Designing an agricultural mechanization strategy in sub-Saharan Africa

sub-Saharan Africa region

 The current lack of food security within the sub-Saharan Africa region is a matter of international concern. 
Simplistic attempts to respond to this challenge by conglomerating the agricultural realities of all countries in the region will not produce the valid analysis needed to properly frame solutions.  It is not debatable that agricultural development should be the major area of focus in any discussion of food security, and mechanization is one of the key elements in this necessary agricultural advancement.  Equally, I would like to argue, there should be no doubt that the relative growth of the agricultural sector of each sub-Saharan country varies so significantly from that of its neighbors that the only meaningful unit of analysis should be the country rather than the region.

Additionally, the major focus of this discussion will be the small-scale farm and an analysis of its mechanization strategy based on current data and projected demographic shifts in various sub-Saharan countries.  Although agricultural mechanization is a broad umbrella term, this paper focuses primarily on the use of tractors. Knowledge of the growing need for mechanization is not sufficient in and of itself.  Adequate market penetration of farm machinery, and (I would argue) a resultant increase in food production, can only be achieved in sub-Saharan Africa if issues relating to acquisition, utilization, and maintenance of said equipment can first be addressed. This piece will offer suggestions that, if utilized, could help resolve these concerns. 

The number of tractors is inconsistent across countries

The main objective of farm mechanization is increasing agricultural production. Despite the use of several indicators to express the level of mechanization, the number of tractors per 1,000 hectares of arable land remains a meaningful and easy-to-monitor indicator for busy policymakers, development professionals, and private businesses. In 2009, the Food and Agricultural Organization’s (FAO) Round Table Meeting of Experts held in Tanzania reported that the number of tractors per 1,000 hectares of arable land in sub-Saharan Africa had sunk from 2 in 1980 to 1.3 by 2003 (FAO, 2011). Looking at the same FAO data for the same period for a few countries, the data show the decrease of the number of tractors per 1,000 ha in Ghana, which is consistent with the conclusion of the roundtable. However, for Côte d’Ivoire and Kenya, the number of tractors was static from the 1980s until the mid-1990s, and then slightly increased late 1990s and early 2000s. Finally, for Tanzania and Guinea, it decreased from 1980s to mid 1990s, and then increased from the late 1990s and early 2000s (Graph 1).

Source: FAO, compiled by the author
The small increase observed in these countries did not constitute a big gain in term of adoption of mechanization in these countries compared to the gain and the progress of mechanization in Asia and the Pacific countries for the same period (FAO, 2011).

The cost of labor influences the uptake of agricultural machinery

One factor that determines the potential adoption of agricultural equipment is the cost of labor. If the cost of agricultural labor remains cheaper in sub-Saharan Africa countries, the farmers do not have the incentive to use costly machinery. Thus, the demographic trends and the agricultural productivity affect the adoption rate of tractors in the continent. Looking at demographic data, the percentage of population living in rural areas remains high but varies greatly across countries, anywhere between 60 percent and 80 percent. Similarly, the agricultural sector is the main source of labor. This numbers mean that agricultural production relies heavily on human power using hand tool technology not on machinery.

This big picture, however, does not give us a clear view of the potential agricultural machinery market. Two major factors; rapid urbanization and sustainable high agricultural growth rate, tell us of the existence of a potential market and the development of mechanization at least in these countries. The rapid urbanization in Tanzania, Nigeria, Ghana, and Côte d’Ivoire, (53 percent, 67 percent, 70 percent, and 71 percent, respectively by 2050 (United Nations, 2014)), helps us predict the increase of the cost of the agricultural labor in these countries. In other words, it is highly likely that the demand and the adoption rates of agricultural equipment grow rapidly there.

 Moreover, the high agricultural growth of these countries (3.4 percent, 7.4 percent, 5 percent, and 4.4 percent, respectively), indicates the increasing strength of the agricultural sector in their economy. Policymakers and private investors in the agricultural equipment can go deeper than the country level to explore the unidentified market needs, looking at regional or local sub-unit levels to explore appropriate areas within the country to start business.

