How Ivorian agriculture can benefit from local processing

Côte d’Ivoire’s agriculture sector is both a key driver of the national economy and a primary player in global markets for goods such as cocoa and rubber. Indeed, owing to its fertile land, the West African country has established itself as a major exporter of a wide range of raw agricultural products. At the same time, the government aims to ensure the sector’s economic and environmental sustainability through measures such as expanding local processing to capture greater value added, and combatting deforestation.

Economic Contribution

The agriculture sector is one of the main pillars of the Ivorian economy. The sector accounted for approximately 21.5% of GDP in 2018, around half of national employment and almost 40% of all exports, according to the World Bank. In 2018 – the latest full-year information available from the Ministry of Economy and Finance (MEF) – the top agricultural exports by tonne were cocoa (2.11m), cashews (761,317) and rubber (624,136). Other top exports included timber, palm oil, bananas, cottonseed, sugar, coffee and pineapple. Nonetheless, there remains substantial potential for the sector to widen its contribution to economic growth by enhancing the diversity of agricultural outputs.

Sector Performance

The agriculture sector enjoyed a robust 2018, during which export-oriented agricultural production outperformed expectations. Growth in the production of certain crops for the year was better than predicted, specifically in regards to cocoa (3.9% in 2018 was a substantially better performance than the expected -3.8%), coffee (269% versus 251.3%), cashew (7%, above the expected 5.5%), banana (2.5% compared to 0.4%) and pineapple (-4.6%, ahead of -5.4%). Although overall agricultural production exceeded expectations, the production growth rates of the following crops were lower than expected: cotton fibre (9.7% versus the anticipated 17%), rubber (2.9% versus 5.9%), sugar (-2.6% against 7%) and palm oil (18.5%, just below the expected 19.1%). The MEF attributed the better-than-expected output to financial support for the sector’s development by institutional partners such as the World Bank, the African Development Bank and the EU.

Following a strong performance in 2018, export-oriented agricultural production continued on a positive growth trajectory during the first three quarters of 2019. Cocoa production was up 9.4% compared to the first nine months of 2018, while cotton was up by 29.5%. This was followed by rubber (8.4%), bananas (11.6%), pineapples (18.5%) and sugar (1.7%). The production of coffee and cashew nuts, however, fell by 23.9% and 14%, respectively.

Structure & Oversight

Several government authorities play a role in regulating the agriculture sector, which employed approximately 1.7m Ivorian farmers across 1.4m farms – the majority of which were family farms and small estates – in 2015/16, based on the latest agriculture census data. Among the most important authorities are the Coffee and Cocoa Council (Conseil du Café-Cacao, CCC), and the Cotton and Cashew Council (Conseil du Coton et de l’Anarcade, CCA). The CCC and CCA, while under the supervision of the Ministry of Agriculture and Rural Development (MARD), are directly responsible for their respective segment. The councils perform functions such as licensing operators, negotiating international agreements on behalf of the government, and setting purchase prices for the commodities.

Cocoa Production

In 2019 Côte d’Ivoire maintained its status as the world’s top producer of cocoa beans. Of the estimated 4.8m tonnes of cocoa produced worldwide during the 2018/19 season, which ran from October 1 to September 30, Côte d’Ivoire grew 2.2m tonnes, accounting for around 46% of global output. The second- and third-largest producers of cocoa were Ghana and Ecuador, which grew about 830,000 and 310,000 tonnes, respectively. With Cameroon placing fourth, contributing around 295,000 tonnes, Africa was responsible for three-quarters of global cocoa production that season.

In a 2019 report the Economic Forecasting, Policy and Statistics Department attributed Côte d’Ivoire’s increased cocoa production to the establishment of new plantations and government efforts to amplify output, such as training farmers in best practices and distributing higher-quality inputs, including seeds.

One of the government’s main priorities for cocoa production is to strengthen the industry’s sustainability. Chief among the barriers to sustainability are low wages for farmers and deforestation. In many cases, the latter is exacerbated by the former: if farmers are not earning a sustainable income, they may be more likely to expand the area they farm as they seek to grow their revenue. In response, Côte d’Ivoire, along with Ghana, imposed a fixed premium of $400 per tonne on all cocoa contracts signed for the 2020/21 season beginning in July 2019, which will translate into payouts to farmers (see analysis). Prior to this, in October 2019 the CCC raised the price paid to producers by 10% to CFA825 ($1.42) per kg through to March 30, 2020.

