Analysis of the Global Value Chains in Kenya and Uganda

Analyzing is not always easy, though it is important, almost essential for an aproppriate action plan, this is ours for the Global Value Chains in Kenya and Uganda (GVC)

KENYA

Kenya has a range of value chains in floriculture, textiles, leather, automotive production, intermediate and final manufacturing, music industry and tourism. It is evident that the country is generally at the low end of the value chain, given that a large component of Kenya’s exports is in raw materials (e.g. coffee, tea, animal products) which have low foreign value added content. For example, though Kenya has been integrated in the global leather value chain, this has not been done in a manner that is beneficial to the country and the local industry players. There is little value addition and about 70% of the exports from Kenya are raw hides and skins. Analysis also shows an industry that has been neglected after liberalization, one that suffers from poor regulation and weak policy support. The production of processed leather has actually declined and installed capacity utilization is below 50% in all tanneries. The competitiveness of the sector is weak compared to Asian countries.

Regional and international barriers include tariffs and quotas, technological barriers, currency fluctuations, political risks and market failures, among others. Though Kenya has surplus and fairly well trained manpower, some industries have not been able to find ready and appropriately skilled personnel due to mismatches between the training provided by Kenyan institutions and labour market requirements. However, as part of Kenya’s long-term plans contained in the Kenya Vision 2030 and occasional curriculum updating, a number of policy reviews are being made to ensure schools equip graduates with market demanded skills.

In promoting growth, trade, jobs and development, Kenya has sought to increase domestic value added from GVC participation, through such policies as import substitution, subsidies, tax holidays, export processing zoning, export promotion, export compensation, and industrial property legislation. Many of these policies have had implementation and/or outcome challenges; for example the import substitution policy failed to build international competitiveness, but instead created a scenario where Kenyans paid higher prices than they would have otherwise while the country’s ability to export diminished, leading to skyrocketing and enduring balance of payments deficits, before it was finally abandoned.

The EPZs, through such programmes as AGOA (where Kenyan-based firms primarily make and export apparel to the USA), have led to significant increase in exports and employment, though the expected technology and skill transfers as well as backward linkages have not been realized, which suggests a low chance of sustainability once the AGOA arrangement comes to an end. The tax holidays ended up benefiting foreign investors at the expense of Kenyans, as most of them tended to relocate at the end of their respective grace periods.

UGANDA

Global value chain (GVC) development is receiving increasing attention in Uganda. The National Development Plan (NDP) 2010/11-2014/15, for instance, includes as a key intervention “supporting and strengthening key product value chains to access high value markets and penetrate global value chains through Public Private Partnerships and inter-government sectoral collaboration”. The NDP document goes further and identifies key products that should be the focus of these efforts. These include: dairy products and poultry, beef, fish products, coffee, floricultural and horticultural products, maize, beans, cassava, processed bananas and processed mineral products.

Value chain development in the Ugandan context, however, is largely seen through the lens of domestic value chain development; i.e. as a strategy for strengthening production integration within the Ugandan economy and increasing value added generation at the sector level, with the aim of capturing domestic and, to a lesser extent, regional markets for selected products. It is not, in this sense, seen as a strategy for deepening Uganda’s integration in the world economy through the participation in selected segments of key global value chains. Similarly, value chain development is largely seen as a means for developing production capacities and enhancing value added generation in primary sectors, not as a strategy for industrialization, as can be seen by the list of products identified for value chain support in the NDP.

The lack of adequate data for GVC analysis makes it difficult to assess the extent to which Ugandan producers are integrated in global value chains. The most recent available input-output table for Uganda dates back to 1991 and it is reasonable to assume that the structure of the Ugandan economy has changed significantly since then.

The apparel industry has traditionally been chosen by many developing countries to accelerate the process of industrialization and structural transformation. In the African context, the US African Growth and Opportunity Act (AGOA) of 2002 presented LDCs in the region with a unique opportunity to enter this value chain, an opportunity, which some countries, such as Lesotho or Madagascar, successfully seized. Uganda has been eligible to benefit from AGOA provisions for apparel and textiles since October 2003. However, despite policy pronouncements to the effect, it has never managed to establish an apparel industry on the back of AGOA.

