Summary Report of the Chairman

Agricultural Productivity and Competitiveness

The Economic Committee of the GCA met in Nairobi, Kenya, on April 9-10, 1999, under the Chairmanship of Dr. Kwesi Botchwey. Participants included GCA Co-Chairpersons Sir Ketumile Masire and Mr. Robert McNamara, Ministers of Finance and Agriculture as well as senior officials from African countries, senior officials from partner countries and agencies, parliamentarians, representatives of universities, research institutions, the private sector and civil society. The full list of participants is attached. The meeting was opened with an address by H. E. Daniel Arap Moi, the President of Kenya. Ambassador Ahmedou Ould-Abdallah, GCA Executive Secretary, Dr. Kwesi Botchwey, Chairman of the Economic Committee, and Sir Ketumile Masire, GCA Co-Chairperson, also made brief introductory remarks during the opening session. This summary report does not fully reflect the richness of the discussions, or provide a complete account of the interesting country experiences that were presented, but rather highlights the main issues considered and conclusions reached.

Opening Remarks

In his introductory remarks, the Executive Secretary recalled that the Economic Committee had discussed a series of sectoral and policy issues during the last three years, within the overall framework of the constraints to supply response to economic reforms. Agricultural productivity and competitiveness fits in the same series. On his part, President Masire thanked the President of Kenya for the hospitality extended to participants and welcomed his presence in person to open the meeting. President Masire emphasized that African countries have the primary responsibility to define and implement their development strategies for the economy in general, and for agriculture in particular, while external partners are expected to render timely and adequate support to African country programs.

Dr. Botchwey praised the earlier economic achievement of Kenya and its relative political stability, and focussed on the current challenges facing Kenya and other African countries within the context of the increasingly globalized world economy. Africas failure to integrate into the global economy has resulted in its marginalization. Although the region has been unable to benefit from increased FDI flows and trade and technology transfers, it has not been spared from the contagion effects of the global financial crisis and the adverse impact on its exports of the slowdown in world economic growth. Africas high level of capital flight, declining ODA trends, and the regions stagnant and low domestic savings rates all appear to foreclose the possibility of significantly raising investment rates so as to accelerate growth. The regions resumed growth and its reintegration into the global economy may only be ensured through significant improvement in productivity and competitiveness. It is known that Africa is put at a significant competitive disadvantage not only because of its relatively higher ocean freight costs but due to its even more costly inland freight rates; it costs US$ 770 to transport a container from Bamako to Dakar, a distance of 1000km, while it costs only about double that amount to transport the same container from Dakar to Rotterdam, a distance of 5,000kms. Thus among other things, it is necessary that African countries reduce the costs of transport and communications, and lower, transaction costs, while partner countries take measures to further improve market access for African products. Dr. Botchwey emphasized that, as a key sector of the economy, agriculture, and particularly agricultural productivity and competitiveness was thus a timely and appropriate topic for the forum.

In his opening statement, H.E. President Daniel Arap Moi expressed appreciation of the choice of Nairobi as the venue for the meeting, and reviewed the performance of agriculture and its importance in the economy of Kenya, and indeed in the economies of most African countries. President Moi stressed that sufficient resources should be available for research and development, and that farmers need to be provided with adequate and reasonably priced inputs, and with access to developed countries markets. The President also noted that agricultural production and productivity are adversely affected by unfavorable weather, obstacles to market access in industrial countries, and by reforms requiring the hasty elimination of subsidies and withdrawal of public-sector services before the private sector is in a position to take its place.

Discussion

Raising Domestic Savings to Finance Investment in Agriculture

African countries need to accelerate their economic growth rates if they are to effectively reduce poverty within a reasonable period. Even at annual GDP growth rates of 7 to 8%, African countries would take an inordinately long time to attain the per capita income levels and tangible reduction in poverty that is expected by their populations. They have therefore to make a much better effort at sharply raising their domestic savings to enable them to finance higher rates of growth. As agriculture is a key sector of the economy, in most countries better performance than hitherto will be required in order to achieve significantly higher growth rates for the whole economy; agricultural growth has to precede and stimulate overall economic growth. To achieve such higher growth rates in agriculture, it will be necessary to ensure substantially increased investment in the sector. Although donors should continue to make adequate and effective assistance available, the principal source for funding expanded investment in agriculture and rural development can only be from stronger and sustained domestic resource mobilization.