Cashew Nuts

Cashew production figures were suppressed in 2019 by smuggling, according to the CCA. In February 2020 the council told international media that output for 2019 had been recorded at approximately 654,000 tonnes, versus 761,000 in 2018. It suspects that some 200,000 tonnes of cashew were smuggled out to neighbouring countries that year – primarily Ghana, but also Burkina Faso, Mali and Guinea – where farmers are paid more for the nut. In 2019 the government lowered the minimum price paid to cashew farmers in Côte d’Ivoire from CFA500 ($0.86) to CFA375 ($0.64) per kg, while farmers in Ghana were paid around CFA600 ($1.03). The CCA estimates that the smuggled production amounted to CFA17bn ($29.2m) in lost tax revenue.

The government has taken a number of steps to prevent smuggling during the 2020 season, which commenced in February. These include raising the floor payment for cashew farmers to CFA400 ($0.69) per kg and securing the country’s borders to stem illegal outflow. For instance, cashew shipments are only permitted to travel between production zones and ports or processing factories, and these shipments must carry official documentation detailing their destination. Moreover, the CCA announced the decision to close all cashew depots and collection centres located near land borders, but did not specify which centres are to be closed. The council estimates that the country could see 800,000 tonnes of cashew output in 2020 if efforts to curb smuggling are successful.

The Covid-19 pandemic is also expected to impact the segment. The CCA estimates that cashew and cotton producers will lose nearly $500,000 in export sales in 2020 due to the pandemic. Indeed, cashew prices in Asia fell from $1400 per tonne at the start of the crisis to $900 per tonne in May, representing a $300m fall in overall export income, according to the CCA.

Rubber

Côte d’Ivoire is the top producer of rubber in Africa, accounting for 60% of the continent’s output, and seventh largest in the world. Rubber production reached 442,106 tonnes for the first three quarters of 2019, which was 8.4% higher than production during the same period of the previous year. This rate marks a slowdown from a phase of accelerated growth that began in 2015, which resulted from a wave of new plantations established between 2010 and 2012 – since rubber trees take five to seven years to mature – and high rubber prices of almost $6 per kg. By comparison, in 2019 the average price of rubber was $1.64 per kg on the Singapore Commodity Exchange. Notably, domestic factories have not kept pace with the elevated supply from the new plantations, and as such the increased supply is not being processed locally.

Stakeholders have recently taken measures to enhance the domestic processing capacity of rubber and improve business conditions in the industry. The government announced in September 2019 that it plans to provide rubber producers with Customs benefits and other non-tax incentives to support the expansion of local processing – which handled around 55% of rubber from Ivorian plantations at the time – to absorb all local production by 2022. This support is expected to cost around CFA100bn ($171.9m).

Additionally, the Association of Natural Rubber Professionals began to train new harvesters in September 2019, with the goal to educate 60,000 harvesters over a span of five years, backed by CFA27bn ($46.4m). There is currently a lack of labour in this area, and skilled harvesting can extend the life of a tree to 40 years, thereby ensuring sustainability of the industry. Separately, in August 2019 the Rubber-Palm Oil Council signed an agreement with the National Bureau for Technical Research and Development to explore a new pricing mechanism for rubber to tackle the lower value of the commodity on international markets.

Cocoa Processing

Cocoa processing plays a significant role in Côte d’Ivoire’s agro-industrial activities, which are key to adding value to the economy. According to the World Bank’s June 2019 “Côte d’Ivoire Agricultural Sector Update” report, agro-industry contributed around half of the manufacturing sector’s value added and constituted 8% of GDP the preceding year. Moreover, around half of agro-industrial output is exported and accounts for approximately 30% of the value of agricultural exports. Notably, the World Bank identified Côte d’Ivoire as Africa’s fifth-largest exporter of agro-industrial products after South Africa, Egypt, Tunisia and Morocco in 2018. Cocoa processing, specifically, represents 40% of the total value of agro-industrial production and 80% of all agro-industrial exports. In 2018 Côte d’Ivoire processed about 530,000 tonnes of raw cocoa, which already positions the country well globally, with the second-highest processing volume after the Netherlands. The country currently processes about 30% of its total raw production into products including cocoa liquor, butter and cake. The government aims to raise primary processing to 50% of total production by 2022.

The government has recently taken steps to foster investment in cocoa processing capacity. These include a January 2020 move to reduce the differentiated export tax (droit unique de sortie, DUS) payout for cocoa exporters who commit to an annual increase in grind. Additionally, in July 2019 the Ivorian government took control of the country’s single window for foreign trade, operation of which was leased to the Webb Fontaine Group since its inception in 2013. This will allow authorities to directly monitor the inflow and outflow of goods – including cocoa.

