Agribusiness in Africa: Unlocking the business potential of smallholders

By Benjamin K. Musampa - 26 February 2017 at 7:00 am
Agribusiness in Africa: Unlocking the business potential of smallholders

Agribusiness and agriculture are primed to be the catalysts of Africa’s economic transformation and development in the coming years. According to the World Bank, they are both expected to form a USD $1 trillion industry by 2030 in Sub-Saharan Africa whilst representing 45 percent of the continent’s GDP. Considering the connection between agribusiness and farming, vibrant agro-industries focused on smallholder farmers, representing 80 percent of African agricultural production, are paramount to foster economic growth, yield business and employment opportunities, and contribute to poverty reduction.

Smallholder farmers a business perspective

With an estimated 33 million smallholder farmers accounting for 60 percent of agricultural land of the African continent, agribusinesses must give careful consideration to the business opportunity they represent. A partnership may benefit both parties since smallholder farmers would provide access to land, human capital and field expertise whilst investors would in return guarantee access to market, capital and technology. Furthermore, in 2013, an International Finance Corporation report listed the necessity to meet global food demand in a resource-scarce world; the willingness to address consumer demand for increased sustainability; and the ability to prevent contamination and food-borne illness as the three fundamental drivers behind firms’ eagerness to work with smallholder farmers.

In fact, meeting global demand for food and raw materials by privileging smallholder production rather than investing in farmland could increase agribusiness productivity and reduce both financial and social expenditures. That’s particularly true in sectors such as cocoa, where smallholder farmers represent over 90 percent of the world cocoa mostly produced in Ivory Coast and Ghana. According to Fair Trade, both countries combine between 700,000 and 800,000 cocoa growers with many living on $2 a day and providing a livelihood for, respectively, 6 million and 3 million people.

Confronted by growing consumer concern for sustainable supply chain and the adoption of globally recognized norms, agribusinesses must tackle environmental and social risks to protect their reputation. For example, food manufacturers may face reputational risk if buying cocoa is produced using child labor.  Hence, working diligently with smallholder farmers will enable agribusinesses to learn about preventing environmental and social risks encountered along the supply chain.

Reportedly, contaminated foods are the cause of 1.5 billion illnesses and 3 million deaths per year worldwide. Understanding the reputational impact and potential economic losses it may have on food manufacturers, they must engage with smallholders to establish traceable supply chains. Being able to oversee the production, harvest and processing may allow firms to improve smallholder practices.

Agnes Kalibata, President of the Alliance for a Green Revolution in Africa claimed that “the future of Africa depends on the future of the largest segment of its society—smallholder farmers.”  She also argued that smallholder agriculture would be the catalyst of Africa’s economic transformation, considering sub-Saharan Africa’s job growth between 2010 and 2020 will be predominantly in agriculture and the informal sector.

 The way forward

Beyond the positive outcomes of partnering agribusinesses with smallholder farmers, there are potential challenges such as the obstacles encountered by smallholder farmers in accessing markets and obtaining fair share value. One strategy for capturing higher harvest value and market access will require smallholder farmers to be organized in agricultural cooperatives, capable of fostering longstanding relationships with agribusinesses and economic security.

Agricultural cooperatives may present an incentive for attracting foreign investment in Africa’s agriculture. Among the key advantages well-structured and inclusive agricultural cooperatives may bring to small agricultural producers and investors are: lowered perception of risk for agribusinesses that reflects a stronger economy; improved access to market, and stronger bargaining capacity of terms and prices; increased smallholder farmers’ human capital, fostering innovative and productive employment.

Marina Ruete, legal and technical consultant for the International Institute for Sustainable Development argues that beyond upgrading the skills of their members, well-structured agricultural cooperatives offer investors a more sophisticated and reliable market.

Challenges ahead

African governments must promote and generate policy and program frameworks focused on smallholder farmers if they wish to transform African agricultural production. Putting smallholder farmers at the forefront by promoting agricultural cooperatives will assure a larger voice and influence for farmers, increase inward investments, and foster economic and social development in rural communities. Such initiatives should pave the way to African agricultural transformation led by the private sector.

Akin Adesina, President of the African Development Bank believes agriculture should be approached as a business. Smallholders hold the key to generating wealth, in order to promote development and improve rural communities and livelihoods.

Benjamin K. Musampa

Benjamin K. Musampa

Benjamin Musampa is a research associate at l'Observatoire des Amériques

Benjamin Musampa is a research associate at l'Observatoire des Amériques affiliated with the Centre d'études sur l'intégration et la mondialisation in Montreal,Canada, and Thinking Africa of the Institut de recherche et d'enseignement sur la paix en Afrique based in Dakar, Senegal.

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