Commercially oriented small-holder farmers can be a good market for agricultural equipment

The market of tractors and other agricultural equipment is not isolated it must be considered within the whole agricultural market. Low agricultural profitability and difficult agricultural market access indicate an environment not suitable for mechanization. Developing mechanization with pure survival agriculture or subsistence farming is difficult and non sustainable. However, subsistence farming can be categorized into two subcategories: survival agriculture and commercially oriented farming. In a subsistence farming context, a mechanization strategy targeting commercially oriented small-holder farmers will succeed if other constraints are addressed.

 These constraints are (but not limited to): access to finance, repair, availability of spare parts, training, access to agricultural inputs, and access to markets. I would evaluate the size of this category of commercially oriented subsistence farmers about 10 percent to 15 percent of the small-holder farmers. Therefore, with small-scale farming, strategy and resource allocation should only be focused on commercially oriented small-holder farmers.

Businesses should rethink how they “sell” tractors

The aforementioned argument implies that farm size doesn’t matter. Regardless of the size of the farm, farm profitability and the mechanization business model can drive success. The business environment and local context are relevant factors to consider when developing a business model. The size and the type of tractors matter. In small-scale farming, the powerful and large equipment frequently used in developed countries is irrelevant. The choice is a smaller machine, such as a tractor less than 75 HP or a walking tractor. Also, small-holder farmers especially those with low profits may still not able to afford a tractor, so a hire-service or rental tractor might be a good working model, though this idea is yet to be explored in full: Sheahan and Barrett (2014) report that the “ownership of agricultural machinery remains rare among African farmers, but much remains to be learned about rental and sharing arrangement that might enhance access for those who do not own equipment.”

 Thus, the traditional dealership business model alone cannot be efficient in the context of a nascent mechanization market in sub-Saharan Africa. For small-holder farmers, rental and hire-service model or the combination of these two models should be part of the mechanization strategy. The model can involve not only small-holder farmers, but also individual medium-size farmers, dealers, or new small business enterprises.

Financing agricultural mechanization is a major challenge

Designing a business strategy to increase the use of tractors in small-scale farming is not limited to the development of a good business model. One of the major impediments to improving the agricultural productivity in sub-Saharan Africa is the financing. Policymakers, development professionals, donors, and private investors play a critical role in developing a sustainable financing model adapted to the African business context.

 Small-holder farmers cannot afford to buy a tractor without financial assistance. To overcome the financial hurdle, the common advice is to organize farmers into cooperative or association and they can purchase the equipment as a group. (This approach works, but it is only efficient in the short term because it leads to the collective good problem.) However, regardless of the ownership approach, financing remains the impediment to mechanization in developing countries. Banks are reluctant to finance agricultural businesses because of their high risk and uncertainties. In the past, many African countries had implemented a government-led investment.

The government was the sole actor  developing the strategy, financing the entire operations, and delivering the services to the farmers. This approach failed to achieve the expected results. Therefore, designing a model based on lessons learned constitutes a better approach. A public-private partnership should be one of the working financing schemes, particularly in the nascent market context. Another option is the establishment of a basket fund from donors and government. In any financial model, the mechanization strategy should be private sector driven, and farmers should be given the option to make payments towards the purchase of their equipment during the harvest.

It is important to develop a strategy by which success can be quantified. In a business-led approach, it is common to measure success by tracking the number of tractors sold and the profits generated by sales operations. Indeed, those are major factors, but this type of data should not be the only metric worthy of consideration. Executed rental and hire service contracts and mechanization adoption rates should also figure in the tally. The increase of these contracts and adoption rates predict the growing market demand and ultimately the creation of future buyers. These metrics will identify the establishment of a sustainable market.

References
FAO. (2011). Investment in Agricultural Mechanization in Africa: Conclusions and recommendations of a round table meeting of experts. Retrieved from http://www.fao.org/docrep/014/i2130e/i2130e00.pdf
Houssou, N., Diao, X. & Kolayavali, S. (2014). IFPRI Discussion Paper 01387. Retrieved from SSRN: http://ssrn.com/abstract=2539582.

Sheehan M. & Barrett C. (2014). Ten striking facts about agricultural input use in Sub-Saharan Africa. Cornell University. Retrieved from http://barrett.dyson.cornell.edu/files/papers/SheahanBarrettTenFactsInputUseSSASept2014.pdf
United Nations, Department of Economic and Social Affairs, Population Division (2015). World Urbanization Prospects: The 2014 Revision, (ST/ESA/SER.A/366).