Uganda has been more successful in entering the floricultural global value chain. This industry started in Uganda in 1993, with a focus on exporting to the EU market. Initially, exports of roses and cut flowers experienced a sharp increase, from 1.150 metric tonnes in 1995 to a peak of 7 500 tonnes in 2005, employing around 6.000 workers on 15-20 farms on the shores of Lake Victoria and indirectly providing livelihoods to 30.000 people. However, exports volumes have gradually declined since then, down to only 3.436 tons in 2011 (UBOS,2014). Some of the reasons cited for this decline are the increasingly unfavourable climatic conditions that exist in flower producing areas in Uganda, due to the effects of climate change and the resulting increase in disease. However, weak government support, high production costs, including high energy and air freight costs, and the competition from other East African countries have also played an important role in undercutting Ugandan flower producers’ market share in the EU and other advanced economies.

The fish and fish products industry, heavily concentrated around Nile perch fishing in Lake Victoria and mainly focused on the EU market, has experienced a similar fate.

Altogether, the review of these three case studies and those for other key value chains in Uganda (e.g. coffee, horticulture), point to a number of common constraints hindering Uganda’s insertion in GVC and the maximization of its benefits. These include high production costs, including transport and energy costs. Also, weak policy frameworks that provide for adequate support to the development of specific value chains, in the form of improved sector-specific business environment conditions, training and business development support services, etc.

by Agrolution Agribusiness Solutions SL

www.agrolution.com

Changing gas per sun…Quiet Solar Revolution in Tanzania

Check this very interesting post we have found on the CSMonitor.com blog and find out some of the stories about why there is a Quiet Solar Revolution going on in Tanzania…

Africa’s quiet solar revolution – CSMonitor.com.

SWOT Analysis of the African Agriculture

A very comprehensive and realistic SWOT Analysis has been carried out and published by the Montlpellier Panel, a group of reputed experts on agriculture, trade, sustainability and global development. The Panel is working together to make recommendations to enable better European government support of national and regional agricultural development and food security priorities in Sub-Saharan Africa.

Let´s have a look to their findings:

Strengths:

• The diversity of African agricultural ecosystems furnishes resilience although this heterogeneity also requires sophisticated and nuanced management
• Smallholder agriculture can be highly efficient producing five or more tons of grain per hectare with appropriate inputs and management
• Farm-level production costs in Africa are often relatively low
• There is a strong tradition of village-level farmer associations providing a basis for growth and innovation
• Acceleration in GDP growth in SSA has been, in part, driven by faster agricultural growth
• More organized and concerted African leadership through CAADP
• Foreign direct investment (FDI) in the continent increased from US$2.4 billion in 1985 to US$55 billion in 2010 although most of this was in the oil and gas sectors

Weaknesses:

• A lack of coherent, cross-ministerial policies and leadership on agriculture

• Poor incentives for small business investment

• Access to input and output markets is often weak

• Average cereal yields are only one ton per hectare

• The predominant rainfed agriculture is vulnerable to unreliable and unpredictable rainfall

• Total agricultural R&D spending in Africa grew at only 1.9% between 2000 and 2008, although there is wide variability between countries

• African soils are heavily degraded and depleted of nutrients

• Tenure over more than 90% of land remains outside the formal legal system in Africa and is therefore at risk of dispossession.