In a positive sign for the segment, a number of agro-industrial companies made investments throughout 2019 to boost their cocoa processing capacities within Côte d’Ivoire. “To achieve the goal of processing 50% of local production, the country has welcomed high-tech companies to come and invest in domestic processing,” Yves Brahima Koné, general manager of the CCC, told OBG. Among these companies are Switzerland-based Barry Callebaut, which inaugurated a new cocoa grinding unit in Abidjan in March 2019. This is expected to lead to a 40% gain in production capacity by 2022, as part of a total investment of CFA50bn ($86m) over five years. Also in Abidjan, US-based Cargill announced in December 2019 that it will invest $100m to boost production capacity at its processing plant in Yopougon, which sits at around 110m tonnes, by 50%.

Cashew Processing

Increasing the local processing of cashews offers a clear route to bolster its value added: agro-industrial activities in the country are generally limited to the primary processing of cocoa products, cotton and rubber. In 2018 Côte d’Ivoire missed its target for the domestic processing of cashews by over half: against a target of 100,000 tonnes, only 44,000 tonnes were processed locally, according to CCA figures.

This underperformance highlights an opportunity for investors. “The increasing transformation of raw materials into finished products is boosting the added value of national output,” Kamel Assaf, director-general of the Générale de Produits Agricoles, told OBG. “Among others, one positive side effect of processing – which is promoted by public and private stakeholders – is reducing exposure of local production to the volatility of international prices.”

Cashew processing is set to be strengthened by a host of stakeholders. Private players will have a key role, Prime Minister Amadou Gon Coulibaly highlighted at the February 2020 World Cashew Convention. According to local media, Prime Minister Gon Coulibaly also mentioned at the event the potential introduction of additional tax incentives.

Export-Oriented Inputs

The use of advanced inputs in Côte d’Ivoire remains primarily limited to aiding the cultivation of export-oriented crops. Segments that have benefitted from improved planting inputs in recent years include cotton, rubber, palm oil and, increasingly, cocoa, according to the World Bank’s “In the land of cocoa: How to transform Côte d’Ivoire?” report published in July 2019. For example, the 2019/20 season saw cotton production rise to 510,000 tonnes versus 468,000 in the previous season, an uptick of approximately 9%. This came on the back of initiatives to widen the use of advanced inputs and productivity-enhancing technologies, as well as favourable weather conditions.

Fertiliser use in Côte d’Ivoire also remains relatively low, except for export-oriented crops and those for which fertiliser use is subsidised, such as cocoa and rice. Inorganic fertiliser use in the country is equivalent to 35 kg per ha – one-quarter of the global average of 140 kg per ha. Of the fertiliser spread in the country, 40% is used for cotton, 16% each for cocoa and palm oil, 10% for sugar, and 5% for irrigated rice and bananas.

Some companies are advocating for alternatives to chemical fertilisers. “Bio solutions are not extensively utilised around the world, and even less so in Côte d’Ivoire,” Jacques Hommes, general manager of Eléphant Vert Côte d’Ivoire, told OBG. “To expand their use, one idea is to integrate such solutions into conventional crop activities, such as switching from chemical fertiliser to bio fertiliser and using the latter in ground restoration, which is not only applicable to Côte d’Ivoire, but to the rest of West African countries. This is much healthier for the environment.”

In 2017 Ivorian start-up Green Countries sold 350 tonnes of fertiliser produced from recycled organic waste. Local fruits processor ATOU Ivorio attributes its growth in pineapple production from 30 to 45 tonnes per ha to the fertiliser, according to local media in 2018. Another innovative solution was developed by Ivorian students in Daloa. Their mobile app, BioSave, teaches farmers to convert organic waste into fertiliser and insecticides. A group of 150 farmers began participating in a trial of the app in August 2019. The students were reportedly looking to develop a computer-compatible version to overcome limited smartphone penetration in some rural farmer communities.

While the use of fertiliser may be kept to a small number of crops, the use of agrochemicals – such as herbicides and pesticides – is more widespread in the country. Insecticides account for about half of all agrochemicals applied, while herbicides, which are leveraged primarily for cotton and rice production, constitute 25%. Other chemicals used include fungicides, primarily in banana and rubber plantations, and nematicides, which are largely limited to the production of bananas and pineapples.

