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Challenges of commodity value chain development towards improving the competitiveness of agricultural commodity in Africa

Background Paper Prepared for the

2nd Conference of the STC on Agriculture, Rural Development, Water and Environment

2-6 October 2017 Addis Ababa, Ethiopia.

AFRICA UNION

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1.0: Introduction

The Arusha 2005 declaration on African commodities posits strongly that the development of the

commodity sector is a prerequisite for achieving development goals. The declaration emphasized the

significant roles that commodity production and trade play in income and employment generation,

wealth creation as well as their direct contribution to export earnings. Against the backdrop that

most African countries have commodity-dependent economy, it is therefore, impossible to fast track

improved livelihoods and economic development, eliminate poverty and hunger, and achieve

sustainable development without commodity value chain development.

African economy is largely agrarian. This comparative advantage presents a huge opportunity to

boost African competitive advantage in agricultural commodity production and trade. The Malabo

2014 commitments; which defined the immediate future of African economies around agriculture,

also, orchestrate the key roles of agricultural commodity value chains development as instrument for

tripling intra-African trade.

Emerging evidences reveal that poorly developed commodity value chains coupled with a host of

infrastructural and policy related constraints are hampering the abilities of African countries to boost

commodity’ competitiveness. Commodity value chains development, which is the product of value

chain analysis, helps to situate the commodity market system in terms of their improved

competitiveness, efficiency and reliability. The analysis involves identifying actors and activities that

increases transaction costs along the chains and limits efficiency. As part of her support action in the

promotion of strategic agricultural commodities value chains in the semi-arid zone, AU-SAFGRAD

commissioned two studies; IGAD region (2014) and the Sahelo-Saharan zone (2015) to identify the

challenges of agricultural commodities value chains development towards improving their

competiveness. While the IGAD study targeted sesame and sorghum value chains using

administrative data, the Sahelo-Saharan zone study investigated maize and sorghum value chains

using field survey data elicited from primary actors in the commodity value chain.

Assessment of the activities of primary stakeholders using the SWOT analysis reveals the country-

specific outcomes, that are key to initiating value chain development through reducing transaction

costs and producing competitive products. The production, marketing (wholesaling and retailing)

and processing activities were analyzed with reference to their competiveness and efficiencies

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2.0: Key findings

A. General:

The study finds close similarities in the structure, conduct and performance of chain

activities for the commodities in countries and across zones. Specifically:

1. The chain actors includes, input suppliers, farmers, collectors, wholesalers, exporters,

processors (millers) and retailers.

2. Production of the cereals was mainly in rain fed farms, cultivated holdings are small (<

2ha/households) and dispersed with little or no use of purchased inputs. Sorghum and

Sesame was found to be largely produced to meet family food needs (67% and 74% of total

production consumed at household in the IGAD and Sahelo-Saharan zones respectively).

3. Low per hectare yield levels for Sorghum and Sesame and close to the SSA average (720kg).

However, yield levels of maize in Burkina Faso (1.79tons) and Mali (1.9tons) were higher

than the SSA average (1.14tons)

B. Commodity value chains growth advantages:

1. Favorable climatic condition,

2. High opportunities for increased yield through intensification of production; availability of

technological and institutional support

3. massive pool of farm families involved in production and value addition

4. Opportunities for value addition considering the broad spectrum of utilization and use

varieties

5. Huge market opportunity (household and industrial demand) in the region.

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Source: FAOSTAT raw data (2013)

1

10

100

1000

10000

100000

1000000

10000000

Somalia Eritrea Ethiopia Sudan Kenya Uganda

Pro

du

ctio

n (

ton

ne

s)

Fig.1: Production of sorghum in selected countries in IGAD region (2013)

Sorghum

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

200000

Somalia Ethiopia Sudan Kenya Uganda

Pro

du

ctio

n (

ton

nes

)

Fig. 2: Production of sesame in selected countries in IGAD region (2013)

Sesame

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1709000

390000

1502717

1798

1300

2346

0

500

1000

1500

2000

2500

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

Burkina faso Chad Mali

Mai

ze y

ield

()k

g/h

a)