• Agricultural mechanisation is poorly developed

Opportunities:

• There is a large agricultural workforce: 65% of Africa’s population lives and works in rural areas
• The workforce will be predominantly young: by 2040, one in five of the world’s young people will live in Africa
• Large opportunities to improve yields through increasing fertilizer application rates and irrigating more land
• Fertilisers are applied at average rates of about 11kg/ ha of arable land (compared to 154kg
  ha in India and 468kg/ha in China). There is a huge potential to use local African sources of rock phosphate fertilizer at affordable costs
• Only around 4% of cultivated land in SSA is irrigated. Potentially over 20 million hectares of land under irrigation
• Already in motion are agricultural growth corridor projects in areas with high agricultural potential that will stimulate investment and develop regional value chains
• Mobile and internet connectivity is growing rapidly: mobile phone subscribers have risen from less than two million in 1998 to over 400 million in 2009 and internet users in SSA between 2005 and 2010 grew by almost 430%

Threats:

• 80% of all African farms (33 million farms) are less than two hectares in size, which can increase transaction costs
• The success of investments in agriculture depends on the engagement of women who make up 50% of the agricultural labour force and have relatively poor access to resources and services
• SSA has many pests, diseases and weeds such as Striga, Black Sigatoka, Banana wilt, Cassava mosaic virus, Maize leaf streak, Maruca beetles, stem borers, downy mildew and locusts that are capable of destroying harvests
• SSA farmers face the lowest agricultural incentives in the world
• Three quarters of African countries are net importers of agricultural products and African trade tariffs are on average 50% higher than comparable tariffs in Latin America and Asia
• Climate change is likely to reduce crop yields across much of SSA

Definitely, any plan to tackle the problem of food production in Africa cannot be simplistic, but to include actions from a very broad number of areas simultaneously. However, I would like to highlight a very clear conclusion derived from this analysis -in alignment with other similar reports-, and this is how important is for the future of a successful growth of agriculture in Africa the extensive implementation of those technologies of irrigation, crop protection and climate control, like greenhouses, which could be denominated as “modern” in the african context, though are long time existing in other parts of the world.

We don´t have to invent the wheel, we don´t have to test, but simply to transfer technology and know-how that are easily available and which results are predictably.

Did you know…?

Dear all,

Find below some key figures that help to figure out in our minds a broad picture of essential facts of world agriculture.

So, did you know that…

• World agricultural production has grown nearly 300%  over the last 50 years, while the cultivated area only did it by 12%. Furthermore, more than 40% of the increase in food production came from irrigated areas.
• In the same period, global cultivated land per person declined from 0,44 to 0,25 Has/person. This shows how successful intensive agriculture has become.
• Rainfed agriculture is the world´s predominant agricultural system. Current productivity of rainfed systems is, on average, 50% of its potential, and in the poorest countries only 20%. Increasing climate variability is bringing grater uncertainty in production levels.
• Around 350 million people were affected by drought and other natural disasters between 2010 and 2011, mostly in Africa and Asia.
• Until 2000, agriculture was the mainstay of employment around the world. Since then, the services sector has assumed this mantle and the gap between the two has widened. Although employment growth in agriculture has slowed, the number of workers in this sector reached over 1 billion in 2009. In sub-Saharan Africa, growth in agricultural employment accounted for half of all employment growth between 1999 and 2009.
• In the coming decades, climate change may bring further risks and unpredictability to harvests; it is anticipated that key agricultural systems will have to cope with new temperature, humidity and water stress.

(Source: FAO)

To me, all the above mentioned clearly shows:

• How successful agricultural intensification has been.
• The need to increase the efficiency of land and water use.
• The need to prevent food production be affected by weather conditions.
• It also leads to the consideration of modern intensive agricultural production systems as an strategic pillar of the food sufficiency in this planet.

What do you think?

Practical solutions for a big challenge

Our civilization faces a great challenge: for the next 40 years we have to double the food output from our farms if we want the expected 9 billion people living then to be properly fed.

If that was not challenging enough, let´s add the restricted availability of the key ingredient: water. Not only an issue of quantity, but of the environmental impact that would cause having to double the volume of water that we currently use in agriculture.

Conclusion: we need to produce more (a lot more) with less (water among other inputs).

