Friday, October 10, 2008

New Instittutional Arrangements For African Agriculture

In most of sub-Saharan Africa government agricultural departments were set up beginning in the early 1900s, initially to conduct crop improvement research and extend technologies to large-scale commercial farmers. Commercial farmers widely adopted hybrid maize seed, fertilizers and tractor mechanization in the 1950s and 1960s.

Similarly, public investments were then expanded to diffuse hybrid and fertilizer technologies to smallholder farmers. Extension departments experimented with various models to persuade smallholders to give up traditional practices and adopt science-based, modern production technologies.

Significant investments were made in extension services. Some experts have suggested that the share of extension expenditure in total government agricultural spending was higher in Africa than in Asia. But today, smallholder agricultural production in sub-Saharan Africa is lagging behind those of small-scale farmers in Asia and Latin America.

This early extension effort was not entirely without merit. Government-led extension programs were effective in getting farmers to adopt first-generation technologies such as tillage, improved varieties, planting methods, crop rotations and use of animal manure. However, these programmes were not effective in promoting the adoption of information and knowledge intensive technologies such the use of, inorganic fertilizers, pesticides and value addition and markets.

As currently instituted, national research and extension programs are for the most part top-down. They are often designed without consideration for smallholder farmers, concentrating instead on the resource-endowed large scale farmers. These national programs also tend to be supply driven rather than demand driven and donor funded project based. Operationally, national programmes are expensive with high overheads and often crippled by managerial slack, bureaucratic bloat and shear indulgence in opulence.

In 2005, I presented a paper on the application of reflectance spectroscopy for rapid and inexpensive soil testing at the annual meeting of Soil Science Society of East Africa. During the question and answer session, most participants were over awed by the robustness of the technology. However, they pointed out that cost of the spectrometer was beyond the budgets of national programs. I was anticipating this comment. And I was ready with a simplistic answer; that the cost of purchasing and operating a Near Infrared Spectrometer was several orders of magnitude lower than purchasing and running a state-of-the-art SUV for the director of a national soils programme.

It is no wonder that one of the best examples of the ineffectiveness of the national research and extension systems in Africa is the uncontrolled haemorrhaging of soil nutrients across sub-Saharan Africa.

Starting about 1995, several countries have been implementing World Bank led agricultural sector reform programs to restructure public sector research and extension organizations. The intention was to encourage national programs to focus on areas where they have a comparative advantage, privatize non-core functions, commercialize and introduce cost recovery for services.

This policy shift was expected to catalyze progress towards private sector and public-private-NGO partnerships for research and extension, input supply and output marketing. While this transition occurred in earnest in Asia, Latin America and Europe, and North America, we see in sub-Saharan Africa is an unprecedented, universal decline in agricultural production and non application and adoption of science-based technology.

Donor assistance in agricultural research has also declined as priorities shift to, environmental protection, health, water and sanitation, gender equality and education. African governments have also cut public spending in agriculture, questioning the value of research and extension given the lack of improvement in agricultural productivity.

In the wake of cuts in public spending and neo-liberal reforms in the agriculture sector, governments are disengaging from provision of inputs, extension services, credit, and price supports. Consequently farmers, especially smallholder farmers have trouble accessing credit, obtaining information on market opportunities or new technologies, purchasing certain inputs and accessing product markets.

Smallholder production systems in sub-Saharan Africa have remained trapped by poor access to input and output markets and to new technologies. Financial services for both credit and insurance for farmers in sub-Saharan Africa are under developed and where they exist, they are largely inaccessible to smallholder farmers.

Local product markets remain weak, uncertain and inaccessible, with high transaction costs arising from poor market information and poor infrastructure. Furthermore, owing to high transportation costs, lack of credit and storage facilities and risks in supplying small-scale farmers, agricultural input manufacturers and rural traders have not expanded their investments.

The frustration among farmers, public policy makers and private sector managers in the credit, input, crop management technology delivery and output markets is how to substitute or supplement public organizations with new public-private-NGO structures to reduce transaction costs, improve the efficiency or research and extension for smallholder farmers in order to attain profitability and national food security goals

The trend of market-oriented reforms following multilateral trade liberalization and structural adjustment programs in developing countries have led to the increased integration of world markets. Especially important will be understanding the institutional response at the smallholder farm household level to this globalization.

There is need for bold and deliberate institutional innovations to address the twin challenges of declining public sector support for agriculture, diminishing per capita land holding as well as liberalization and increased vertical integration of agricultural value chains.

The New Institutional Economics (NIE) predicts that private sector participation through contract farming can create incentives for private sector to expand investments in technology delivery linked to improving competitiveness in domestic, regional and international markets and for farmers to adopt new technologies.

The vast majority of farms in sub-Saharan Africa are, and will continue to be less than two hectares in size. This trend presents a daunting challenge in terms of integrating smallholders into global value chains to link smallholder farmers to high-value markets in the wake of globalization and market liberalization in developing countries

Contract farming can overcome most of the challenges facing smallholder farm families and deliver the scale benefits typically associated with large-farm production systems. Economies of scale benefits that accrue from contract farming will decrease the cost of inputs and transport, leverage comparative advantage in market access and the deliver technology transfer, and product tradeability and quality. From a poverty-reduction perspective, contracting smallholder farm families can be profitable: small farms are generally owned and operated by the poor, often use locally-hired labour, and often spend income within nearby locales, creating multipliers.

Contract farming is however not a universal panacea for African agriculture. Contract farming carries substantial risks for the smallholder families. Contract farming can contribute to loss of control and autonomy by smallholder farm families over farm enterprises. Exclusive purchase rights by firms can depress producer prices. But most importantly, the strong gender dimensions in household resource control means within household distribution of labour/income tend to disadvantage women.

The risk to agribusiness firms is also considerable. There is significant risk of smallholder farmers side-marketing inputs and produce: fertilizer can be sold by farmers for cash and post harvest produce can be side-marketed to facilitate faster access to cash or to seek higher pro¬ducer prices or simply to avoid repayment of input credit.

Conjoining contract farming with collective action organizations such as producer organizations or cooperatives could offer the best safeguard measure against agribusiness malpractice. Hence, of producer organizations or cooperatives must be unequivocal in their mandate; providing a platform for arbitration and striving to ensure stable incomes for smallholder farm households.

Governments also have a key role to play in regulating the agribusiness contracts market place. Instances of such roles are the enactment of competition policies, the introduction of special contract law and the provision of low cost arbitration options.

The future of African agriculture lies with smallholder families. If agriculture is to be the engine for rural development and prosperity for the millions currently ensnared in the poverty trap, we must build new institutions that reach the invisible, under served smallholder farmers.

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