IFPRI Policy Seminar presentation "Agribusiness for Africa’s Prosperity" by

1. Why agribusiness?
Why now?
What challenges & opportunities?
John Staatz
Michigan State University
Patrick Kormawa
UNIDO
Presentation at IFPRI, Oct. 25, 2011

2. 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

3. 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.

4. 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

5. Agro-industry as percentage of total manufacturing
value-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

6. 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 total
processing firms in 75% 20% 5%
West Africa
Source: Ilboudo and Kambou (2009)

7. 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

8. Projected increases in intra-Africa
demand 2000-2030
160 150
2000
140
120
US $ billion
100 2030
80
60 50 Potential smallholder
income from meeting
40 30
this demand
20 10 8 10.5
3 2.9 1.6
0
High-value exports Commodities Urban foodstuffs
Source: NEPAD Secretariat (2005)

9. Structure and size of Sub-Saharan
Africa’s agricultural market
Eastern Southern Western
Total Africa
Africa Africa Africa
Traditional 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 3
Domestic 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)

10. 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

11. Processed food exports for selected production categories
1990-2006 (US $bn)
Growth
1990 1995 2000 2005 2006
rate (%)
Industrialized 30.5 45.9 42.5 63.3 67.4 4.58
Processed and
Developing 2.0 7.8 7.7 17.2 18.5 13.26
preserved meat
World 32.5 53.78 50.2 80.5 85.9 5.68
Industrialized 14.8 18.9 19.3 27.9 29.6 4.25
Processed and
Developing 7.0 18.6 22.1 30.4 34.8 9.29
preserved fish
World 21.8 37.4 41.3 58.4 64.4 6.4
Industrialized 10.4 17.4 16.9 25.9 29.4 5.97
Processed and
preserved fruit Developing 3.8 8.0 8.5 14.4 16.3 8.58
and vegetables
World 14.2 25.4 25.4 40.4 45.7 6.8
Industrialized 7.2 13.3 10.9 19.7 20.8 6.46
Vegetable and
animal fats and Developing 5.4 17.0 14.5 28.9 30.9 10.07
oils
World 12.6 30.4 25.3 48.6 53.7 8.3
Source: Industrial Statistics Yearbook (UNIDO,2009a)

12. 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

13. 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

14. 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

15. 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 be
Cost-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)

16. 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

17. 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”

18. 7 pillars of agribusiness development
1. Enhancing agricultural productivity
2. Upgrading value chains
3. Exploiting local, regional and international demand
4. Strengthening technological efforts and innovation
capabilities
5. Promoting effective and innovative sources of financing
6. Stimulating private sector participation
7. Improving infrastructure and energy access
Cross-cutting issue: Mechanism for partnerships—Policies and
institutions

19. 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 exports
4. Global agribusiness partnerships
5. Agribusiness knowledge and information sharing
6. Program governance

20. Thanks very much!