Title: Business Models for Commercializing African Agriculture
Abstract: AbstractThis article explores the strengths and weaknesses of various business models that can make agriculture behave more like industries-enjoying high levels of productivity irrespective of systemic challenges. The main idea is to supplement the uncoordinated and untargeted provision by the state of all the inputs needed to modernize agriculture, by the provision of bundles of services that resolve many market inefficiencies in ways that are adapted to particular environments. The ultimate goal is to create islands of quality even as markets remain incomplete and policies imperfect in the country as a whole.IntroductionThe prevalence of traditional and subsistence farming methods in Sub-Saharan Africa has resulted in dismal agricultural performance over the past decades. Africa lags behind in agricultural productivity and yields. This poor performance in the agricultural sector has dire implications, not only on food security, but also on overall economic welfare. On average, 60 percent of Africans rely on agriculture for their livelihood and when agricultural incomes are low, expenditures on education, health care, and nutrition also suffer. As of 2010, 239 million or 30 percent of Africans were hungry or undernourished. major concern, therefore, is how to harness Africas agricultural potential in order to make Africas farmers more productive, efficient, entrepreneurial, and well off generally. Commercial agriculture (i.e., producing for market) is one way to increase the profitability and competitiveness of the agricultural sector.Capital-Related Constraints to Commercial AgricultureIn order for farmers to produce for market, they have to be connected to markets. However, in many cases, African farmers are unable to access input and output markets and therefore continue to produce for domestic consumption. Below are some of the main capital-related constraints to commercial agriculture.POOR RISK MANAGEMENTAgriculture is an inherently risky activity, but the risks in Africa are amplified by bad policies. Agricultural risks could be categorized into production risks (relating to threat of drought, floods, infestations, etc.), marketing risks (relating to inadequate physical infrastructure, inadequate access to credit/insurance markets, lack of information, etc.) and price risks (relating to global and local price volatility).Traditionally, governments attempted to mitigate these risks using strategic grain reserves and/ or marketing boards. In these schemes, the government would purchase produce from farmers and regulate supply depending on whether there were shortages or surplus. Such regulation was meant to stabilize prices and create an assured demand for farmers thus creating incentives for production. These parastatals also set prices for various commodities in order to avoid exploitation of consumers in times of shortage.Theoretically, such government interventions seem like a good way to insure farmers against price and marketing risks but in practice, marketing boards and strategic grain reserves have often crowded out the private sector especially in instances where the parastatals act as monopolies. They also led to depressed prices whenever the government flooded the market with products. Governments should explore modern risk management tools that are associated with fewer negative externalities. Some modern tools include:Warehouse receipt systems (WRS). A warehouse receipt is a financial instrument generally issued by warehouse operators and approved by governments' financial authorities, which specifies the quantity and quality of a particular commodity in a specified location by a depositor.1 farmer can deposit crops in the warehouse and receive a receipt from the warehouse operator. The receipt can be resold or used as collateral for a bank loan. The advantage of this system is that farmers do not have to sell their products right away to deal with credit constraints. …
Publication Year: 2013
Publication Date: 2013-01-01
Language: en
Type: article
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