AgRicuLTuRE & RuRAL DEvELOpmENT 48923 NOTES Awakening Africa's Sleeping giant: prospects for commercial Agriculture in the guinea Savannah Zone and Beyond iSSuE 48 JuNE 2009 Stimulating agricultural growth is critical to reducing pov- important world markets. Their success defied the erty in Africa. Commercial agriculture, potentially a pow- predictions of many, who had seen the agroecological erful driver of agricultural growth, can develop along a conditions, remoteness, and poverty levels characteristic number of pathways. Yet many developing regions have of the two regions as challenges that would be difficult, failed to progress very far along any of these pathways. if not impossible, to overcome. Particularly in Africa, agriculture continues to lag. During A recent World Bank study, titled Competitive the past 30 years the competitiveness of many African Commercial Agriculture for Africa, investigated how the export crops has declined, and Africa's dependence successful agricultural commercialization experiences of on imported food crops has increased. While the poor Brazil and Thailand may be able to inform agricultural performance of African agriculture can be attributed development initiatives in Africa. Based on detailed partly to adverse agroecological conditions, experience case studies carried out in Brazil and Thailand, as well from elsewhere in the developing world suggests that as in three African counties extensively endowed with significant progress is possible. Africa's Guinea Savannah underdeveloped land resources in the Guinea Savannah zone is a case in point. The Guinea Savannah covers zone (Mozambique, Nigeria, and Zambia), the study some 600 million hectares in Africa, of which about found that there are substantial opportunities for farm- 400 million can be used for agriculture. Less than 10 ers in Africa to regain international competitiveness percent of this area is currently cropped, making it one and improve national food security. Success in capital- of the largest underused agricultural land reserves in the izing on these opportunities will, however, depend on world. During the past three decades, while the poten- getting policies right, strengthening institutions, and tial of the African Guinea Savannah has remained largely scaling up investments in agriculture. Recent progress untapped, two relatively backward and landlocked agri- seen in a number of African countries, while encourag- cultural regions elsewhere in the developing world--the ing, remains tenuous and could be reversed by bad Cerrado region of Brazil and the Northeast Region of policy choices. The recent global food crisis has created Thailand--developed at a rapid pace and conquered new opportunities for Africa's farmers, but it has also engendered calls for quick fixes that could undermine competitiveness for years to come. FAcTORS AFFEcTiNg AgRicuLTuRAL cOmpETiTivENESS iN THE AFRicAN guiNEA SAvANNAH The potential competitiveness of agriculture in Mozambique, Nigeria, and Zambia was gauged through value-chain analyses of six commodities well-suited to the Guinea Savannah: cassava, cotton, maize, rice, soybeans, and sugar. A number of insights emerged from the analysis. Farm-level production costs in Africa are com- petitive. Farm-level unit production costs in the three African countries are comparable to or lower than those in Brazil and Thailand, despite significantly lower yields per hectare. Photo: © FAO/Alessandra Benedetti THE WORLD BANK Africa's producers are generally competitive in DOES FARm SiZE mATTER domestic markets. In domestic markets, Africa's pro- FOR RApiD AgRicuLTuRAL ducers can compete with imports. High logistical costs cOmmERciALiZATiON? raise prices of imported commodities and provide "natural What is the optimal farm size for driving rapid agricul- protection" upon which African producers can capitalize. tural commercialization? Despite recent efforts, mainly by Africa's producers are generally not competitive foreign investors, to launch large-scale agribusiness ven- in global markets. The same high logistical costs that tures in Africa, there is little evidence that the large-scale shield domestic producers are a significant barrier to farming model is either necessary or even particularly exports. African producers must absorb these costs if their promising for Africa. Even the apparently successful set- commodities are to compete internationally. tler farms of eastern and southern Africa were nurtured by streams of preferential policies, subsidies, and sup- porting investments. The value-chain analysis carried out for the study suggests that large-scale farming may be advantageous in Africa under three sets of circumstances: · Wheneconomiesofscalearepresentas,forexample, in "plantation crops" (sugar, oil palm, tea, bananas, and many horticultural crops grown for export). · WhenAfrica'sproducersmustcompeteinoverseas markets that have stringent quality requirements and demand traceability all the way back to the farm-- which is not feasible in contract farming. · When relatively fertile land must be developed in areas with relatively few people. Without a large, local labor force, large-scale mechanized farming may be the best model, even for growing staple foods. In all three cases, land tenure problems are likely to arise Photo: © World Bank/Ray Witlin when extensive tracts are allocated to farming enter- prises. Virtually all