Synthesis Documents

Private Sector Perspectives for Strengthening Agribusiness Value Chains in Africa, Mima Nedelcovych and David Shiferaw, 2012

    This study investigates the constraints impeding greater private sector investment within specific value chains in four African countries: Mali, Ghana, Kenya and Ethiopia. The selected value chains include two grains (maize and rice), in order to represent commodities that had large domestic markets, and livestock and horticulture value chains due to their volume of export trade in each country.

    The specific objectives of the research were to explore
    - existing levels of private sector investments in the selected value chains;
    - policies and actions by governments, donors and development partners that encouraged or discouraged private sector investment; and
    - lessons learned from successful efforts of promoting agribusiness investments, and their possible relevance for other countries and value chains.

    The findings suggest that African governments have significant opportunities to take actions that would directly stimulate private investments in agriculture. With greater government support in creating an enabling environment and less direct government intervention in value chains, critical barriers to their businesses could be reduced or eliminated.

    Methods for info gathering
    To collect their data, the authors held a series of interviews with a wide range of representatives from the public and private sectors over a five-month period in the four countries selected, and complemented outcomes from these interviews with information from literature and other printed resources.

    Summary of results
    In each of the four countries, the government played a key role in either assisting or constraining private investment in the identified value chains. By prioritizing investments in selected value chains, governments have the ability to focus public investments on key constraints impeding the expansion or efficiency of those value chains, such as irrigation facilities. Effective regulatory institutions helped private exporters comply with international sanitary and phyto-sanitary standards.

    However, in all four countries, lack of adequate roads and electricity continued to raise transaction costs of marketing the commodities and limit growth in the value chains in both export and domestic markets.

    Access to land and tenure security emerged as a common constraint to increased private investment in all the countries, in some ways more important for domestic investors than for foreign investors.Rules and regulations for establishing out-growers schemes, contract farming or successful incorporation of smallholders into larger agribusiness operations were problematic.

    All four countries compete for high-value horticultural products in European markets. Ethiopia has also oriented its high-value livestock/meat export value chain towards Middle Eastern markets. Non-African export markets are demanding in terms of quality, timing, and cost. In spite of the European market requirements becoming tougher, these export markets had potential for significant expansion. Both Mali (livestock/meat and rice) and Ethiopia (maize) also had opportunities for significant expansion into regional markets, although actions needed to increase the volume, improve the quality and reduce market transaction costs were absent. The rice value chains in Ghana and Kenya were oriented toward import substitution, effectively making local producers and private investors compete with the highly efficient rice value chains in Thailand, Vietnam, and Pakistan that already export into Ghana and Kenya. This poses a steep challenge to the nascent rice value chains in Ghana and Kenya and has engendered somewhat erratic policy decisions by governments struggling to protect local production.

    The maize value chain stories in Ghana and Ethiopia demonstrate the challenge of developing cost-efficient value chains by increasing farm-level productivity without, at the same time, building more robust, diversified market outlets. In both cases, greater private sector investment in post-harvest processing could respond to a variety of local demands, such as animal feed, brewery, other processed maize food products, and strengthen producer incentives to target production for those markets.

    Governments’ interventions in staple crop value chains tended to increase uncertainties for private investors at all levels, from production to marketing. The Kenya government’s attempt to simultaneously raise prices for producers while reducing prices for consumers is perhaps the most extreme example of mixed signals, but ad hoc price controls, export bans, and import tariffs are also common.

    Public sector interventions in export value chains, on the other hand, tended to be more supportive, but often incomplete or misdirected, leaving private investors and donors to fill gaps and provide additional assistance. A stronger engagement and institutionalized communication between the private and public sectors is needed in all of the countries. Where large amounts of capital or other investments, such as technology or know-how, are involved, the public and private sectors should partner to lower risks.

    The study includes detailed recommendations for reform in each of the four countries.