Seed 2 Harvest Report: Exploring Africa's Agricultural Development and Security Challenges - Part II

This second Seed 2 Harvest special report series embarks on a detailed follow up on Africa's agricultural sector, with the 1st Seed 2 Harvest Special report published last September, available here for viewing.

The Seed 2 Harvest series commences by unraveling Africa's complex agricultural history while spotlighting its vast untapped potential. It highlights key nations including Ethiopia, Kenya, Nigeria, Egypt, Uganda, and Tanzania, offering unique perspectives on their agricultural strengths and investment opportunities.

Agriculture is one of the most fundamental economic sectors for any society or country, and how the fundamental economic factors of supply and demand operate in those areas determine the efficacy and impact of the sector. The capabilities surrounding supply and demand can include everything from harvesting to storage, and each country faces unique challenges to this problem. Then there are the important market forces that dramatically impact the agriculture sector, along with climatological and even transportation issues. This essay is the second part of the Seed To Harvest series by Riley Sentinel that will take a granular focus on considerations surrounding supply and demand in the agricultural sector in Africa that are critical to the monetization of harvested potential. (See here for part one.) The supply and demand of food in Africa are influenced by a confluence of various complicated factors and variables, the optimization of which creates a conducive market for agricultural products, especially food. Understanding those relevant factors and variables will offer insight into the various issues farmers, corporations, and NGOs face in the region in supporting or profiting from the agricultural sector.

Demand Side Issues

Concerning the demand side of the market, consumers of Africa’s agriculture can be broken down into rural, urban, and foreign consumer bases. The demand needs of each of the consumer bases produces different challenges in the sector that must be considered, and they should be considered separately.

Rural Demand

Though significant, the rural market for food and agricultural products is not as robust as the urban and foreign markets. While Africa collectively has a vast rural market, the purchasing power of consumers in this section of the market is significantly low. Demand is therefore disabled due to lack of capacity to purchase. Nevertheless, cash crop growing areas have good income earners who can stimulate demand. As explained in part one of this series, most cash crop-growing regions often have significantly lower output in respect of food production. Lands used for the production of export-oriented crops are mainly at the expense of domestic food production.

An important aspect of the rural economy that is essential to food demand is the fact that incomes are “redistributed” from different sources. Local cash crop farmers get to pay farm workers and sometimes landowners. Other income earners and organizations based in rural Africa also contribute significantly to rural demand for food. For example, civil servants and other government workers based in rural communities get to stimulate demand as they receive salaries. Deeply related to this is the communal nature of many African societies, and because government salaries are more likely to be consistent than in other sectors, there is a trickle-down effect as these workers help take care of their extended families. Workers of non-governmental organizations and other organizations providing services in rural Africa are also essential income earners that are important to the food market in Africa.

Then there are the farmers themselves as consumers. Farmers get access to money to buy food produced from other parts of their countries, but this is seasonal. In Cote d'Ivoire, Ghana, Nigeria, and Cameroun, cocoa farmers access seasonal income from the beans. During the harvest periods, demand peaks for food. Rice, wheat, and other staples see a rise in demand. In Ghana, the phrase “cocoa season” is often used to represent good financial times. Retailers and wholesalers in the food supply chain often count on the seasons to increase their sales. Tea growers in Kenya, tobacco farmers in Zimbabwe, coffee planters in Ethiopia, and many others fall under this category.

Urban Demand

African countries are among the states with the fastest-growing cities in the world. In the next few decades, cities in the continent have been estimated to surpass those in many advanced countries. Lagos, Cairo, Johannesburg, and Nairobi are among the cities with enormous areas and populations in the world. This has been enabled by the fast pace of rural-urban migration in the last decades, and the exodus's effects include pronounced economic activities stimulated by cheap and accessible labor. Like in other developing nations, this has led to increasing numbers of African middle class across Africa. Consequently, this has led to high consumption with the demand for food being a significant item on the list. Local food production in many countries is unable to satisfy these megacities with many of them depending on imports to either augment local production or as a significant source of food.

