African agriculture is at a turning point, and a long-awaited “green revolution” may be within reach. Many of the continent’s governments are adopting market-friendly policies and committing more resources to the sector. Traditional big-donor countries are increasing their expenditures on agriculture, while China and Brazil are also beginning to contribute to the effort. African’s agriculture’s private-sector investment is rising rapidly. High, volatile food prices underline the importance of such development efforts and create not only pressure but also political space for policy makers to act.
But investing these additional resources wisely and fulfilling Africa’s agricultural promise will require better national planning. Work is under way to facilitate such improvements: for example, the African Union’s Comprehensive Africa Agriculture Development Programme (CAADP) aims “to help countries critically review their own situations and identify investment opportunities with optimal impact and returns.” Introducing cost-effective agricultural development plans will be a challenge, however. To succeed, they will have to address multiple technical hurdles in the context of limited human resources, corruption, political pressures, shifting priorities, and inadequate infrastructure.
In recent years, McKinsey has worked on the planning and implementation of agricultural development in more than ten African countries, across the public, private, and social sectors. We have codified insights from this work into four lessons: aim for narrower, higher-impact projects; pay more attention to the final market for agricultural goods; assure clear roles for the private sector; and think about implementation from the start. We offer these lessons to move the issue of African agricultural development beyond the question “what” and toward the “who” and the “how.”1
Focus on higher-impact initiatives
Many country plans are broad and diffuse, attempting to cover multiple regions and sectors without devoting sufficient resources to the effort. Liberia’s agricultural-sector investment plan, for example, has 21 initiatives across multiple subsectors, with three to six activities per initiative. This approach would be a management challenge for any organization, but especially for one in a postconflict country striving to rebuild basic public services and relying on significant support from donors. Almost all CAADP country plans set targets for productivity and output, but they do not always present these targets in a way governments can deliver, such as kilometers of road to construct, the number (and location) of warehouses to build, or the number of commercial farms to establish.
Governments should therefore make their plans as targeted and explicit as possible. They can concentrate investment on a value chain (all economic activity, from inputs to market, associated with a crop), on a “breadbasket” region positioned for large productivity increases, or on an infrastructure corridor. Countries could move sequentially, learning from success in one region or sector before spreading investments to others.
Morocco, for example, shifted its focus about four years ago from supporting staples to investing in a few high-value crops that could accelerate GDP growth while raising income for smallholder farmers. The country is more than halfway to its target of converting 300,000 hectares2 of land from cereal to citrus-fruit and tomato cultivation, among other high-value crops. Another success story comes from Ethiopia, which decided in the 1990s to invest in sesame and cut flowers for export. Close collaboration between the government and the private sector enabled strong year-on-year export growth in an otherwise stagnant agricultural sector. Oilseeds and flowers are Ethiopia’s fastest-growing exports, the latest statistics show.
A breadbasket approach concentrates investment in a particular geographical area. In the 1970s, Brazil’s Cerrado region, for example, began investing in infrastructure, agricultural research, and soil recuperation. Several African countries are adapting this model to existing agricultural areas and emphasizing smallholders. Mali, for example, is considering a pilot breadbasket program for its Sikasso region. The initiative aims to raise cereal production by 60 percent through a combination of yield increases and limited expansion onto new land. There will also be strong support for export development, new roads and warehouses, and measures for climate mitigation and adaptation (such as water harvesting and locally adapted drought-resistant seed).
Another approach is an agricultural-development corridor, in which commercial farms and facilities for storage and processing are concentrated around a major infrastructure project. Two such corridors are under way: one linking the port of Beira, in Mozambique, with Malawi and Zambia; the other connecting southern Tanzania to Dar es Salaam along the TAZARA Railway. In both cases, private investors in mining and infrastructure provided the impetus, supported by governments that want to develop neglected regions of their countries.
Develop markets to complement supply measures
Most agricultural-development plans focus on supply side interventions, such as improved seed and fertilizers. Many pay too little attention to the demand side—the place where the increased production will ultimately go. Unless the planners know the answer to this critical question, that increase will probably fail to produce economic gains and will make it hard to carry on with the program.
Once the subsistence requirements of the producers’ families and local communities have been met, there are three main sources of demand: export markets (international and regional), domestic urban markets, and food processing. In Morocco, the government helped facilitate the export of high-value crops to Europe through a combination of technical assistance, economic and political measures (such as helping growers to meet European farm certification requirements), and an agreement with the European Union to expand tariff-free access for Moroccan producers. In Ghana, the government plans to create a staple-crop breadbasket in the Northern Region to supply more rice and maize to urban markets, which currently rely on imports.
Food processing is attractive to many governments because it is both a source of demand for agricultural products and a job creator. For export goods, downstream processing may be discouraged by US and European tariff regimes, which favor raw over processed goods. African countries can, however, counter this problem by cutting their export taxes on those goods. Côte d’Ivoire and Ghana have used this approach to increase their share of cocoa processed in country to 40 to 50 percent today, from less than 10 percent in 2000. Meanwhile, as African countries urbanize, processing for domestic use will become more attractive. The challenge is to ensure that quality standards and infrastructure—especially power—make the industry competitive.