Obviously, this is a very simplistic and partially focused introduction of a much more complex subject. But this is enough to highlight the great relevance that should play the two means of production that we discuss on this post:

• irrigation systems
• greenhouses

Irrigation systems must become an indispensable and omnipresent actor in farms all across locations, like Africa and other underdeveloped regions, as much as it is today in the most advanced agricultural regions, like Europe and North America.

Rain-fed crops are no longer an option for the assurance of food supply to 9 billion people. Irrigating crops by traditional inundation practice, isn´t either a sustainable option. Only systems like drip irrigation and spray are seen as a viable alternative that can ensure a great increase in output production while preserving the natural reserves of water.

Efficiency of existing irrigation systems is big, but it´s expected that most evolved systems, like hydroponics, only implanted in the western world, do expand their presence and become the standard in those regions where today rain is the first irrigation system. With systems that require an extraction of water equivalent only to that the plants incorporate to their cells, plus the loses on evapotranspiration, we ensure that only the strictly necessary water is used. Efficiency at top level.

Greenhouses provide a big range of advantages to horticulture. Yet cereal crops are excluded, there´s still a big stake of the food diet that can be grown under protected environment.

The protection from weather and pest risks, provides outstanding conditions to multiply the yield of all crops by several times the standard in outdoor conditions in the same surface; crops can be grown during a longer period of the year (even the whole of it in some cases); the losses of production due to quality damages are minimized; the demand of inputs like water, fertilizers and agrochemicals is lower per kg of product obtained; the use of pesticides can be minimized or eradicated much more easily than in outdoor crops.

Add to all that the possibility to modify and control the interior climate conditions according to each crop, and the output is boosted.

The combination of Greenhouses and modern Irrigation Systems represent a mix of highest efficiency, and as such, them should play a significant role in the development of a new model of sustainable agriculture in those regions of the planet, where current practices are completely unviable to ensure food supply in the coming decades.

We are not facing a problem of having to solve a technological challenge; the existing technology is good enough and still evolves and improves day by day. What we face is a double challenge:

• extending the presence of that technology to all regions of the world
• divulge the necessary knowledge and expertise to make those systems works properly

Universities for the agricultural development of Africa

Hello everyone.

I will transcribe here a very interesting article of  Mr Calestous Juma, Professor of the Practice of International Development and Director of the Agricultural Innovation Project at Harvard Kennedy School, Harvard University, Author of The New Harvest: Agricultural Innovation in Africa¹ (Oxford University Press, 2011).

The article is a reflexion on the ideal definition and role that universities could and should play in the ignition of the huge potential that Africa agriculture has. I hope you find it exciting and interesting; your comments are more than welcome.

Policy attention across Africa is shifting to fostering agricultural innovation through enhanced research support and entrepreneurship. This will require radical transformation of the system of higher agricultural education. The current separation between research in national institutes and education in universities is a major obstacle to innovation.This article proposes an alternative approach involving the creation of agricultural universities under the relevant line ministries. The seed for such universities already exist in the form of national agricultural, livestock and fisheries institutes which can be upgraded to combine research, teaching, extension and commercialization under one roof.

Unlike existing universities, the new institutions would work closely with farmers and agribusiness which would be a source of ideas on curricula, pedagogy, choice of students and location.

 

The African agricultural challengeIn sub-Saharan Africa, agriculture directly contributes to 34% of gross domestic product (GDP) and 64% of employment. Growth in agriculture is at least two to four times more effective in reducing poverty than other sectors. Growth in agriculture also stimulates productivity in other sectors such as food processing. Agricultural products also compose about 20% of Africa’s exports. Given these figures, it is no surprise that agricultural research and extension services can yield a 35% rate of return, and irrigation projects a 15–20% return in sub-Saharan Africa.

Even before the global financial and fuel crises hit, hunger was increasing in Africa. In 1990, over 150 million Africans were hungry; as of 2008, the number had increased to nearly 250 million. Starting in 2004, the proportion of undernourished began increasing, reversing several decades of decline, prompting 100 million people to fall into poverty.