The evolution of urbanization in Africa, 1950-2010

Staples like rice, wheat, and sugar are often imported despite huge tracts of arable lands across the continent. Most importantly, the urban food demand forms the bulk of the total demand for food produced in African countries. Local producers direct their harvest towards these megacities. With food prices in the cities significantly higher than those in rural markets, they have become magnets for local farmers and middlemen who are eager to increase profit margins.  In Ghana, the cost of food in Accra is comparatively much higher than in rural communities and some other semi-urban centers, and the population has relatively high purchasing power to buy them. With consistent economic growth that translates to sizable job creation, consumption remains high and is likely to be higher in the long term. Despite global economic challenges post-COVID and the Ukraine conflict, African economies, especially south of the Sahara, continue to grow at impressive rates. This is good for food producers as “rising food prices stimulate short-run agricultural supply responses that induce increased demand for unskilled labour and increases in wages.”

Foreign markets

As mentioned in Seed To Harvest part one, much of the agriculture export from Africa is made up of non-food cash crops. These are mainly raw materials that are in high demand by external industries with technological know-how and have a comparative advantage in processing these products. Cotton, cocoa, tobacco, agricultural, coffee, and oil palm fall under this category. Even though some countries have developed domestic capabilities for raw materials, their production far exceeds local demand.

Africa produces mostly tropical foods that do not thrive in temperate and other regions. Pineapples, bananas, some tubers, and meat are examples of such exports from Africa. Under the African Growth Opportunity Act (AGOA), the United States government removed tariffs on these tropical food commodities exported by African states into its economy. After Ghana was included in the policy, farmers took advantage of it to expand the export of these crops. In Ghana, pineapple farmers in Central and Eastern regions –not far from the capital—produce tons of pineapple for export every year. Many other African economies regularly export foods, including mangoes, bananas, and pawpaw, among others. The US government has made AGOA the cornerstone for promoting economic interdependence with Sub-Saharan African nations. Yet it has not necessarily lived up to its expectations of creating the desired foreign demand for African agriculture. In 2022, Africa exports to the United States equaled more than $10 billion, but this trade remains underdeveloped. According to the Council on Foreign Relations, “After the initial jump in the first decade of the program, exports gradually fell to near their 2000 level by the mid-2010s, and they have only slowly begun to gain back the lost ground.”

The Supply Side

On the supply side of the market are several factors that are critical to getting raw harvested produce from the farm to consumers. These include transportation infrastructure, storage, packaging, cost of labor, and taxation. These factors affecting the supply chain and general market viability of food in Africa and other ancillary variables are critical to assessing the food economy in the continent.

The Modern Bazaar

Like the bazaars in Turkey, African communities and towns have had local market centers for centuries that have attracted food produced by subsistence farmers. Most of these centers are found in traditional capitals or clusters of villages and settlements, often of a common ethnicity. A day or two within the week is chosen as the market day for all to meet and trade. On the day, crop growers and animal keepers meet at the market center to sell their produce. In the early stages of this development, trade was largely based on barter—the exchange of goods without money and a medium of exchange. The only viable condition was the establishment of the double coincidence of wants. Once you can find someone who has what you want and wants what you have, an exchange occurs.  

Many of these market centers in modern rural Africa have outlived multiple centuries. This notwithstanding, they are currently run on modern market principles, taxation, and supply chains. Market centers in rural and semi-urban Africa are flooded with both local foods and imported foods. In recent decades, the latter seems to take a more significant chunk of the market. Apart from fresh produce from subsistence and medium-scale farmers, much of the processed foods, grains, and other items are imported goods. This is despite the vast arable lands surrounding the local people. As stated in part one, apart from years of inefficient government policies, the land tenure system could be a major factor in this debacle.

Regardless, some countries like South Africa, Egypt, Morocco, Nigeria, Ethiopia, Kenya, Tanzania, Ghana, and Senegal have built varying capacities to process consumer goods that have become viable substitutes for imported products. Despite these domestic capacities, rural markets are still dominated by imported food products. This has resulted from the expensive cost of production and rising tax rates. In the urban and semi-urban centers across Africa, these market centers are larger and more modern to serve sophisticated populations. Also, Western and Asian-style malls are springing up in many cities across Africa. From cities like Nairobi, Mombasa, Addis Ababa, and Kampala in the East to Lagos, Accra, and Abidjan in the West, a growing middle class has attracted modern malls and is expanding local markets. While food in the cities is generally expensive, the availability of purchasing power has meant that consumption remains steady.