Reliable domestic sources of demand are particularly important in countries where poor transport connections or a lack of comparative advantages constrain the ability to export. In Ethiopia, for example, improved seed and good weather led to a surge in maize production in 2002. Farmers couldn’t sell the surplus, however: the country had little export infrastructure, while high domestic-transport costs and low purchasing power made it uneconomic to move the maize to cities or regions with food shortages. Maize prices eventually fell by more than 50 percent, forcing farmers to let the crop rot in the fields. The government’s goal of doubling cereal production will therefore require substantial investment in transport, storage, and processing.
Create clear roles for the private sector
Governments cannot succeed alone. The evidence suggests that agricultural-development programs also require the active engagement of private agents such as farmers or farmers’ organizations, input suppliers, warehouse operators, buyers, and traders, including international trading companies. Development programs often overlook or disdain agri-dealers and other middlemen, yet they perform essential coordination work—for instance, linking small farmers to markets or providing inputs appropriate for local soil conditions. Governments and donors rarely have the local knowledge or capacity for these jobs. Also, international trading companies can not only contribute technologies and management skills but are also major buyers. Private investment in infrastructure, such as mines and ports, may play a role in agricultural development, too.
Relying on private-sector agents such as input suppliers, buyers, or both has several advantages. They typically have access to capital and organizational know-how. In a competitive market, they must learn quickly to survive and make money. Private-sector agents can also link smallholder farmers to markets effectively. Large “nucleus” farmers, agri-dealers, and warehouse operators can market the output of many smallholders at once, reaping economies of scale that give smallholders better prices than they could get on their own. A similar service could be provided by farmers’ groups—in some cultures, they have a record of success; elsewhere, private-sector entrepreneurs have a better one.
In Morocco, for example, the government has developed an aggregation program for smallholders. The program revolves around a nucleus farm, with 50 hectares of land leased by the government to a commercial farmer who makes a commitment to work with surrounding smallholders through an “outgrower” program. Outgrowing means that the commercial farmer facilitates access to inputs (such as bank loans, seed, and advisory services) for the smallholders, in return for the right to market their output. Morocco created an agricultural-development agency to encourage and direct these investments and manage the contracts. One of the government’s key roles has been ensuring equity in the relationship between outgrowers and nucleus farmers. More than 30 aggregation partnerships have been launched since the program began, two years ago.
Bringing the private sector into the picture is no quick fix for agricultural development: often, when the government’s capacity is weak, so too is that of the private and social sectors (including cooperatives and other farmer’s organizations). In the past, governments used this argument to justify bypassing the private sector. When the government of Malawi launched its voucher-based fertilizer subsidy, in 2005, for example, farmers could redeem the vouchers only at government distribution centers. The result was a diminution of the role of private agri-dealers and the eventual closure of some dealer locations. Ultimately, the private sector can develop capacity only if its incentives are aligned with the government’s strategy and those of the sector’s agricultural customers.
Design implementation into the strategy
To carry out an agricultural-development strategy, government officials must work with farmers and the private sector across departments, from the central ministry to extension workers. Since most African countries face capacity constraints, governments must design clear, simple strategies. They can reduce the number of agents they use by working with aggregators, such as nucleus farmers in Morocco, who in turn deal directly with smallholders.
Effective implementation starts with assigning responsibilities clearly. At the central-government level, the relevant agency has three main tasks: managing agricultural programs within its own organization, coordination with other parts of the government and with donors and the private and social sectors, and monitoring the progress of the strategy, intervening as necessary. Each country has different institutions and capacities, so there is no universal solution. What the agencies actually do is more important than which part of government they are in.
One approach is to assign implementation to the department that developed the strategy—typically, a ministry of agriculture—investing in capacity and bringing in outside experts as needed. This approach can make use of existing institutions without undermining them. The downside is that it’s difficult to change the culture of large institutions, both public and private, to deliver the impact required. Since capacity-building projects in Africa have a mixed record, using existing capacity may be best when the strategy involves strengthening or expanding a program that the government has already shown it can administer.
Another approach is to set up a special delivery unit to guide implementation. This may be appropriate if the government decides that capacity in an existing ministry is low or feels that the strategy is so innovative it would be better to create a unit with an explicit mandate. Such a unit is rarely in charge of programs but sets targets, tracks progress, and solves coordination problems. It may well drain capacity from other government departments as it typically offers more attractive salaries and interesting work. Yet it can also build capacity within the government: rotations, secondments, and placements spread its way of working to other departments. Morocco, for instance, created the Agency for Agricultural Development with a specific mandate to establish public–private partnerships for high-value crops. Other aspects of the government’s strategy remain the responsibility of a restructured ministry of agriculture, whose budget has risen to $1.4 billion a year, from about $800 million.
Several other countries are considering the delivery-unit model to promote agricultural transformation. These units would serve as a contact point for government and donor organizations, track the progress of critical initiatives, and intermediate between public and private entities.
Given the capacity constraints most African countries face, our central message is that to succeed, agricultural-development plans must be less ambitious and more targeted. They will differ for each country, so a uniform implementation isn’t possible. But agricultural development comes to life when government, working with all interested parties, pursues selected initiatives that have identified sources of demand and appropriate enabling investments supervised by a nimble implementing authority.
About the Authors
Sunil Sanghvi is a director in McKinsey’s Chicago office, where Roberto Uchoa de Paula is a principal; Rupert Simons is an alumnus of the London office.
The authors wish to acknowledge the contributions of Aaron Flohrs, Lutz Goedde, Kartik Jayaram, Katie King, Chris Maloney, Jens Riese, and Amine Tazi-Riffi.