Embrace value addition for higher returns

Agribusiness in Africa is one of the top four undertaking with the largest growth potential.

The others are mining, power and infrastructure.

Agribusiness is estimated to support over 70 per cent of the livelihoods in Africa. With the world’s population expected to reach eight billion in 2025, Africa has a golden opportunity to be the world’s bread basket.

The continent holds an estimated 60 per cent of the world’s unused arable land which if well-utilised can create eight million jobs annually by the year 2020.

Africa is, therefore, the green continent sitting on gold. Countries like China, India and Saudi Arabia have invested millions of dollars in food production directly or through private investors.

This should serve as a wakeup call to African governments and the private sector to create policies on food production that support food security and export to international markets.

The 2012 African Green Revolution Forum in Arusha, Tanzania, focused on smallholder farmers’ key role in developing Africa’s agriculture. This supplies over 60 per cent of the food that is consumed in Africa.

Farmers’ major hurdles are accessing markets and dealing with post-harvest losses estimated at 40 per cent. This is devastating since farmers in developed countries in Europe, Asia and North America have less than one per cent post-harvest losses.

The main reason for this is the presence of manufacturing and marketing structures, besides good infrastructure.

In Kenya, it is estimated that during the peak milk production months of April and August, processors can only take 60 per cent of the produce. The other 40 per cent normally goes to waste or is sold at low prices to middlemen.

EXPAND MARKET

Processing milk into powder would be the best way to safeguard farmers from losses.

This increases the shelf-life of a produce, creates multiple uses for it and expands market both locally and internationally, ultimately creating more value for the farmer.

Furthermore, processing enables movement of finished goods as opposed to what is happening now where farmers move raw tea, coffee, nuts, and livestock.

With intensified investment in infrastructure by the government, it will soon be possible to transport produce and products across the continent.

The Lamu Port and South Sudan-Ethiopia Transport (Lappset) project, for example, will make it possible for produce to be transported from Rift Valley to South Sudan and even Ethiopia.

Once completed in 2018, the Standard Gauge Railway in Lappset will reduce the cost of transporting a container from Kisumu to Mombasa by more than 25 times.

Farmers must be ready to take advantage of these opportunities.

LOW LOAN UPTAKE

Another area which needs to be improved is financing. Very few farmers in the country can access loans from banks and repay successfully.

This is partly because their products don’t reach the market at the right price.

One way of tackling this issue is by promoting contract farming.

Contract farming is driven by the ability of manufacturing companies to gain more returns from processing.

Currently, the practice is mainly done by leading agribusiness processors in beverage, edible oil and milk sectors.

The higher prices offered to farmers through contract farming increases their creditworthiness. This in turn improves their ability to access funding through the various financial institutions.

Lastly, to sustainably grow the sector, financial institutions must look beyond crops and livestock farmers and empower the whole players in the agribusiness value chain that include traders and processors.

The writer is the Chief Executive Officer, Transnational Bank.