Room to grow: Despite the challenges facing the sector, cash crops and food processing hold potential for expansion

Often referred to as the backbone of Ghana’s economy, agriculture has traditionally been the largest sector and biggest employer in the country, bolstered by diverse commodities and strong ties to European markets. However, agriculture’s economic contribution has dwindled as the sector has shown low growth in recent years, with its contribution to GDP falling in 2012, totalling 22.7% of GDP, compared to 25.3% in 2011. Yet despite sliding to become the third-largest sector in Ghana after services and industry, stronger government intervention, private investment, and programmes aimed at improving fertilisation and mechanisation could improve the situation in 2013.

ROOM FOR GROWTH: Although food security remains an issue in some parts of Ghana, the government is targeting private investors as it develops a robust cash crop industry based on stronger exports and industrial farm production. Food processing activities also offer substantial untapped investment opportunities to the international agribusiness community.

With a total land area of approximately 23.9m ha, some 57% of land viable for agriculture, and just 3.28m ha of land used for crop production as of 2011, Ghana is well positioned to expand its agricultural activities. The country is the world’s second-largest cocoa producer after Côte d’Ivoire, and other crops including yams, cereals, oil palms and timber form the base of its agricultural economy. The leading processed agricultural export products include processed tuna, cut fresh pineapples, and tomato paste, according to the Ghana Investment Promotion Centre (GIPC).

UN-MECHANISED: Some 45% of homes in Ghana are agricultural households, according to the 2010 Population and Housing Census, and agriculture is predominantly a small-scale undertaking. About 90% of farm holdings are less than 2 ha in size, although there are some large farms and plantations, particularly in rubber, oil palm, coconut, rice, maize and pineapples. Farming is largely un-mechanised; most farmers use the hoe and cutlass as their main tools. In addition, most farms are inter-cropped, which keeps soil fertile, and monocropping is reserved for large-scale commercial farms.

Ghana is split into three main agricultural zones. The forest vegetation zone, with its abundant rainfall, produces the country’s cocoa, coffee, oil palm, cashew, rubber, plantain, banana and citrus crops, and stretches over parts of the Western, Eastern, Ashanti, BrongAhafo and Volta regions. The northern savannah is the largest agriculture zone, supplying most of the country’s rice, millet, sorghum, yam, tomatoes, cattle, sheep, goats and cotton, and covering swaths of the Upper East, Upper West and Northern regions. Unlike southern Ghana, which benefits from a biannual harvest due to two rainy seasons (long rains, running from March to July, and short rains from September to November), the country’s north has only one rainy season a year, lasting from April to September. The coastal savannah zone also produces rice, as well as maize, cassava, vegetables, sugarcane, mangoes, coconut and livestock.

Irrigated areas of the coastal savannah zone produce high yields of sweet potato and soya bean, and the lower part of the coastal savannah is rich in water resources, allowing for thriving aquaculture.

AGRICULTURAL ORGANISATION: The Ministry of Food and Agriculture (MoFA) is the main policy-making agency for the sector, although it does not manage cocoa policy or production. The state-owned Ghana Cocoa Board (COCOBOD) was created in 1947 to oversee cocoa development, and cocoa falls under the umbrella of the Ministry of Finance rather than the MoFA. The GIPC promotes export-oriented activities and lobbies for agriculture in Ghana. Government agriculture policies are covered under the Food and Agricultural Sector Development Plan (FASDEP II), which was introduced in 2007, following the release of FASDEP I in 2002.

The revised policy emphasises sustainable utilisation of resources, and is characterised by six priority themes including food security, income growth, increased competition and integration, sustainability, institutional coordination, and improved science and technology.

The Medium-Term Agriculture Sector Investment Plan (METASIP) for 2011-15 is the national investment roadmap for implementing FASDEP II. METASIP calls for development across the agricultural value chain, and prioritises collaboration with the private sector, using increased government expenditure on infrastructure and equipment upgrades to encourage investment. The government calculates it can boost agriculture’s contribution to GDP by a minimum of 6% per year, as well as halving the poverty rate by 2015 – one of its key Millennium Development Goals.

GROWTH & SPENDING: Although agriculture’s GDP contribution fell slightly in 2012, the sector still recorded an annual growth rate of 1.3% in 2012, reaching GHS6.67bn ($3.4bn) but falling short of its 4.8% target. The services sector recorded the highest growth rate in 2012 at 10.2%, followed by industry at 7%, according to the Ghana Statistical Service. The services sector is the largest in the country, accounting for 50% of GDP, followed by industry at 27.3%.

Within the agriculture sector, the crops sub-sector (including cocoa) recorded a 1% growth rate, while the forestry sub-sector contracted by 1.4%. The fishing and livestock sub-sectors grew by 4.7% and 5%, respectively. This is still an increase over 0.8% in 2011, according to the MoFA, with growth attributed to the scaling-up of fertiliser subsidies, agriculture mechanisation, and livestock and fisheries development programmes.

Part of the decline in agriculture can be attributed to rising input costs, declines in cocoa production during the 2012-13 growing season, and the small-scale, non-modernised nature of the industry, with small farmers at the mercy of unpredictable weather patterns and lacking proper irrigation and equipment. Agriculture’s share of GDP has also shrunk as the services and industrial sectors have grown on the back of new oil and mining developments within the country.