Boosting Staple Crop Production

Despite progress in export-oriented crop output – often spearheaded by large agro-industrial companies – the use of higher-quality seeds, fertiliser and agricultural machinery generally remains low for staple crop production. An estimated 50% of farms persist with traditional methods of farming, and only 10% use intensive systems, according to the World Bank. Reasons for the low uptake of more advanced farming methods include limited access to financing for inputs and a lack of sufficient impetus to adopt new technologies in light of the country’s relatively fertile land and low population density. These are compounded by an ageing farming population: only 10% of the country’s farmers are below 30 years old, and younger generations are typically more open to new methods.

An exception to the low use of advanced inputs in the production of staple crops is rice. The National Office for Rice Development – replaced in January 2020 with the Agency for Rice Development – facilitated the distribution of enhanced seeds as part of ongoing efforts to reduce dependence on imports, which accounted for around half of domestic rice consumption in 2018. Several regional initiatives, including the West African Seed Programme and the West Africa Agricultural Productivity Programme, support greater adoption of advanced inputs in the wider sector.

Land Registration

As part of wider efforts to strengthen the sustainability of the agriculture sector, the government has recently moved to improve the land registration process. Despite clear land registration and certification procedures, it is sometimes difficult to apply these when small landowners are involved. Moreover, applying these procedures can stir pre-existing conflicts over land parcels when the procedures involve officially delineating their borders. In March 2019 the government granted responsibility for the demarcation of borders between villages to the Rural Land Agency (RLA) as a means of reducing land conflicts, and also defined the procedure the agency should use to delimit these borders.

Deforestation

The government has recently taken measures to halt deforestation and reverse its effects. A new forest code, Law No. 2019-675, prohibits any additional deforestation and forest degradation – a step up from the 2014 code, which had faced criticism for lack of clarity. Notably, the new forest code provides for the protection of certain forest areas – which are to be identified by decree – and details punishments for violations of the code. For example, in the case of unauthorised deforestation, the code allows for a maximum of three years’ imprisonment and/or a fine of up to CFA20m ($34,400), depending on the case.

The new code is one of the latest efforts to implement the Strategy for the Preservation, Rehabilitation and Extension of Forests (Stratégie de Préservation, de Réhabilitation et d’Extensions des Forêts, SPREF). Adopted in May 2018, the SPREF aims to improve forest governance, strengthen the protection of residual forests and restore degraded forest areas in the country. The objectives of the SPREF include achieving 2.9m ha of reforestation by 2030 and an additional 1.7m ha by 2045. The government has estimated that achieving the SPREF’s 2030 goals will require approximately CFA616bn ($1bn), of which 43% is expected to be financed by public-private partnerships, 33% by the private sector and 24% by the public sector.

Particular focus has been placed on deforestation caused by the cocoa industry, and Côte d’Ivoire has received support from a number of stakeholders to address this (see analysis). The country has lost an estimated three-quarters of its forests since the turn of the 20th century, when forests covered 16m ha. This fell to 7.8m ha by 1990 and 3.4m ha in 2015. Efforts will also address environmental concerns in terms of reducing the segment’s contribution to climate change.

Climate Change

The agriculture sector is particularly at risk from climate change. For instance, crop yields are likely to be impacted by greater variability in rainfall and other weather patterns. Moreover, according to the World Bank, average temperatures are projected to rise 1.3°C by 2030, 1.8°C by 2050 and 2.1°C by 2070. With respect to the economic impact, a 2017 report by the UN Economic Commission for Africa suggests that western and eastern parts of the region may experience a fall in GDP of up to 15% by 2050 due to the effects of climate change. Indeed, arid conditions at the beginning of 2020 worried cocoa farmers and traders that the adverse weather would hurt the year’s yield and bean quality.

In June 2019 the Ministry of Environment and Sustainable Development (MESD) launched a project to reinforce the integration of climate change in government planning. The project is supported by funding from the UN Green Climate Fund, which granted Côte d’Ivoire $2.3m to address the challenge, according to a MESD announcement in March of that year. These combined actions will help combat a problem whose effects extend beyond crop growing: the World Bank highlights that broader impacts include reduced labour productivity, poorer health and a rise in mortality. Therefore, addressing the issue is key to enabling Côte d’Ivoire’s socio-economic stability, as well as consistency in agriculture output.

Outlook

Public and private stakeholders have identified the steps needed to ensure the agriculture sector’s long-term development. The country has already undertaken important initiatives to increase the level of local processing, enhance productivity and address environmental risks. Moreover, financing for these initiatives is likely to grow in the medium to long term, building on the country’s fertile land and economic potential. These efforts open up opportunities for investors to leverage higher output levels and will help boost the contribution of agriculture to the economy.