Transportation Infrastructure

The arteries through which food produced in the farmlands in Africa gets to the “modern bazaars” (both domestic and foreign) are the roads, railways, and domestic and international ports. These channels are as important as the commodities that are transported on them. Good and accessible transportation systems mostly translate to food distribution and an effective supply chain. Africa faces one of the widest infrastructure gaps among all continents (see here for an NBER analysis of the spatial issues of Africa's infrastructure. Roads linking towns and villages are poorly managed, not accessible, or non-existent. The few good roads lead to bigger towns—often the capital cities. Except for rural communities that lie close to the main trunk roads, many rural communities do not have roads connecting them to urban centers. Even in countries with relatively better road networks, several rural roads are not serviceable during the wet seasons.

Furthermore, rail transportation is underdeveloped in many parts of Africa. Apart from geographical obstacles that make them expensive, many countries have not invested enough in the rail sub-sector. For many others, the colonial legacy in the sector was not much about food supply as they were about transporting minerals and other non-food resources and commodities from the hinterland to the ports. Interestingly, it appears that African states are doing relatively well with the development of entry and exit transportation facilities. Airports and harbors are being expanded, and new ones are emerging across the continent. Nigeria, Cameroun, Ghana, Senegal, Kenya, Sudan, and Tanzania are some of the countries that have expanded their major ports in recent times.

This different pace of infrastructure development between domestic and external ports has meant that it is comparatively easier to access imported food than that produced domestically. In cities with major ports located in urban and semi-urban centers, imported goods reach the most critical section of the market faster and more efficiently than locally produced foods. Bad roads and inadequate rail transport delay and hinder the movement of food from the hinterland to the towns and cities.

Storage

Since the advent of civilization, Africans have developed and adopted several means of preserving food. This has been necessary to prolong the edibility of food and prepare for lean seasons. Preservation has also allowed the transportation of food over long distances. The drying and salting of animal protein have ensured that food stays wholesome while it is distributed across time and space. Various methods have preserved fruits and other vegetables. Most importantly, cereals and tubers (forming the base of staples for generations) have been preserved.

In modern times, the volume of harvest and the improved nature of some foods have meant larger and more efficient systems and methods of preservation. Cereals will need larger facilities with up-to-date technologies to store. Fruits and tubers will require the same investment for their storage. However, investment in the storage sub-sector of food agriculture has been woefully inadequate. While general budget restrictions and scarce resources have accounted for this gap, many states have not made conscious efforts to be innovative about seeking alternative solutions to the problem. Admittedly, some states had achieved significant steps towards some self-sufficient agriculture in the immediate decade after independence, especially in the 1960s.

In countries like Tanzania, Ghana, and Egypt, development programs have tackled issues that include the storage and preservation of food. This laid the foundation for some level of efficiency in food production. Labeled as Import Substitution Industrialization, this development agenda still benefits the current economies of these states. As the economy and population grow in subsequent years, not much has been achieved in the gap concerning this critical infrastructure. This has meant that tons of food go to waste annually across the continent. In states like Angola, Mozambique, and the Democratic Republic of the Congo (DRC), immediate conflict at independence prevented the systems from laying any foundation at all.

Many of these countries are currently putting in measures to build most of these facilities, including warehouses that are being constructed to ensure food security. Also, these countries are building roads to connect communities across their respective countries. Unlike post-independence economic planners, however, these states have involved the private sector significantly. They have also engaged with bilateral agreements to achieve this. The DRC, for example, has signed deals with China that exchange its abundant cobalt deposits for road and hospital infrastructure. These roads will be critical to the supply chain. Notably, the building of the warehouses and storage facilities have not featured very much in these agreements.

