Right Place, Right Time: Sub-Saharan Africa: the state of smallholders in agriculture

Geoffrey Livingston, Steven Schonberger and Sara Delaney

IFADJanuary 24, 2011

Outline

• Context• Opportunity• Right Place, Right Time• Recommendations

1. Context

Sub-Saharan Africa is a region of superlatives and contrasts.

It has the largest land area of any developing region and the smallest countries.

• 24 million km2 • 47 (48) countries• Two countries per 1 million km2

• Average 20 million people per countryPolitical Geography

  Ratio of countries to 

area

Population per country 

(million inhabitants)

EAP 1.44 125LAC 1.52 24 

MENA 1.60 19 SAR 1.67 196 SSA 2.00 20 

1. Context: Geography

It has the greatest concentration of high value minerals and the highest concentration of degraded soils. • Produces 55% of world supply of diamonds, cobalt (52%), chromite (37%), gold

(22%).• Geological stability resulting in high levels of low fertility soils.• About 55% of the continent is considered unsuitable for agriculture. Of the

remaining land, 16% is considered high quality, 13% medium and 16% low.• Losing around 8 million tonnes of soil nutrients per year.

1. Context: Natural Resources

It has most land-locked countries and population but lowest rate of intra-regional trade. • Over 40% of population in land-locked countries• Total intra-regional trade is only 12% of total trade as compared to 52% in Asia

and 26% in LAC.

1. Context: Connectedness

  Population in landlocked 

countries (%)

EAP 0.4LAC 2.8

MENA 0SAR 3.8SSA 40.2

It has the oldest leadership and the youngest population.• Africa’s heads of state are, on average, older than other regions. • Youth (under 14 years) account for 43% of population.

1. Context: People

It has the highest proportion of rural poor but relatively good indicators on income and gender equity.• Rural communities are home to 75-80% of the poor.• Income inequality significantly lower than Asia and LAC.• Gender equality significantly better than Asia and MENA.

1. Context: People

Equality by region (0 = no inequality; 1= complete inequality)

  Gini Index Gender IndexAEP 0.57 0.23SSA 0.42 0.18LAC 0.52 0.02MENA 0.38 0.27

It has the most challenging business climate and the highest economic growth rates. • Average country ranking for Doing Business is 137, the lowest regional average.• Average inflation from 2007-2010 was 9.1%, compared to 6.4% in LAC, 5.5% in

developing Asia and 1.5% in the advanced economies. • Six of current and seven of forecast top ten top growing economies are in SSA.

1. Context: Economic Performance

World’s ten fastest-growing economies (annual average GDP growth %)

2001 - 2010 2011-2015 (IMF forecast)

Angola 11.1 China 9.5China 10.5 India 8.2

Myanmar 10.3 Ethiopia 8.1Nigeria 8.9 Mozambique 7.7

Ethiopia 8.4 Tanzania 7.2Kazakhstan 8.2 Vietnam 7.2

Chad 7.9 Congo 7.0Mozambique 7.9 Ghana 7.0

Cambodia 7.7 Zambia 6.9Rwanda 7.6 Nigeria 6.8

It has the highest proportion of workforce in agriculture and the greatest dependence on agricultural food imports. • Agriculture employs 62% of the population (excluding South Africa).• Importing around 8.6 million tonnes of wheat, 6.5 million of rice, and 6 million

of sugar.

1. Context: Role of Agriculture

Agriculture   Agriculture value added 

(%GDP)

Agricultural Employment (%)

  2008 2007SSA 16 (27*) 46 (62*) APR 13 44LAC 6.5 12

*Figures excluding South Africa

It has the highest agricultural growth rate despite lower public support.• Average agricultural GDP growth of almost 5% in 2009.• SSA countries, on average, currently devote 5-7% of their public expenditures to

agriculture, as compared to 8-10% in Asia. • Maputo Declaration

1. Context: Policy

Agriculture GDP growth (%)

  1990s 2000s 2009

SSA 2.7 3.0 4.8

APR 3.6 3.9 3.8

LAC 2.1 3.3 1.5

It has the lowest average production intensity of all regions, but a high level of variation between areas within the region. • Western Africa’s productivity growth is close to LAC.• More densely populated countries such as Malawi, Rwanda are approaching

Asian levels of productivity growth.

1. Context: Agriculture Productivity

Favourable outlook for demand for agricultural outputs…• Global need for food and non-food uses of crops.• Growing regional demand with urbanization and income growth.

2. Opportunity: Demand

Hubert et. al. 2010

A lot of land but still need to intensify…• Along with LAC, highest proportion of uncultivated, arable land.• Traditionally low relative cost of land to capital resulted in expansion for

increased production. • However, relative cost of land to capital is expected to increase due to local

conflicts and increasing isolation of uncultivated areas.

2. Opportunity: How to Grow?

2. Opportunity: Smallholders

Smallholders well positioned in SSA to benefit from sectoral demand…

• Limited capital intensification through large, commercial operations.• Smallholder farms (2ha or less) represent 80% of all farms.• Potential productivity advantages of smallholder farms confirmed for SSA.

• Ex: Nigerian soybean producers can supply Ibaden markets at 62% of the cost of imports, and Zambian sugar farmers can supply Nakambala markets at 55% of the cost of imports.