One-third of people in sub-Saharan Africa are chronically hungry—many of whom are smallholder farmers. High food prices in local markets price out the poorer consumers—forcing them to purchase less food and less nutritious food, as well as to divert spending from education and health and to sell their assets. This hunger-weak agricultural sector cycle is self-perpetuating.

Over the last 25 years, growth in agricultural GDP in Africa has averaged approximately 3% but has varied significantly among countries. Growth per capita, a proxy for farm income, was basically zero in the 1970s and negative from the 1980s into the 1990s. Six countries experienced negative per capita growth.

Productivity has been basically stagnant over 40 years—despite significant growth in other regions, particularly Asia, thanks to the Green Revolution. Different explanations derive from a lack of political prioritization, underinvestment, and ineffective policies. The financial crisis has exacerbated this underinvestment, as borrowing externally has become more expensive, credit is less accessible, and foreign direct investment has declined.

Only 4% of Africa’s crop area is irrigated, compared to 39% in South Asia. Much of rural Africa lacks passable roads, translating to high transportation costs and trade barriers. Cropland per agricultural population has been decreasing for decades. Soil infertility is a result of degradation: nearly 75% of the farmland is affected by the excessive extraction of soil nutrients.

Fertilizer use in Africa is less than 10% of the world average of 100 kg. Just five countries (Ethiopia, Kenya, Nigeria, South Africa, and Zimbabwe) account for about two-thirds of the fertilizer consumed in Africa. On the average, sub-Saharan African farmers use 13 kg of nutrients per hectare of arable and permanent cropland, whereas the rate in the Middle East and North Africa is 71 kg.

Part of the reason why fertilizer usage is so low is because of the high costs of imports and transportation: fertilizer in Africa is two to six times the average world price. This results in low usage of improved seed: as of 2000, about 24% of the cereal-growing area used improved varieties, compared to 85% in East Asia and the Pacific. As of 2005, 70% of wheat crop area and 40% of maize crop area used improved seeds, a significant improvement.

Addressing these challenges will require considerable investment in agricultural science, technology and engineering. The challenge for Africa is developing appropriate institutional arrangements through which existing scientific and technical knowledge can be transmitted from research facilities to farms. Such institutional innovation could form a basis for renewed cooperation between Nordic countries and Africa.

Functions of new agricultural universities

The challenges facing African agriculture will require fundamental changes in the way universities train their students. It is notable that most African universities do not specifically train agriculture students to work on farms in the same way medical schools train students to work in hospitals. Part of the problem arises from the traditional separation between research and teaching—the former is carried out in national research institutes and the latter in universities.

National Agricultural Research Institutes (NARIs) operate a large number of research programs that provide a strong basis for building new initiatives aimed at upgrading their innovative capabilities. In effect, what is needed is to strengthen the educational, commercialization, and extension functions of the NARIs.

More specifically, clustering these functions would result in dedicated research universities whose curriculum would be modeled along full value chains of specific commodities. For example, innovation universities located in proximity to coffee production sites should develop expertise in the entire value chain of the industry.

This could be applied to other crops as well as to livestock and fisheries. Such dedicated universities would not have a monopoly over specific crops but should serve as opportunities for learning how to connect higher education to the productive sector.

The new universities need to improve their curricula to make them relevant to the communities in which they are located. More important, they should serve as critical hubs in local innovation systems or clusters.

The recent decision by Moi University in western Kenya to acquire an abandoned textile mill and revive it for teaching purposes is an example of such an opportunity. Such connections can be fostered without owning the facilities.

Many of the NARIs are located in the proximity of a wide range of productive facilities with which they can foster long-term working relations. They can also branch into new knowledge-based fields. For example, NARIs located close to breweries can build up expertise in biotechnology using fermentation knowledge as a foundation. Similar arrangements can be created with other agro-based industries such as sugar mills and fish factories.

Roadmap for implementation

Many models show how to focus on agricultural training as a way to improve practical farming activities. Ministries of agriculture and farming enterprises in African countries should create entrepreneurial universities, polytechnics, and vocational schools that address agricultural challenges. Such institutions could link up with counterparts in developed or emerging economies as well as institutions providing venture capital and start to serve as incubators of rural enterprises.