Rising Cost of Food

In Africa, the cost of food is determined by both foreign and domestic factors, which is typical of globalized sectors. This makes affordability a vital topic in any discussion on food security in the continent and how supply/demand affect it. Often the availability of food does not translate to affordability. Where poverty is endemic, this could mean millions facing food insecurity due to a lack of purchasing power to access food. Ordinarily, a bumper harvest should mean lower prices for food in most African economies. Rapid urbanization combined with bad roads has created a situation where the population centers are not able to get a consistent and timely supply of food.

This is a major domestic factor that drives food prices. Trucks carrying food either break down or are delayed by bad road networks. The nature of the road also makes logistics companies and individual truckers charge more for carting food from the hinterland to the cities. In recent times, fuel prices and expensive vehicle parts have also led to food inflation. In many African countries, subsidies on fuel have been removed by central governments as they seek to reduce budget deficits. This has led to increased taxes on petroleum products. Consequently, the cost of transporting food to urban centers has increased due to increased operational costs incurred by transporters.

On the global market, many factors have been responsible for food prices that also affect the price of food in Africa. The war in Ukraine has recently led to heightened food insecurity across the continent. This, coupled with petroleum prices, has led to high food prices, bringing the continent's reliance on external food supply to the forefront. Wheat and corn, two commodities with high consumption rates by Africa's growing population, are mainly supplied from outside the continent. The majority of this comes from Ukraine and Russia. After Russia invaded Ukraine in February 2022 and the Black Sea artery for the supply of grains had been effectively blocked, the global supply deficit led to two things in Africa. Firstly, this created food unavailability, and then, the general prices of food shot up. Demand was high in Africa, while supply lagged because of the war in Eastern Europe.

Even when Turkey brokered the temporal deal to allow the shipment of grain from Black Sea ports, the uncertainties that characterized the agreement kept prices up. The crisis has raised questions about Africa's capacity to produce its own grains. Several African countries have vast tracts of arable lands that are perfect for producing several grains consumed by the population. With the ongoing war in Ukraine, increased production in Africa would not be demanded only by the growing population in the continent but also by the world. The missing link has been investments in the sector.

Conclusion

Africa is facing a major food crisis with the possibility of 278 million people facing hunger in 2024. In response, development partners have committed $30 billion to boost food production over the next five years, and for such investment to be truly impactful everyone involved must understand the critical structural and economic factors at play for the agriculture sector in the continent. With a population of 1.4 billion, the youngest and most fertile in the world, Africa has a huge food market both for producers and consumers. This is further enhanced by rapid urbanization and a concomitant expansion of the middle class, and it represents a vast market that is unlikely to disappoint investors, especially if they can navigate the problems and opportunities. Investment must be multifaceted and incorporate a complex understanding of supply and demand for the African agricultural sector. The political economy of each sub-region and country deeply matters for the possibilities, and analysis must include the supply chain and other infrastructure that are consequential to getting the final products to the market. A private sector investment could be far-reaching in achieving access and profitability across Africa should such an understanding exist.

Seed 2 Harvest: Next Steps

The RilySENTINAL team is deeply involved in ongoing, comprehensive research into these thriving sectors. We're committed to providing our audience with factual insights, substantiated by meticulous analysis and expert validation. The promising opportunities we've outlined above merely touch the surface of the vast potential these African nations hold.

For those aiming to invest in the next surge of growth in Africa's agricultural sector, it's essential to remain attuned to the valuable insights and forecasts the RilySENTINAL team consistently delivers. Prudent, strategic insight investments in these burgeoning sectors could yield substantial returns in the medium to long term.

Moreover, understanding that the nuances of the market opportunities might intertwine with unique security environments of these countries, we are equipped to offer additional support. We can provide in-depth, country-specific analyses, or even detailed insights into the interplay of market opportunities and security landscapes to facilitate a safer approach towards capitalizing on these opportunities.

Our commitment is to ensure you have the right information to make informed decisions. Therefore, we encourage anyone seeking more granular information about a particular country or market opportunity, or requiring an integrated analysis of market potential and security implications, to reach out to the RilySENTINAL team here directly.

Taking the initiative to request more detailed support from our team can be the first step towards successfully navigating and expanding your footprint in Africa's exciting agricultural sector, let us help you unlock the potential of Africa's thriving future.