areas are claimed by some individuals Regional markets offer the most promising oppor- or groups or used in some way. Land tenure issues may tunities in the medium term. Given the high costs be as contentious as the political issues surrounding in- of reaching international markets, Africa's producers are migration of farmers and agricultural workers. favorably positioned to serve regional markets. Demand in While large-scale farming is often unlikely to be the most regional markets will grow rapidly as a result of population appropriate avenue for commercializing African agricul- growth, income gains, and accelerating urbanization. ture, important investment opportunities do exist. For Inefficient domestic logistics restrict the competi- the foreseeable future, the main opportunities for private tiveness of the three countries. Domestic costs are domestic or foreign investors remain in seed develop- high owing to deficiencies in transport, processing, and ment, input supply, marketing, and processing. storage infrastructure; lack of competition in vehicle import and trucking industries; cumbersome transport pOTENTiAL ENviRONmENTAL regulations; and the need to pay bribes at border cross- impAcTS OF AgRicuLTuRAL ings and police checkpoints. cOmmERciALiZATiON Smallholders have a critical role as a source of Everywhere in the world, agricultural intensification-- competitiveness in the three countries. Contrary to including intensification associated with the rise of expectations, few obvious scale economies were found in commercial agriculture--has affected the environment. the production systems analyzed by the study. Compared Potential negative outcomes of intensification include to large commercial farms, smallholder farms typically deforestation, biodiversity losses, degradation of soil and had lower shipment values at the farm level and/or final water resources, and illness caused by crop chemicals. distribution point (shipment values reflect production and In the case study countries described in Competitive delivery costs). Commercial Agriculture for Africa, the available empirical 2 data do not always show that these outcomes have of agricultural growth. Secure transferable land rights are occurred.Thissuggeststhattheprospectiveenvironmental needed to protect the interests of local populations and impacts associated with commercial agriculture must be enable entrepreneurial farmers to acquire unused land in better understood, so that better policies and methods regions with few people. Over time, land must be able can be developed for limiting negative impacts. to change hands, moving to those who can use it most When assessing the likely environmental impacts of productively. Secure land rights also provide incentives to commercial agriculture, it is important to consider the invest in increasing land productivity. The challenge is to counterfactual: What environmental effects would occur build the institutions and equitable enforcement struc- in the absence of commercialization? The probable envi- tures that help smallholders access land and engage in ronmental impacts of commercial agriculture must be profitable commercial agriculture. assessed alongside the environmental problems associated Scale up public investments. Agricultural develop- with agriculture more generally. Localized environmental ment cannot be done on the cheap, ignoring the fun- damage caused by intensive commercial agriculture may damentals of productivity growth in the food system, be acceptable if the alternative is much more extensive as governments and donors have done in Africa over environmental damage, occurring when low-productivity the past 20 years. Particular damage has been done agriculture and unsustainable farming practices spread by neglecting to invest in agricultural research and by into highly vulnerable areas. creating many small, underfunded research institutions. Africa also needs investments to replenish agricultural cOmmERciAL AgRicuLTuRE education at all levels, from the postgraduate level to the iN AFRicA: BRigHT pROSpEcTS, technical level to the vocational level. A major, unresolved BuT SOmE cONSTRAiNTS challenge is to develop cost-effective and demand-driven On balance, the evidence suggests that today com- advisory services, based on partnerships between farm- mercial agriculture has the same or better prospects in ers, public agencies, and civil society. Finally, Africa's aging Mozambique, Nigeria, and Zambia as it did 40 years ago in infrastructure cannot launch or sustain internationally Brazil and Thailand. This conclusion is based on a number competitive commercial agriculture without investment, of considerations, including: strong demand prospects, especially in irrigation, roads, energy, and logistics, espe- favorable domestic policies, an improved business climate, cially port infrastructure. increased incentives to invest in agriculture; and new pro- duction technologies. At the same time, Africa's entrepre- neurs face major constraints in equaling the success of their peers in Thailand and Brazil, including tougher interna- tional competition; exogenous shocks including HIV/AIDS, global climate change and global markets; weak national commitment; weak donor commitment; and lack of social cohesion, political stability, and bureaucratic capacity. NEEDED iNTERvENTiONS: pOLicy REFORmS, ScALED-up iNvESTmENTS, STRONgER iNSTiTuTiONS Continue