Some participants noted that a number of African countries have registered a marked increase in agricultural growth rates during the 1990s. These were attributed primarily to better weather patterns and improved terms of trade, but also possibly to the implementation of reforms and better delivery of public services. However, there are doubts as to the sustainability of these signs of improvement. Overall, the record of African agriculture over recent decades has been disappointing. Total production and productivity have not kept pace with population growth. Moreover, in comparison with performance in such other developing regions as Asia and Latin America, agricultural productivity has been lagging in Sub-Saharan Africa. For example, during the last forty years, when crop yields in Latin America and Asia made rapid and sharp gains to reach 2.6 tons/hectare in Latin America and 3 tons/hectare in Asia, yields in Africa grew only modestly to reach and remain virtually static at around 1.1 tons/hectare. In a detailed presentation, the representative of the Forum on Agricultural Research in Africa, confirmed the accuracy of the glaring gap in crop yields between Africa and other regions, and also indicated that the gaps with respect to yields of other agricultural products are of about the same order of magnitude. It is therefore imperative that policy makers and other stakeholders analyze the factors that are inhibiting growth and take action to revitalize agricultural production, productivity, and competitiveness.

Addressing Constraints to Agricultural Productivity and Competitiveness

Internal conflict and political instability inhibit most economic activities, including farming. Participants from conflict-prone countries in particular underscored the disruption to production and the overall dislocation and destruction of physical and institutional infrastructure resulting from prolonged conflicts. Policy, structural and institutional constraints, as well as internal and external shocks such as irregular weather and declining international commodity prices, have also negatively affected agricultural production and productivity in Africa. Frequently also, political factors influenced agricultural policies and allocation of resources, while centralized, inefficient and overstaffed bureaucracies absorbed too great a proportion of the funds destined for agriculture development. Although some reform measures have been implemented to positive effect, the overall policy agenda is not yet complete in many African countries. Moreover, due to the lack of specific targeted actions, small holders have generally been unable to fully benefit from improvements in the policy environment.

There was consensus that improved governance, a sound macro-economic framework and coherent agricultural policies are all needed to create an environment conducive to improved agricultural competitiveness. In terms of agricultural policies and actions, there was agreement that extension services, based on local research and an understanding of local conditions, should be targeted to farmers in general and small-holders in particular. Where information and better extension services have been provided, and access to inputs such as improved seeds and fertilizers increased, there has generally been a supply response in the form of increased production.

Throughout Africa, most small holder agriculture is rainfed and thus vulnerable to adverse weather patterns. The vagaries of unpredictable weather, and the frequency of both droughts and excessive rain, affect production and food security as much as, if not more than, policy and structural deficiencies. Participants thus underscored the need for significantly greater domestic and external resources to invest in irrigated agriculture. The proportion of land under irrigation should be greatly expanded. Those few African countries that have relatively more acreage under irrigation also have markedly higher crop yields. Best results are achieved where access to irrigation is accompanied by effective delivery of inputs, technology and extension services as well as effective infrastructure, credit and marketing systems. Although increased irrigation could increase yields, irrigation schemes should be environmentally sustainable and cost efficient. Improved water management and better use of existing water resources is also necessary, and involving users in the management of irrigation schemes has been found to be useful.

Most African small holders are resource-poor, and the lack of adequate financial intermediation in rural areas is a significant constraint to increased agricultural production. Women farmers in particular are often unable to obtain credit to enable them to buy necessary inputs or equipment. Without adequate access to finance, small holder farmers will not be able to improve either their productivity or their competitiveness. Moreover, affordable finance is essential for the expansion and diversity of both agribusiness and export potential. High transport costs and poor infrastructure are also significant impediments to increased productivity and competitiveness, and action in these areas is needed in most African countries.

The Role of the State

An effective partnership between the state, farmers, and the private sector is necessary to improve agricultural productivity and competitiveness. Vision and a coherent strategy that recognizes the importance of agriculture to development and economic growth is required. The state should be responsible for creating a conducive environment for agriculture, and in addressing the structural constraints to increased productivity. The state is also expected to be responsible for such core support services as research and development, extension, investment in essential infrastructure, and the provision of social services. The degree of public investment and public involvement in agriculture will depend on specific country circumstances. However, the state should not undermine the ability of farmers to take decisions affecting their livelihood, or of the private sector to provide inputs and services at affordable prices.

