One of the major highlights this year in Africa’s food production matrix is a report that places the private sector at the centre of the continent’s efforts to upscale agriculture value chains. The Africa Agriculture Status Report (AASR) 2024 produced by the Alliance for a Green Revolution in Africa (AGRA) and authored by a panel of experts, is titled Accelerating the Private Sector for Food Systems Transformation in Africa.
The report identifies micro, small and medium enterprises (MSMEs) as crucial to Africa’s ambitions to increase not only farm production but also profitability. African countries are increasingly promoting agriculture as a business not pastime, encouraging new indigenous players into the sector.
However, new entrants into the sector use their own free funds, making the business undertaking a gamble many are not willing to take. The AGRA report sees a paradigm shift in agribusiness as important in realising the continent’s full potential. It is a timely report at a period when countries from Angola to Zimbabwe are seeking ways to wean themselves from cyclical poor agriculture performance while at the same time trying to penetrate export markets.
Some countries are trying new agriculture ventures such as horticulture exports, but the AGRA report notes that for this to be realised, MSEMs must play a more prominent role.
“MSMEs in particular are crucial to small farmer incomes, profitability, and productivity as they supply them the great majority of farm inputs and services and market small farmers’ output,” says Thomas Reardon, a professor at Michigan State University.
“They are also critical to small farmers’ climate resilience as these firms supply farmers with their irrigation equipment, livestock and crop disease resilience as they supply farmers with antibiotics and pesticides, among other inputs,” notes Thomas who is a researcher at the International Food Policy Research Institute (IFPRI) and one of the lead writers of the report.
Countries such as Zimbabwe have struggled to attract investment in the sector despite numerous appeals for fresh capital injection into sectors such as horticulture. There has also been a reliance on banks as the ultimate lender of agriculture finance, but the report says other avenues must be explored if the continent is to derive a dividend from the sector.
“Stronger, more resilient food systems in Africa will require better access to financing for agricultural small and medium enterprises (SMEs),” the report says. “Potential sources include commercial banks, non-banking financial institutions (NBFIs), and social lenders that provide various forms of debt, as well as other private capital investors that offer debt, equity, or quasi-equity investments,” the researchers add.
Smallholders have been held back by demands of collateral from lenders, effectively putting brakes on the efficient running of agri-enterprises. In Zimbabwe, beneficiaries of the land reform programme have complained that financial institutions are reluctant to give them loans as many of the farmers do not have title to the land. The farms still belong to the state, and as has been seen, government continues to repossess and redistribute the land to other black farmers citing lack of production in those farms.
“Agricultural businesses on the continent continue to struggle to access formal financing, and progress has been slow. Firms identify access to finance as their most important constraint to growth. While common across the sector, this challenge is disproportionately borne by smaller firms,” the AGRA report says.
However, experts note that to navigate these challenges, there is need to open up space for micro, small and medium enterprises. “MSMEs in particular are crucial to small farmer incomes, profitability and productivity. They are also critical to small farmers’ climate resilience as these firms supply farmers with inputs,” the report notes.
However, beyond providing inputs, small to medium enterprises are also seen as important in knowledge-sharing at a time when some governments are struggling to get agriculture extension officers to provide services to remote rural areas.
“Both MSMEs and MLEs sometimes supply other services such as training and information, credit, and logistical support. MSMEs also hold a special importance in rural settings regarding rural employment in general, and of youth and women in particular,” says Thomas.