Establishing such institutions will require reforming the curriculum, improving pedagogy, and granting greater management autonomy. They should be guided by the curiosity, creativity, and risk-taking inclination of farmers.

The tasks laid out above will take considerable dedication, courage and commitment. Such efforts need to be recognized and rewarded. One way to do so is to institute Agricultural Innovation Prizes for outstanding contributions to strengthening agricultural research in African countries. The prizes would recognize achievements in research, teaching, commercialization and extension.

Conclusion

Over the last decade considerable work has been done to redefine the role of government in agricultural research, decentralize research activities, increase stakeholder participation, identify new financial instruments, and strengthen system-wide linkages. These measures have been purposed on an incremental basis. They have indeed yielded commendable results.

The next challenge, however, is to build on these achievements and pursue bold steps aimed at upgrading the status and performance of agricultural institutes by creating genuine innovation systems that involve research, training, extension, and commercialization.

This process will be nontrivial and will require bold political action involving high-level leaders. The efforts will come with political risks and debate. Maintaining the status quo, however, is riskier than experimenting with new models. Mistakes will be made. But as Albert Einstein said, “Anyone who has never made a mistake has never tried anything new.”

Top 5 Investment Opportunities In Africa For 2012 – Forbes

Top 5 Investment Opportunities In Africa For 2012 – Forbes.

Information Technology and Rural Development. Interesting case in Kenya.

Hello, I´m going to show you today a very interesting initiative set up in Kenya, where basic economic principles in alliance with basic ICT (information and communication technology)  are providing a highly valuable and useful service for small farmers disseminated all over Kenya, and now extending to other neighboring countries.

KACE (Kenya Agricultural Commodity Exchange) has developed a marketing information and linkage system (MILS) designed to facilitate competitive and efficient trade in agricultural commodities and services in Kenya, with the aim and potential for scaling out in the East African Community region. Through MILS, KACE collects, updates, analyses and provides reliable and timely marketing information and intelligence on a wide range of crop and livestock commodities, targeting actors in commodity value chains, with particular attention to smallholder farmers and small scale agribusinesses.

The information includes daily wholesale buying prices for various crop and livestock products in selected main markets in the country, as well as commodity offers to sell and bids to buy. KACE also links farmers and agribusinesses to markets through matching commodity offers and bids. Market information enhances the bargaining power of the farmer for a better price in the market place, and helps to link the farmer to input and output markets more efficiently and profitably.

As simple as that… Well, with the help of two easily accessible communication instruments: FM radio and SMS on mobile phones.

Soko Hewani involves using a radio programme to match offers to sell or lease, or bids to buy or rent agricultural and any other commodities, properties and services compiled by the KACE.Target agricultural commodities include maize, rice, wheat, millet, sorghum, beans, tomatoes, cabbages, onions, carrots, fruits, potatoes, bananas, cattle, sheep, goats, camels, chicken, turkeys, eggs, milk, fish, honey, seeds and fertilizers. Target properties include houses, offices, vehicles and land. Target services include processing, packaging, transport for commodities, storage / warehousing, grading, quality testing and finance.

The SMS service applies mobile telephony for market information delivery to users.  The market information currently available includes daily wholesale buying prices for about 20 commodities, as well as offers to sell and bids to buy. Farmers, agribusinesses and other interested users who are mobile phone network subscribers download KACE market information as SMS messages.

To know more about this very intelligent strategy watch the attached video or visit KACE website:  http://www.kacekenya.co.ke.

Congratulations for so much wise initiative.

Agricultural progress and poverty reduction

Agricultural progress and poverty reduction.

Arid Lands Information Network receives $1 million from Gates Foundation for providing access to agricultural information and technology | e-Agriculture

Arid Lands Information Network receives $1 million from Gates Foundation for providing access to agricultural information and technology | e-Agriculture.