TOWARDS
A STRATEGY FOR IMPROVING AGRICULTURAL INPUTS MARKETS IN AFRICA
By
Valerie A.
Kelly, Eric W. Crawford, Julie A. Howard, Thomas Jayne, John Staatz, and Michael
T. Weber
To
view this document in Adobe Acrobat format (188 Kb)
Food
Security II Cooperative Agreement between U.S. Agency for International Development,
Global Bureau, Economic Growth Center, Office of Agriculture and Food Security
and Department of Agricultural Economics, Michigan State University
BACKGROUND:
As we enter the 21st century, figuring out how to improve rural as
well as urban food security, and to stimulate underlying food system development
in Africa remains a major challenge. For over a decade MSU's Food Security Project
has investigated the factors affecting farm productivity and agricultural inputs.
This research has been based on a number of field surveys across Africa involving
host country research collaborators, and MSU students and faculty.
This research actually began
in the mid-1980s, prior to the Food Security Project, with studies of Senegal's
fertilizer and seed distribution systems and factors affecting farmers' adoption
of fertilizer. Later the research evolved to cover broader studies of social,
economic and environmental factors influencing farm productivity throughout
Sub-Saharan Africa (e.g., Burkina Faso, Rwanda, Zimbabwe, Zambia).
More recent efforts include
analyses of the impact of structural adjustment reforms on input sectors (particularly
in countries of the CFA franc zone), and studies of promising private sector
and government initiatives to lower the cost of supplying inputs and other technology
to farmers (Ethiopia, Mozambique, Kenya, Mali). Related research has been conducted
on agricultural technology development and transfer, output marketing and market
information systems, and synergies between cash and food crops. Field studies
have been complemented with literature reviews on fertilizer response and profitability;
technical aspects of the interactions between fertilizer use, organic matter,
and soil quality; and seed sector development.
OBJECTIVE:
Host country and donor policy makers are currently revisiting the important
question of how to develop realistic and sustainable strategies for improving
agricultural input markets in Africa. To help inform this discussion, the objective
of this policy synthesis is to review key conclusions from Food Security Project
research, and outline findings about major challenges ahead. More detailed results
of these research efforts are summarized in a number of policy syntheses and
research papers available from MSU and USAID (see list of downloadable Policy
Syntheses by subtopic in Table 1).
KEY CONCLUSIONS:
Agricultural intensification (i.e., raising yields on fixed supplies
of arable land) based on privately and socially profitable technology (organic
and inorganic fertilizers, soil/water conservation technologies, improved seeds,
pesticides, and animal traction) is essential if rural incomes are to rise and
Africa is to feed its rapidly growing population without destroying the natural
environment.
- In many Sub-Saharan African
(SSA) countries, some smallholder and commercial farmers are successfully
using improved technologies, often introduced by government- or NGO-sponsored
projects or private sector (including joint venture or cooperative) outgrower
schemes. Input-responsive technology, high-quality extension services, financially
sound savings and credit systems, and well-functioning input and output markets
are vital to sustaining farmer adoption of intensive practices
and expanding the adoption of technologies by farmers outside
the small group of relatively well-off early adopters.
- Input and output markets
serve farmers best when there is some degree of vertical coordination
among input distribution, output marketing, and credit functions, which lowers
costs and improves loan repayment rates. To date, the most successful and
long-lived examples of vertical coordination have been in subsectors producing
industrial or export crops (cotton, for example). In such cases, increased
access to improved inputs and more reliable output markets stimulate productivity
in food crops as well as in cash crops.
- A key feature of these
sustainable cash cropping schemes has been their ability to provide incentives
that make it profitable over the long run for farmers to sell their output
through the scheme. This in turn makes it profitable for the scheme to extend
credit, inputs, and other services that support smallholder productivity growth
(including for food crops), to the mutual benefit of both the scheme and participating
farmers.
- By contrast, where the
institutional arrangements do not provide farmers with sufficient incentive
to market their output through the scheme, the system often breaks down and
the contribution of cash cropping to food crop productivity is not realized.
- Through most of the 1980s,
input delivery and output marketing activities in SSA were provided directly
by government parastatals or semi-public
firms. Supported by direct
and indirect subsidies, such activities frequently succeeded in boosting input
use and marketed output, until budgetary deficits made them unsustainable. Subsequent
structural reforms led to the removal of fertilizer subsides and the withdrawal
of government from input distribution.
- The fertilizer subsector
in many countries has fallen into a low-demand, low-volume, high-input cost
trap characterized by stagnant or declining use of improved seed/fertilizer
technologies. Many had hoped that the private sector would take over the input
marketing functions previously assured by government, yet high costs and risks
(including policy uncertainty) have limited the scope of commercially viable
private sector involvement. A few countries (e.g., Ethiopia) have made progress
in stimulating farmers' use of improved inputs, but the sustainability of
such efforts remains a concern.
MAJOR CHALLENGES:
- While input and output
marketing should be assured largely by the private sector, some government
involvement is needed to facilitate efficient and transparent markets (See
Figure 1 for an illustration of factors helping to transform fertilizer potential
into consumption). The appropriate extent and type of government involvement
is not obvious, however. Although economic theory provides some general guidelines,
there is growing evidence that the role of government will vary from country
to country and by stage in the agricultural transformation process, depending
on factors such as capacity of the private sector to invest in input markets
(which have high capital requirements and low profit margins) and farmers'
effective demand for purchased inputs (dependent on availability of profitable
technology, and farmers' knowledge of that technology and financial capacity
to invest in it).
- Sustainable improvements
in agricultural productivity will require not only developing more input-responsive
production technologies but also reducing the real costs
and the risks associated with input and output marketing.
Country-level research is needed to identify investments and institutions--both
public and private--that can reduce costs and risks, and provide incentives
for adoption of improved production, processing, and marketing technology
throughout the food system.
- The choice of investments
and policies to reduce the cost and risk of improved inputs should be based
in part on a cost-benefit analysis that takes into account both private and
social benefits including national and global environmental impacts.
- Costs:
Among the questions that need to be answered are how to:
- achieve economies of
scale to decrease unit costs
- encourage expansion of
cash crop outgrower schemes that facilitate vertical coordination of marketing,
credit and extension services with positive spillovers for other crops and
household incomes
- facilitate collaboration
between farmer associations, NGOs, and for-profit firms to reduce marketing,
extension and credit costs.
- Risks:
We know something about how risk affects both farmers' and input suppliers'
decisions, but much less about cost-effective ways to diminish its negative
impacts. As technologies requiring high levels of external input use are extended
to more marginal production environments and poorer farmers, risk management
will become more important. Among the key issues to examine here are:
- What mix of crops and
improved technologies--including alternative soil fertility-enhancing technologies
such as green manuring, minimum tillage, improved fallows--is financially
and economically viable in riskier environments? Purchased inputs may not
be appropriate for all farmers.
- What complementary institutions
and organizations are necessary to spread risk more evenly among farmers and
input suppliers, thereby encouraging reliable use and repayment of inputs
credit? How can such institutions and organizations be designed and operated
in a cost-effective way?
* Funding for
much of this research was provided by the Food Security and Productivity Unit
of the Productive Sector Growth and Environment Division, Office of Sustainable
Development, Africa Bureau, USAID (AFR/SD/PSGE/FSP). The research was conducted
under the Food Security II Cooperative Agreement between AID/Global Bureau,
Office of Agriculture and Food Security, and the Department of Agricultural
Economics at Michigan State University. The views expressed in this document
are exclusively those of the authors.
The authors are
all associated with the Department of Agricultural Economics at Michigan State
University.