• Increasingly effective farmer organizations• High poverty reduction potential

2. Opportunity: Smallholder risks

Risk management is critical for smallholders to intensify “farming as a business”…• IFAD Rural Poverty Report highlights impact of risk on willingness of

smallholders to undertake on-farm investments of labour and cash for intensification

• IFAD experience - while social risks are fairly consistent across agro-ecological zones and production systems, business risks vary considerably.

• Business risks are reduced for those able to participate in more integrated supply chains.

(Authors based on Pingali and Rosengrant 1995, Swinnen, et al 2007, USAID 2009)

Indicative Risks Associated with Smallholder Supply Chains

Marketing System

Typical Products Characteristics of Supply Chain Risks for Smallholder

Highly-Integrated

Exports of high value for processing in specialized market

Ex: organic and fair trade cocoa

Marketing margins: Very low (producers receive 60 to 80% of price of export/processor)

Structure: Highly structured/integrated

•Failure to meet quality standards•Input and trade policy•Climate

Integrated with intermediary

High value for domestic/regional fresh and processed markets

Ex: dairy, fruits, cotton

Marketing margins: Low (producers receive 40 to 75% of export price)

Structure: One or two local aggregators who transmit/enforce quality standards between producers and lead firm

•Failure to meet quality standards•Contract enforcement•Price volatility•Input and trade policy•Climate

Dispersed Low value domestic/regional staple crops and biofuel stocks

Ex: cassava, rice, millet

Marketing margins: High (producers 15% to 50% of price to processor or consumer)

Structure: Unstructured, spot market transactions with multiple channels and numerous intermediary transporters/aggregators

•Post harvest losses•Transport delays and costs•Price volatility•Input and trade policy•Climate

Opportunity: External Support

Smallholders supported by increased investments to reduce risks but limited impact…

• Eleven of fifteen CAADP Investment Plans prioritize improving value chains.• ROPPA focus on rice, dairy, meat, vegetables, fish.• Innovative PPPs such as corridors, breadbaskets, etc.• Increased donor support to inputs, irrigation, rural finance, marketing, research.• Returns to these investments in SSA are lower than other regions – irrigation

efficiencies and seed adaptation rates.

Why?

Right Place, Right Time

Lowering the Business Risk

3. Right Place, Right Time

Elephants in the Room

• Extreme geographic and economic isolation of 1/3 of rural Africans.

• Systemic late delivery of goods, services and works in development programmes.

Some sobering facts about SSA market access• Fewer kilometres of roads today than 30 years ago.

• Road density less than 30% of South Asia, the next lowest region.

• Only 34% of Africans live within two kms of an all-season road, compared to 65% in other regions.

3. Right Place, Right Time

Distance to MarketPeople Living more than Five

Hours to a Market Town of 5,000

Region PercentNumber (millions)

SAR 5% 45

EAP 17% 188

LAC 20% 26

MENA 31% 23Central

Asia 32% 32

SSA 34% 131

People Living less than one hour to a Market Town of 5,000

Region PercentNumber (millions)

SAR 56% 512

EAP 33% 366

LAC 46% 61

MENA 26% 19Central Asia 26% 26

SSA 21% 81

3. Right Place, Right Time

3. Right Place, Right Time

Fertilizer price formation in Thailand, Tanzania and Mali in 2006

3. Right Place, Right Time

Implications

3. Right Place, Right Time

Are trucking costs in SSA really so high?

3. Right Place, Right Time

Average costs per kilometre

• Central Africa USD 1.87• East Africa USD 1.33

• Germany USD 1.52• Poland USD 2.18

3. Right Place, Right Time

Estimated profit marginsalong major corridors

Ngaounderé-N’Djamena = 118%Mombassa-Kampala          = 86%Tema-Bamako                     = 80%Lusaka-Joburg                     = 18%

Only one instance of deregulation: Rwanda

• Nominal prices decreased by 30%• Real prices decreased by 75%• Size of the truck fleet increased fourfold between 1995-2007

3. Right Place, Right Time

Right Time

Observe due measure, for right timing is in all things the most important factor.

(Heriod, Greek Poet, circa 800 b.c.)

3. Right Place, Right Time

Cases of “wrong time” implementation

• Fertilizer subsidy programmes

• Marketing loans to cooperatives

• Organization of export campaigns

3. Right Place, Right Time

Donor Institutions are not setting the example

• Lag time between donor project approval and project start-up commonly exceed 12 months.

• Processing of requests for disbursements at IFAD have come down but still average 28 days.

3. Right Place, Right Time

3. Right Place, Right Time

• Evidence of stronger economic & agricultural growth.• Growing demand for agricultural products provides

improved production incentives.• Capitalizing on these opportunities requires intensification.• Intensification requires risk reduction.• And risk reduction requires getting the place and timing

right.• But focus on spatial & temporal aspects has been

noticeably lacking and resulted in underperformance.

Conclusions

4. Key Recommendations

• Greater use of value chain analysis to highlight and benchmark cost and time implications in terms of both inputs and outputs.

• Ensure that critical timing aspects are identified and agreed with and understood by project stakeholders.

• Include specific indicators for transport costs and critical timing aspects into monitoring framework.

• Ensure that annual work plans and budgets define and respects spatial and temporal coordination requirements.