Mai

ze P

rod

uct

ion

(kg

)

Fig3: Production and Yield of Maize in the selected countries in the zone.Maize production (kg) Maize yield (kg/ha)

1940000

745000 819606

1287000

4524000

957

876 874

415

634

0

200

400

600

800

1000

1200

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

4500000

5000000

Burkina faso Chad Mali Niger Sudan

Sorg

hu

m Y

ield

(kg

/ha)

Sorg

hu

m P

rod

uct

ion

(K

g)

Fig4: Production and Yield of Sorghum in the selected countries

Sorghum production (kg) Sorghum yield (kg/ha)

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C. Sources of inefficiencies in Commodity value chains:

National

1. lack of standardization,

2. poor quality of harvest,

3. Lack of market support services,

4. bad roads infrastructure as well as

5. the sharp practices of public marketing boards officials

Inter-country level

6. Non-tariff barriers occasioned by excessive documentation and

7. Delays resulting from excesses of land border agents (phytosanitary and certification), and

8. High transportation costs.

D. Priority areas for intervention for chain development

The study identifies key priority areas for intervention to accelerate chain development in

the countries. The priority areas suggest the specific node(s) that will accelerate value chains

development in the country and regional levels. Figs 5 and 6 show the most important

country specific intervention areas (farm production, marketing and processing). The height

of each column signifies their relative importance in accelerating chain development in the

respective countries. For example, apart from encouraging processing activities, the

development of market infrastructure and other measures to reduce marketing costs will go

a long way in reducing transaction costs in sorghum and producing competitive products.

E. Summarized development Challenges from chain actors’ activities

Table 1 is a summary of key value-chains development challenges identified from the study.

At the farm level, recurring constraints are lack of access to improved seeds and chemical

fertilizers. At the collection and wholesaling level, high transportation costs, and lack of

access to good storage facilities (resulting in high quality and quantity losses) as well as price

volatility were significant causes of high transaction cost. Processing activities especially at

the industrial level were, to a large extent, affected by high processing cost, price instability

resulting from irregular supply of grains and stiff competition with imported finished and

cheaper products

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0

10

20

30

40

50

60

Burkina faso Chad Mali Niger Sudan

Pe

rce

nta

ge

Fig 5: Intervention priority areas for Sorghum value chain development

farm production marketing Processing

0

5

10

15

20

25

30

35

40

45

50

Burkina faso Chad Mali

Pe

rce

nta

ge

Fig 6: Intervention priority areas for Maize value chain development

farm production marketing Processing

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Table 1: Summarized development Challenges from chain actors’ activities

Chain Activity Challenges

Production Lack of access (availability and affordability) to improved seeds, fertilizers and erratic

rainfall

Collection Lack of standard measure, poor quality of produces, absence of storage facilities and

credit access, high transportation cost

Wholesale Storage facilities and credit access, Lack of standard measure, poor quality of

produces, absence of storage facilities and credit access

Processing High variability in supplied quality and price, high energy cost, high cost of

replacement and maintenance of plants, availability of imported cheap products

Retailing High quality and price variability and credit access

Source: AU-SAFGRAD Survey (2016)

3.0: Recommendations

The following recommendations are proffered based on the findings of the studies:

Member States (MS) should:

1. Promote anti-dumping policies to encourage and protect investments along the value chain

2. Incentivized business schemes to attract investors

3. Open up and develop feeder roads and market infrastructure

4. Facilitate access to affordable inputs and equipment, and

5. Promote the development of structured and functional markets information

Regional and Continental level

6. RECs to facilitate the regularization of trade standards,

7. RECs to prioritize strategic regional commodities upon which they should concentrate value

chains development efforts to improve regional competitive advantage

8. RECs in Collaboration with AUC to harmonize border post certifications, documentations and

permits to facilitate intra-African trade in the commodities, and

9. RECs in Collaboration with AUC to inaugurate regional strategic commodity committees

(RSCC). The Committee will chart the road map for developing the value chains which are

considered key for ensuring food security and boosting intra-African trade