Economic Impact of African Agriculture

Agriculture plays a major role in the economy and society of most African countries, and increased productivity in the sector is considered to be the very basis for the continents economic and social development. Small-scale farmers in particular have an important role to play in combating poverty and creating widespread growth.

The role of agriculture in the development of modern societies has been a hotly debated topic for decades. In the case of post-independence Africa, there was – domestically and from donors – a time where strong emphasis was put on the industrial and service sector, to the detriment of agriculture in some countries. Today, with studies and empirical data from several regions, not least Asia and Latin America, there is common consensus about the paramount role of agriculture as a foundation for diversified economic development.

There is broad agreement that increased agricultural productivity is a precondition for growth and development in most African countries, particularly the least developed ones. Agriculture is considered the engine of economic growth, with strong multiplier effects throughout the economy.

The role of agriculture

Agriculture accounts for about 30% of Sub-Saharan Africa’s GDP, at least 40 % of export value – and approx. 70–80% of employment. Furthermore, two-thirds of manufacturing added value in most African countries is based on agricultural raw materials. In a number of smaller countries, agriculture plays an even more dominant role, representing 80 % or more of export earnings.

Despite urbanization, Africa is still a predominantly rural society. The agricultural sector is therefore integral to any model of social and economic development. As the report of the Commission for Africa “Our Common Interest”, states: “Accelerating growth in agriculture is critical to sustained growth and industrial diversification in the wider economy.”

Closely linked to other sectors of the economy, growth in agriculture contributes to general economic growth, providing new engines of growth, particularly in the countryside, as well as an opportunity to substitute imports – and to generate exports.

In reducing poverty, agricultural growth is deemed the primary sector, more valuable than growth in general. A report from Practical Action, “The Crisis in African Agriculture”, states that “Agriculture remains key to achieving the poverty targets of the MDGs in Africa”. The strong poverty-reducing effect of agricultural growth is due in part to its generation of both agricultural and non-agricultural employment. Unlike the industrial sector, agricultural growth directly generates demand for rural labor and has demonstrated its capability of generating employment opportunities for the poorest. Furthermore, some of the most high-value and export-oriented crop production, such as horticulture, is highly labor-intensive.

The report “The Role of Agriculture in Development” from the International Food Policy Research Institute (IFPRI), points out that the linkage effects from agricultural growth with other parts of the economy have proved most powerful when this is driven by small farms. Studies demonstrate that these are highly efficient due to their greater land productivity and their provision of self-supervising labor.

Small-scale farmers also help contain poverty and secure a degree of food security in rural areas, where high transport and marketing costs can drive up food prices; and they contribute to preventing urban migration. “In order to fully mobilize a country’s social capability during the early stages of development, it is important to acknowledge smallholder farmers entrepreneurial potential and accordingly develop technologies that improve their management capabilities. In turn, these rural entrepreneurs can help drive non-agricultural growth in both rural and urban areas.”

Growth in agricultural production also benefits consumers by driving down food prices, particularly helping the poor, who tend to spend a high percentage of their income on food. Food costs in Africa remain high, largely due to considerable transport costs. Growing food where it is consumed is normally the least expensive option, even if globalization has made import of some food products cheap – and potentially threatening to local production.

The World Bank and IFPRI, in the report “Agriculture and Achieving The Millennium Development Goals”, points to the low global prices for staple food crops – due to the success of the Green Revolution and high levels of subsidies in the North – as a potential impediment to agriculture-led growth in the South. “As a consequence, it now is difficult to generate profits through staple food crop production even at high levels of productivity, particularly for smallholders who are unable to achieve economies of scale.” Increasingly, the report argues, farmers need to diversify their production into high-value, but knowledge-demanding, specialized crops.

The economic potential

Studies of economic development in other regions indicate the potential of the agricultural sector in the future growth and development in Africa. Experiences mentioned in the IFPRI paper “The Role of Agriculture and Small Farms in Economic Development”, is that agricultural growth has powerful leverage effects on the rest of the economy, especially in the early stages of the economic transformation, and that it can generate employment intensive patterns of development favorable for the poor.

Another lesson learned is that agricultural growth must be technologically driven, so that output prices can fall while farm incomes increase. The paper also points out that agricultural growth needs to be broad-based so that it is economically efficient and puts purchasing power into the hands of the rural masses and not just a privileged few – and that in low-income countries, “small and medium-sized farms are typically more efficient producers than large farms”.

African agriculture is to a great extent dominated by production-efficient small-scale units.

Whereas small-scale African farmers in the past faced unfavorable domestic policies, they are today challenged by globalization, including unfair competition from farmers in the North, both in the domestic and international markets, due to subsidy policies and trade barriers. Utilizing the potential represented by the agricultural sector and the small-scale farmers, an enabling environment is needed, locally and globally, including partnership with donors and the private sector. Still, the World Bank and IFPRI state that for the poorest countries the process of small-scale agriculture-led economic growth leading to strong economies and minimal poverty will not occur by 2015. “For these countries, the relevant time frame is one of decades and generations.”

The Commission for Africa’s report points to the fact that poverty can be as much as 20 to 30 percent lower in areas where a higher proportion of land is irrigated, whereas rain-fed agriculture is far more susceptible to climatic variability. Barely 4% of arable land in sub-Saharan Africa is irrigated, compared to 40% in South Asia. The commission recommends that Africa must double the area under irrigation by 2015. The main productivity increase will come from higher yields, not by expanding arable land.

It is commonly stated that to realize the potential of African agriculture a wide range of obstacles have to be overcome. At the same time, international support for Africa’s development must be strengthened. Investments in agricultural development as a means of reducing poverty make economic sense. Research shows that a 1% increase in agricultural yields decreases the percentage of population living on less than USD 1 a day by 0.64 to 0.91%, with a slightly higher reduction for Africa. According to the World Bank, a 10% increase in crop yields leads to a 9% decrease in the percentage of people living on less than USD 1 a day. The same effect is not achieved by growth in the manufacturing and service sectors.

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