macro policy reforms. Agricultural exports are still taxed at higher levels in Africa than elsewhere. Governments can continue moving domestic prices toward export prices by removing export taxes and replac- ing them with less distortionary taxes. Governments must rapidly implement regional integration agreements that support regional trade, such as banning arbitrary export Photo: © World Bank/Ray Witlin restrictions, streamlining border logistics, and harmoniz- ing standards and regulations. Induce private investment. Efforts to improve Reform land policy. Land policy, legislation, and imple- the business climate must continue, especially to facilitate mentation arrangements, more than any other factors, the entry of private seed and processing companies, determine the pattern and distributional consequences which played an important role in developing commercial 3 agriculture in Latin America and Asia. Strong farmer poverty reduction unless the wealth it creates is shared organizations and vigorous private-sector and civil-society widely. Thailand's agricultural transformation, dominated organizations are also vital. by smallholders, seems more compatible with the employ- Reform institutions to make markets work ment generation objectives of many African countries than better. Commercial agriculture needs institutions that Brazil's transformation, which was dominated by farmers make markets more efficient and less risky. The state must with the wealth and political power to secure large areas offer critical services that the private sector currently has of land and leverage the capital to invest in large-scale, few incentives to provide. As markets mature, a key chal- highly mechanized production technologies. lenge is to know when the state should yield to the private Manage environmental impacts. The current low- sector. Access to finance is fundamental to commercial input extensification of African agriculture incurs especially agriculture, but little progress has occurred in creating self- high environmental costs: deforestation, land degradation, sustaining rural financial systems with significant outreach lost biodiversity, and the release of carbon sequestered in to the farm population. Rural savings and loan associations soils and trees. A more intensive land use pattern could must be linked more effectively to broader commercial limit these costs by limiting the land converted to agricul- banking systems to provide greater financial intermedia- ture. However, more intensive agricultural strategies can tion and diversification of risks. also deplete or degrade water and pose health hazards. Experience from many parts of the world, including Brazil and Thailand, shows that the environmental costs of developing commercial agriculture can be reduced and managed by using appropriate technologies, vigilantly monitoring environmental impacts, and effectively enforc- ing environmental rules and regulations. THE ROAD AHEAD There are good reasons to be optimistic about agricul- ture in the African Guinea Savannah, but it is important to be clear-eyed about the challenges ahead. While the constraints facing African farmers are problematic, the experiences of Brazil and Thailand provide important practical lessons that African policy makers can clearly benefit from in addressing these constraints and in mov- ing along the multiple paths to agricultural commercial- ization. A particularly significant general lesson is that modern commercial agriculture is not synonymous with Photo: © World Bank/Ray Witlin vast, mechanized farms. Thailand and Brazil show that agricultural revolutions can be catalyzed by smallholders Undertake public sector and governance reform. or by large-scale farmers. On balance the evidence sug- A major challenge is to develop governance structures and gests that the fruits of those revolutions are more widely capacities for the state to play its vital role in developing a shared when smallholders participate. Second-round dynamic and equitable commercial agriculture. Ministries employment and poverty-alleviation effects are likely to of agriculture require far more capacity and skill in market- be much larger when smallholders lead the way, because ing and business development services, as well as in forg- growth in smallholders' incomes tends to generate more ing the public­private­civil society partnerships that typify demand for locally produced, nontradable goods. It the state's new roles. These skills must extend well beyond is unlikely, however, that land-constrained households ministries of agriculture to local governments and a range growing staples on one or two hectares or less will earn of other ministries that have important complementary enough income to exit poverty. For this reason, com- roles in commercial agriculture. mercial agriculture must develop in the African Guinea Manage social impacts. Commercial agriculture cannot Savannah in ways that provide opportunities for produc- support national objectives of broad-based growth and ers to diversify out of low-value crops. This ARD Note was prepared by Michael Morris and edited by Gunnar Larson of the World Bank. It is based on the report Awakening Africa's Sleeping Giant: Prospects for Commercial Agriculture in the Guinea Savannah Zone and Beyond from the Directions in Development Series. THE WORLD BANK 1818 H Street. NW Washington, DC 20433 www.worldbank.org/rural