It was generally agreed that over-involvement of the state had negatively affected agricultural productivity and competitiveness in the past. However, it was also recognized that farmers may suffer if services provided by the state are abruptly withdrawn before the private sector is ready to fill the gap, or other alternative institutional arrangements have been organized and developed sufficiently to undertake the prompt and efficient delivery of such services. Input supply and meeting the credit requirement of farmers may have to be assumed by the public sector until the private sector is in a position to take over these functions.

Although it was agreed that the state needs to render support services to agriculture in African countries, there was no clear consensus on subsidies for the sector. On one hand it was acknowledged that OECD countries engage in extensive subsidization of agriculture. Concern was also expressed about the likelihood of fertilizer usage declining if subsidies are hastily withdrawn. On the other hand, past experience with agricultural subsidies in African countries has generally not been positive. For the most part, subsidies were either poorly targeted, misdirected, misused or ineffective. They also contributed to economic distortions, and provided opportunities for corruption. This experience notwithstanding, it was acknowledged that specific, targeted subsidies could help to promote agricultural productivity provided that a sound policy framework and adequate and transparent institutions are in place, and that subsidies reinforce incentives to farmers. However, issues of affordability and sustainability remain. For the most part, African countries cannot afford to subsidize agriculture, and other forms of support to the sector could be more effective.

Land tenure is an area where governments have to be careful not to take actions that undermine traditional communal land rights. In the past, there have been misguided approaches to reform, some of which were donor-inspired. The proven good practice is to institutionalize and give legislative backing to communally-managed and locally-adjudicated land tenure, within which individual security of tenure is usually well protected. It is also important to ensure that womens right to tenure is equally respected.

It was recognized that African countries face capacity constraints at both the individual and the institutional level. However, it was also recognized that there is a need to use existing capacity more effectively, and for public institutions serving farmers to respond to changing needs. Small holders need to be put at the center of agricultural development strategies, and regarded as genuine partners. The empowerment of farmers associations is the means for ensuring the effective participation of farmers in the making of policies and decisions that affect them. Agriculture should also be seen in the wider context of rural development, if policies to improve productivity are to be successful. Rural communities in most African countries are under-served in terms of education, health and infrastructure services, which limits their capacity and encourages migration to urban areas, particularly by the young. Improved education and increased access to information would help small scale farmers to adopt new technologies and take advantage of opportunities. At the same time, much greater attention is required to limit the spread of HIV/AIDS, which otherwise threatens to undermine development gains made in many rural communities throughout Africa.

Although Africa has generally lost market share in agricultural commodities, there have been some successes in exploiting niche markets and non-traditional exports. Such successes need to be built upon and expanded. However, it was also agreed that greater attention is required to develop local, national and regional markets. There is considerable scope for intra-regional trade, provided trade agreements can be reached and, transport and transit costs reduced. However, greater coherence between agriculture and trade policies, and greater attention to regional cooperation and integration, are required if this potential is to be exploited.

It was recognized that in international markets African producers still face market access and marketing problems. African countries were poorly equipped to defend their interests during past multilateral trade negotiations, and face further formidable challenges in the next round of WTO negotiations, which among other things, will focus on agriculture and intellectual property rights. As part of this, some OECD countries are known to be seeking "patent rights" for improved seeds. This will have significant implications on the ability of African countries to acquire seeds at reasonable cost. African countries should therefore develop the capacity to more effectively participate and defend their rights in the forthcoming international trade negotiations. For this, they have to understand the context and the instruments available to them, and develop appropriate strategies and regional alliances to strengthen their negotiating positions. Adoption of a coordinated position on trade talks would improve the ability of African countries to negotiate favorable agreements.

Country Experience: the Response to Reforms

Detailed presentations of country experiences during the discussions generally indicated and reaffirmed that (i) peace and stability are clear prerequisites for the resumption of production and growth; (ii) early implementation of such sound macro-economic policies as competitive exchange rates, low deficits and low inflation, as well as the liberalization of trade and pricing systems, will result in vastly improved incentives to farmers; (iii) comprehensive agricultural and rural development strategies, drawn up with the full participation of farmers associations and other stakeholders, are a helpful guide for action; (iv) administrative decentralization, greater participation of farmers, particularly through their own associations and cooperatives, and a strengthened role for the private sector enhance the success of such agricultural strategies; (v) ensuring the delivery of essential agricultural services, as well as marketing, credit, transport and other complementary services is critical; (vi) effective coordination of donors is best achieved where country officials take a strong lead role; and (vii) a well-informed and closely involved political leadership that recognizes the importance of agriculture to economic development greatly contributes to enhanced agricultural growth.

