technology important, many people involved. people involved. Quality-Enhancing Some importance: Quality, Some importance: Quality, Great importance; end-use characteristics most Technology transportation, etc. transportation, etc. important Moderate importance: Some importance: grades Product Characteristics product differentiation Great importance: degree of product differentiation and and standards provide and Non-price Factors possible through quality other activities determine the amount of value added. information differences Some importance: cost Minimum cost is only Great importance: cost leadership and product Firm Strategy and differentiation are feasible strategy. differentiation, or a combination may be pursued. possible strategies. Industry Structure Some importance: markets Importance varies; policies greatly influence competitiveness and trade patterns. But, Input Supply, Marketing provide vertical often the policy impacts are indirect. Technical barriers matter most and Distribution coordination Important to cost competitiveness, product Infrastructure Important to cost competitiveness. differentiation, and innovation.Regulatory Environment May determine trade Importance varies; policies greatly influence competitiveness and trade patterns. But and Trade Policies patterns 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 development1. 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 accessCross-cutting issue: Mechanism for partnerships—Policies andinstitutions
Summary of UNIDO’s agenda for action:Synopsis of program framework for agribusiness development in Africa1. Public-private sector dialogue on agribusiness development2. Technical cooperation for agribusiness development3. Aid for trade for agribusiness exports4. Global agribusiness partnerships5. Agribusiness knowledge and information sharing6. Program governance