AGRIBUSINESS DEVELOPMENT BY OKELO MICHAEL ACCOSCA 1 AGRIBUSINESS

AGRIBUSINESS & DEVELOPMENT BY OKELO MICHAEL ACCOSCA 1

AGRIBUSINESS & DEVELOPMENT 2

UNDERSTANDING AGRIBUSINESS AS A VALUE CHAIN CONCEPT SOME MYTHS AND FACTS ABOUT AGRICULTURE IN AFRICA • Use of modern inputs remains dismally low • Access to credit is limited. • Agricultural development is one of the most powerful tools to end extreme poverty and boost shared prosperity. • The majority of most households are net food buyers. • Household enterprises operate on a survival mode. • The young are leaving agriculture • Agricultural commercialization improves nutritional outcomes. • More than 70% of the food waste occurs during production and in post-harvesting whilst almost nothing is lost at consumption level. 3

• Africa’s agricultural mechanization has either stagnated or retrogressed in recent years. Over 60% of the farm power is still provided by human muscle mostly from women, the elderly and children. Only 25% of farm power is provided by animals while less than 20% of mechanized services are provided by engine power. • Africa has more than ½ of the world’s fertile yet unused land. She only uses 2% of its renewable water resources compared to the global average of 5%. • Agriculture and the business created by it are major sources of income and employment for a large share of the world’s population considering that 3/4 of the poorest live in the rural areas. 4

The sector contributes about 61% of the world’s economic production. The leading 10 countries are 1. China 2. India 3. USA 4. Brazil 5. Nigeria 6. Indonesia 7. Russia 8. Turkey 9. Pakistan 10. Japan Source: World Fact book, 2015. 5

• About 45% of the world’s population makes their living through agriculture. The sector is dominated by a variety of staple food crops i. e. Maize, sorghum, millet, cassava, yam, sweet potatoes and the cash crops i. e. Coffee, tea, cotton, cocoa, soya beans, tobacco etc. The sector is also characterized by a high level of small holder farms (80%) cultivating low yield staple foods on small plots. The farms depend on rain water thus subjected to the vagaries of weather. Source (African Development bank) 6

QUESTIONS TO PONDER 1. How can access by small holder producers to essential inputs and services that increase productivity in an environmentally sustainable be enhanced? 2. How can small holders be helped to raise their socio-economic wellbeing while facilitating their integration within the value chains? 3. What can be done to facilitate agribusiness to thrive? 7

THE CONCEPT OF THE VALUE CHAIN • The strategy guru, Michael Porter in his book “Competitive Advantage” published in 1985 first introduced the concept as a set of activities that an organization carries to create value to the customer. The way in which value chain activities are performed determines costs and affects profit. The overriding concept is to change business inputs into business output in such a way that they have greater value than the original cost of creating that output. Mathematically, Value created and captured- cost of creating that value = profit margin. Porter further identified three generic strategies to achieve competitive advantage: • Cost leadership • Differentiation • Focus. 8

Value chain describes the full range of value adding activities required to bring a product or service through the different phases of production including procurement of raw materials and other inputs, assembly, physical transformation, acquisition of required services such as transport or cooling and ultimately response to consumer demand. (Kaplinsky and Morris, 2002) Is the concept applicable in agribusiness? EXAMPLES OF AGRO- VALUE CHAINS • Food products: what should the typically farmer put into consideration? From the consumer’s point. • Taste • Health benefits • Convenience • Nutrient content- The consumer is concerned about Fat, protein, Carbohydrates, vitamin, minerals, food safety. (Lifestyle!) 9

HUMAN CONSUMPTION VALUE CHAIN FOR GRAINS INPUT SUPPLY PRODUCTION GRADING/REFINING RETAIL DISTRIBUTION FINAL CONSUMER 10

LIVESTOCK GRAIN PRODUCED FEEDS MILL LIVESTOCK PRODUCER SLAUGHTER PLANT MEAT PROCESSING PLANT RETAIL DISTRIBUTION FINAL CONSUMER 11

MILK GRAIN/FOLLIAGE PRODUCTION FEEDS INGREDIENTS SUPPLIER MILK PRODUCTION CO-OPERATIVE SOCIETY MILK PROCESSING PLANT FOOD MANUFACTURER RETAILER 12

The ultimate aim of organizing agribusiness along the value chain model is to reduce transaction costs and increase the profit margin to the producer so as to remain competitive by producing, distributing and selling goods and services in the time, place and form required. To be competitive it is necessary to provide quality goods and services which can be sustained over time in the market. It is also important to adapt to change when required in order to maintain or increase the market share. 13

WHY ARE SMALLHOLDER PRODUCERS NOT MAXIMIZING ON THE VALUE CHAINS? 1. Skewed market linkages and consequent poor price realization. Case of consequent poor price realization 1 Price paid by end consumer 2 3 Price received by 2 famer Price realization by 24 farmer (as a % of end consumer price) Percentage mark-up 310 (price paid by end consumer to the price paid to the farmer) 4 TOMATO POTATOES ES 8. 20 12 CABBAGE BANANAS 9 12 6 5 4 55 56 33 82 84 200 14

2 Lack of access to credit 3 Poor Agricultural practices 4 Climatic factors 5 Pests and diseases 6 Government intervention Agribusiness – the off farm link in the agro food chain. It provides inputs in the farm sector and links the farm sector to consumers through the handling, processing, transportation, marketing and distribution of food and other agricultural products. (FAO) 15

HOW CAN THE SMALLHOLDER PRODUCERS BE INTEGRATED IN THE VALUE CHAINS? Ø Enhance market linkages Ø Address poor domestic producer capacity and infrastructure Ø Provision of appropriate financing schemes to facilitate the necessary investment and meet required standards for integration in the global value chan. Ø Land reforms to enable farmers have security of tenure. Ø Enhance financial literacy trainings to avoid overindebtness. Ø Promote formation and strengthening of cooperatives. Ø Encourage use of ICT to improve the marketing of agricultural produce. Ø Upgrade the value chain through value addition-Case of Tangakona and Githunguri dairy cooperative societies in Kenya dealing in cassava and milk respectively. 16

• Vigorously pursue regional integration i. e. SADDC, COMESA ECOWAS, EAC etc. Countries should provide free trade by banning export and import restrictions, remove non-tariff barriers i. e. official red tapes and bribes, cross border delays etc. • Promote development of agro processing industries that would provide markets for agricultural produce. • Build entrepreneurship skills required in postharvest handling, processing, agribusiness management and safety standards. (SACCOs/CREDIT unions) • Provide short term trainings and on the farm training, trade exhibitions, farming clinics etc. • Farmers should be encouraged to meet the stringent market standards in terms of quality. 17

• Encourage use of appropriate farm inputs- should be affordable and available at the right time • Adoption of modern simple technologies that can be used by the small holder farmers. • The Government can play a key role in ensuring that the information from the research stations is timely disseminated and also facilitate the creation of a conducive environment for agribusiness. 18

CONCLUSION • In a report by the World Bank in 2013, Growing Africa. Unlocking the potential in Business, “Africa’s farmers and agribusiness could create a trillion dollar food market by 2030 if they can expand their access to more capital, electricity, better technology and irrigated land to grow high value nutritious food. The Governments should work side by side with agribusiness to link farmers with the consumers in an increasingly urbanized Africa” FARMING SHOULD NOT BE SEEN AS A STRUGGLE TO SURVIVE BUT AS A BUSINESS THAT THRIVES 19