Africas External Partners

Although participants acknowledged that the primary responsibility for increasing agricultural productivity and competitiveness lies with African countries themselves, they also emphasized that Africas partners have a supportive role to play. African countries need to be proactive, not only in developing strategies, but also in coordinating donor assistance for maximum impact. Although external assistance can play only a supplementary role, its effectiveness is enhanced where there is good coordination based on partnership in support of the African countrys own well-articulated development strategies and investment programs. A number of partner country representatives indicated that their overall allocation to agriculture is now growing, reversing in some cases, the persistent declines of recent years. The assistance provided to African countries for agriculture in the past did not achieve its objectives in part because of a poor policy environment within countries, but also because of the way assistance was provided and the lack of a coherent approach on the part of donors. There was agreement that the project-funded approach of the past had not been successful in promoting sustainable agricultural development, and the current approach of support to sector strategies and investment programs was welcomed. Just as African countries need to embed agricultural policy within a general framework of poverty reduction, the support of their development partners also must fall within the same goal of poverty reduction.

Greater policy coherence and a more unified approach is also required from Africas development partners. It was recognized that the agricultural productivity and competitiveness of African countries can be undermined by donor policies and practices. There was agreement that greater attention should be paid to the effect of food aid on agricultural pricing and production. Food aid should preferably also be untied, and purchased locally or in other African countries. It was noted that external debt has constrained public investment in agriculture in a number of African countries, and that more complete and lasting action on debt could therefore release additional resources for the agricultural sector. It was also recognized that regional cooperation and integration is emerging as a useful vehicle for channeling development assistance effectively, and that this could be particularly helpful in promoting intra-regional trade.

With regard to trade, it was recognized that the application of agricultural subsidies by OECD countries creates an environment in which African countries and producers find it hard to compete. Moreover, the export of subsidized OECD farm products to African countries has depressed the market for local production, which is at odds with donor policies to promote the development of African agriculture. Similarly, African exporters face a variety of tariff and non-tariff barriers regarding access to OECD markets. Greater openness of OECD markets to African products would not only stimulate agricultural production but also facilitate Africas integration into the global economy. However, it was recognized that African countries have to be ready to take advantage of increased openness. It was also suggested that Africas partners could provide financial assistance to strengthen the analytical capacity of African countries in trade negotiations.

Conclusion

The discussions reaffirmed the importance of agriculture to Africas economies and the need for concerted action to improve productivity. The successes achieved by a number of countries in recent years, though still fragile, are promising. They indicate that past negative trends in agricultural production can be reversed through conscious policy action and specific measures that target critical areas. African governments need to place small holder farmers firmly at the center of agricultural policies, and implement actions that adequately address such constraints as security of land tenure, access to water, credit, and new technologies. To be sustainable, increased agricultural production has to come more from enhanced productivity, rather than from expansion into new lands.

African governments also need to address non-agricultural policy issues. Political and macroeconomic stability are essential for an environment conducive to agricultural activity. Domestic savings and investment rates have to be substantially increased and capital flight reversed. Moreover, African governments need to proactively engage in international trade negotiations in order to secure adequate market access for agriculture-related as well as other export products, and exploit the possibilities of greater regional integration and trade within Africa. Close and stronger collaboration among farmers associations, the private sector and African governments, and effective partnerships between African and developed countries, are essential to enhance agricultural productivity and competitiveness. While the primary responsibility lies with African countries, development assistance flows have an important supportive role to play, and should be continued.

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It is expected that, African governments will initiate or further strengthen comprehensive agricultural development strategies and ensure their effective implementation by taking appropriate action with respect to the policy, governance, service delivery, infrastructural and institutional requirements, so as to significantly and sustainably raise the productivity and competitiveness of their agricultural sectors.

It was also agreed that given its importance to Africas economic growth and development, the Chairman of the Economic Committee and the GCA Co-Chairpersons agreed that discussions should be initiated with two countries to design and implement pilot programs on combating HIV/AIDS as well as two countries to formulate and implement agricultural development programs over the next five years. These pilot programs, for which limited funding would be sought, would set targets and identify monitable indicators. Moreover, it is proposed that the topic of agriculture should be revisited in a GCA Economic Committee meeting in two-three years, at which among other things, progress on the pilot programs will be reported.