Summary of Discussion at the IFPRI-CEIBS Agribusiness Seminar
Wednesday 6 March 2016
Nearly 60 participants attended the seminar and addressed the following questions:
- Does the regional market benefit agribusinesses, and if so, how?
- What effect does limited access to credit have on how the businesses are run?
- Are professionals getting to manage African businesses?
- What are the key constraints and opportunities for agribusiness in the region?
Mathew Tsamenyi, who heads the CEIBS, noted the disconnect between the conception that Africa’s future lies in developing its agribusinesses and the relative neglect of agribusiness in policy and in practice. This may be partly due the perception of agribusiness in influential quarters – while its industrial aspects are desired, the low-tech small-scale processing that dominates the sector may not be appealing.
The common market benefits agribusinesses, but only to a limited extent. Potential benefits are limited because of the region’s reliance on imports and the low import-substitution capacity. Member countries do not produce enough to trade among themselves. Infrastructural challenges and high transport costs lead to localized markets. Moreover, movement is not free even within countries. However, there are a number of areas where a common market can help in improving informal cross-border trade, by eliminating import/export bans and reducing transaction costs. The problem, however, is that common policies of ECOWAS are not being fully implemented or enforced by member countries. Tariffs may not be there, but there are other barriers. The emergence of supermarkets and other distribution channels with their own sourcing strategies could gradually overcome these barriers to increasing regional trade.
Policies are not always strategic. Industrial policies seem to cater to multinational interests while agricultural policies seem to focus on raw material production without helping local processors upgrade in value chains. The policies also encourage large investments and ignore small operations. Occasionally, policies may be inconsistent in supporting the export of products whose domestic requirements are not met adequately. Small and medium enterprises that dominate the processing sector also lack the capacity to tap into export markets. Meeting the quality standards in terms of emerging as a reliable supplier of uniform quality, year-round produce even at the regional level could be a challenge for them. Regional consensus on standards would also help in building such capabilities.
Potential clients have difficulty accessing bank credit, as banks are wary of lending to the sector because of the risks. Agribusiness also appears to be unprofitable at the interest rates offered by commercial banks. While the high costs of capital is a macro issue that is difficult to deal with, other relevant issues for access to credit include the difficulties of registering land to use it as a collateral.
Commercial finance is clearly essential for entrepreneurs in medium-scale processing. There is also a shortage of long-term, “patient”capital (from banks and venture capital). Access is not always related to capabilities: while there are some types of agricultural investors who are able to access loans without agribusiness know-how, there are agribusiness people with experience who cannot access loans.
The lack of know-how among investors leads to poor conception of projects. Agribusiness entrepreneurs do not have access to information, expert advice, analytical skills and other support. Research outputs that could help farmers and firms /firms tend not be disseminated widely. On the other hand, banking institutions themselves lack an adequate understanding of how agribusiness works. This is not the case with commercial banks only. Microfinance bodies too that are meant to be closer to farming may also have inadequate understanding.
Focusing on processors, we need to identify why processing is uncompetitive. Limited access to credit, along with poor infrastructure and unreliable supply of raw materials, inhibits the development of processing. Politicians see processing as a way to increase farm gate prices for producers while competitive processing requires supply of raw materials at globally competitive prices. Farmers, processors and consumers all benefit from a high-productivity value chain with competitive raw material costs.
SMEs do not have the capacity to train their staff. Research institutions and universities, which in turn have little experience in agribusiness and inadequate linkages with SMEs, are not capable of adequately preparing students for work. For farmers and SMEs, the lack of managerial capacity becomes a big issue when they want to scale up their operations or move from subsistence to commercial farming. Intermediate bodies such as incubators that can bridge theory and practice -- i.e. an incubator that takes graduates and agribusiness entrepreneurs and gives them practical knowledge and hands-on experience -- can help in converting ideas into action.
Some schools are trying to offer practical training to students through attachments with agribusinesses. However, there is a perception that top-performing students do not want to pursue agriculture or agribusiness and that others discourage them from doing so.
Constraints and opportunities
Some of the key constraints on agribusiness are poor infrastructure, weak implementation of policies, barriers to investments, and poor raw material supply. Production is not well supported: agriculture is largely rain-fed; producers receive inadequate information on weather; farmer practices are poor, including tardy land preparation; and they have inadequate access to credit.
Agribusinesses, therefore, need to take care of their supply chains. Premium Foods based in Kumasi, which started with just buying and selling maize flour, is now into processing. Working with more than 10,000 smallholders in the three northern regions, it is not able to obtain adequate raw materials. It has now developed an incubation program to attract students from university and support them to go into agriculture. While they have recovered as much as 95% of input loans in the past, their recovery rate is now down to 45% because of an inability to enforce contracts.
The West African region is endowed with water resources but agriculture continues to be rain-fed. Senegal alone could produce for the entire region, but infrastructure is lacking. There is great potential for cross-border trade in fruits and vegetables within sub-Saharan Africa. Ghana, for example, imports cattle, tomatoes and onions from its neighbors.