An Underutilized Opportunity to Boost Commercial Agriculture

Derek Byerlee

ASTI/FARA Conference

Accra, Dec 6th, 2011

Producer and Industry Funding of R&D in Africa

Africa has a great growth opportunity in commercial agricultureExample of Ghanaian cocoaBut R&D critical to ensure competitiveness

Producer/industry funding of R&D by collective action (e.g., a levy) can improve R&D by1) boosting R&D funding,2) improving the effectiveness of R&D

Evidence that it works well in many settings and Africa has tapped only a small part of its potentialCase studies

Main messages

Imports vs Exports

Africa Share of World Exports Still Falling

Africa vs Competitors

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

Shares of World Agricultural Exports

Brazil

Thailand

SS Africa

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

0

5

10

15

20

25

Imports

Exports

$U

S2000 b

illi

onis

Share of world exports

But Variable Performance (exports)

Share of world imports

Rice

Whe

at

Sugar

Pulse

s

Mai

ze

Veget

able

oils

Dairy

Tobac

co

Mea

ts

Hortic

ultu

re

All ag

ricul

ture

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1991-932006-08

% o

f golb

al

agri

cult

ura

l im

port

s

Cocoa

Sesam

eTea

Coffee

Tobac

co

Cotto

n

Cashe

w

Sugar

Rubbe

r

Palm

oil

Hortic

ultu

re

All ag

ricul

ture

0%

10%

20%

30%

40%

1991-932006-08

Ratio of cash crop yields Africa vs Asia/LA

CottonVariety releases fell

60% 1995-05 relative to previous decade

Bt cotton delayed 6-8 yrs vs competitors

Oil palmR&D shifted to SE Asia

where exports > than all agric exports from SSA

Lack of R&D Undermines Competitiveness

Yield performance relates to R&D

Tea

Sugar

Cocoa

Tobac

co

Natur

al ru

bber

Sesam

e

Coffee

Seed

cotto

n

Oil pl

am

0

0.5

1

1.5

Ratio, 1991-93Ratio 2006-08

Market prospectsStrong commodity

market outlookTrillion dollar

domestic market by 2030Regional trade

opport.New industries

BiofuelsCassava for China?

Land and water resourcesCould double land

areaLocational

advantagePrivate investor

interest

Africa Has Huge PotentialComparative advantages

ConceptualCollective action to

overcome scale and non-excludabilityLevy based on output Industry governance

IssuesHeterogeneity of

industryLikely underfunding (use

matching grants)Free riders requires

collective political action

Cost effective to collectExport productsSome domestic

productsInstability of fundingOrganized

producers/industryInstitutional designs

How and Why of Industry Funding

Practical

PotentialAssume min size

industry of $100 M and 1% levyAll exports levied plus

half of commercial crops for domestic mkts

Potential llevy of $PPP 500 M in 2008Equivalent to one third

of total R&D in 2008

Nine countriesCoffee, cocoa, sugar,

tea and tobaccoTotal in 2008 of $PPP

90 MGhana, SA, C’Iv, Kenya

Range of institutional designsMostly nonprofit crop

institute

Levies in Africa: Potential and Actual

Actual

Case Studies

Cenicafe (Coffee, 1938)

The Ceni’s of ColombiaCenipalma (Oil palm, 1991)

CoffeeColombia 2nd placeStrong industry assoc

with over 0.5 M members (1.5 ha average)

Oldest institute from 1938

State of art and successful

But low share to R&D and low research intensity of 0.47%R&D only 14% of

levy

Colombia 4th placeNew industry and

larger producersHigh research

intensity-- value based levy (1.5%)

Successful but faces challenges of pest, science and costs

CENIs Colombia: Single Commodities

Oil Palm

Tea RFK—Single CommodityKenya tea as African

success story1st or 2nd exporter,

smallholder basedSmall institute of 13 FTEs

Historically very effective in serving smallholders

Volume based levyLow research intensity of

0.1%+ some company R&D

Moving to value based levy and improved industry governance 20

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

100

50

100

150

200

250

300

0

20

40

60

80

100

120

R&D budget Prod value

R&

D b

udget

(M S

hil

lings)

Tea v

alu

e (

B S

hil

lings)

Source: Nzuma, 2011

The little engine that could--highly competitive

0.4% value levy on nearly all products matched by government (by law)Well funded and staffed relative to neighborsReal R&D spending doubled since established

Strong industry governanceFour board members—two gov, two industryCommodity and regional committees

Evidence of impactsOverall B/C at least 16:1 but patchy

INIA Uruguay: Multi-Commodity-Single Institute

Africa’s most successful agric exporterFederation of 14 producer associations

established in 2003R&D contracted mostly to CNRAOnly 18% to R&D, rest to extension etc

Underfunding of R&D especially for major crops like cocoa (research intensity 0.2%)Volume based levies set by industry

Strong industry governance especially where POs are strong

FIRCA, Cote d’Ivoire—Multi-Commodity Funding

Africa has huge potential in commercial agricultureNeeds to invest more in R&D to regain competitivenessR&D on commercial crops underfunded although important

exceptions (e.g., cocoa Ghana)Collective action by industry can increase funding but not

necessarily so Matching funds would provide incentive to raise funds

Strong industry governance improves effectiveness of research and accountability to industryHowever, R&D often shortchanged in allocation Importance of building capacity of POs although well run

parastatals may be a second best (CRIG)FARA, MFIs and others should advocate & facilitate

industry R&D funding (including regional)

Conclusions

 Country Product R&D expend. Industry valueb

Specific crop R&D

intensityc

Public R&D intensitya

$PPP M $PPP M % %

Ghana Cocoa 33.25 757 4.4 0.9

Cote d’Ivoire?

Multi 42.6 7,847 na 0.5?

South Africa

Sugar 18.59 673 2.8 2.0

Kenya Tea 3.10 369 0.8 1.3

Kenya Coffee 5.78 45 12.8 1.3

Malawi/Zimb

Tea 2.42 65 3.7 0.7g

Mauritius Sugar 9.89 149 6.6 3.9

Tanzania Coffee 3.43 46 7.4 0.5

Tanzania Tobacco 0.06 81 0.1 0.5

Tanzania Tea 4.10 37 11.1 0.5

Uganda Coffee 4.75 228 2.1 1.2

Examples of Industry Funding in Africa

Source: ASTI files

Funding only or Funding + R&D implementation?

Single commodity vs multi-commodity?Levy funding vs block grants thru parastatal

organizations?National or regional?

Institutional Design Issues