More positively, the government obtained $2.28bn in loans in 2012, of which 12%, or $273.6m, was allocated to agriculture. In 2013 the MoFA received GHS292.5m ($150.4m) in budgetary allocations, about 15.3% of total government economic spending, with GHS133.73m ($68.8m) coming from government expenditures, GHS20m ($10.3m) from petroleum receipts, GHS136.48m ($70.2m) in donor funding and GHS2.26m ($1.2m) from internally generated revenues. Growth in agriculture is set to hit 4.9% in 2013, totalling GHS7bn ($3.6bn), according to MoFA estimates.

STAPLE CROPS: Ghana relies on imports for many of its food supplies, including cereal crops, poultry and palm oil, although it is self-sufficient in starchy staples such as cassava and yams. Overall, crop production increased in 2012, growing to 29.5m tonnes of main crops ( excluding cocoa) compared to 28.5m tonnes in 2011, according to data from the MoFA’s Statistics, Research and Information Directorate (SRID).

Cereal crops showed mixed progress in 2012. Maize production grew by 14.8% to reach 1.95m tonnes in 2012, compared to 1.7m in 2011, and rice production rose by 3.24% in 2012, reaching 481,134 tonnes, up from 466,056 tonnes in 2011 (see analysis). However, millet production declined by 2.3% in 2012, dropping to 179,684 tonnes from 183,922 tonnes in 2011. As of 2011 Ghana imported some 662,798 tonnes of cereals annually, according to SRID estimates.

Overall, the staple segment saw small ups and downs in 2012. The largest crop by yield, cassava, grew by 1.24% in 2012 to reach 14.55m tonnes, compared to 14.37m tonnes in 2011, while sorghum production declined 2.47% in 2012, dropping to 279,983 tonnes from 287,069 tonnes in 2011. Yam production rose by 4.98% to reach 6.64m tonnes, but cocoyam and plantain production both decreased 5.57% and 3.14%, respectively, to 1.27m tonnes and 3.56m tonnes.

Legumes saw a substantial decrease in 2012. Around 850,000 tonnes of legumes were produced, compared to 867,783 tonnes in 2011, representing a decline of 2.1%. Production of cowpeas fell 6.3% from 238,259 tonnes in 2011 to 223,253 tonnes, while soya production saw the sharpest decline overall, dropping by 7.8% to 151,709 tonnes, from 164,511 tonnes in 2011. Groundnut production reached 475,056 tonnes in 2012, a 2.14% increase from 465,103 tonnes in 2011. Agricultural sub-sectors GDP contribution, 2012 CASH CROPS: Although food insecurity is an issue in some regions, the government is focused on increasing cash crop production and expanding the country’s agricultural exports. Cash crops including cocoa, palm oil, coffee, pineapples, cotton, tomatoes, bananas, citrus fruits, coconuts, tobacco, cashews and fresh vegetables have bolstered agricultural growth and are expected to continue to do so in the near future, despite intensified pressure from the international market.

The GIPC estimates that annual tomato production has doubled over the past 30 years, while coconut farmers produce about 224m nuts annually, and citrus and pineapple yields reach 20,000 tonnes and 60,000 tonnes per year, respectively. Golden Exotics, a Ghanabased company under the Compagnie Fruitiere Group, produces roughly 65,000 tonnes of bananas annually, representing 94% of total supply in Ghana.

COCOBOD, which also oversees the country’s coffee industry, announced in 2012 it planned to increase coffee output to 10,000 tonnes per year by 2015, compared to the 1700 tonnes currently produced. By 2021 COCOBOD estimates that production could reach up Cereal crops production estimates, 2011-12 to 20,000 tonnes annually, as the government works with coffee farmers to replant and refurbish farms and fields that have fallen to disrepair.

DENTED GROWTH: On top of international competition, other issues including post-harvest inefficiencies and pollution from illegal mining have negatively affected cash crop growth. Irregular rains and an inability to produce year-round have troubled farmers, as rising competition from global producers impacts world prices and squeezes Ghanaian producers’ profit margins. While mango prices in Europe rose due to a shortage in Brazil in 2013, world cocoa prices have declined over the past two years (see analysis), with other segments such as pineapples also suffering from falling prices.

At Jei River Farms, one of the largest pineapple producers in Ghana, executive director Nana Bebaako Addo said intense international competition and high transport costs are inhibiting growth. Jei River has plans to boost its capacity from 3500 tonnes to 5500 tonnes annually by 2014, with the majority of exports headed to European markets, but intense competition from Costa Rica will prove challenging for pineapple exporters.

“A crate of pineapples cost €20 ($26.57) 20 years ago, but today prices are closer to €8 or €9 ($10. 62-the scale of its production and lower shipping costs allows it to dictate the MD2 pineapple market price. For example, it might cost €4000 ($5315) to send a 40-foot refrigerated container on a reliable shipping line to Europe from Ghana, whereas from Costa Rica, the price is €2500 ($3321), despite the fact that Ghana is geographically closer to Europe,” Addo told OBG.

PALM OIL: The MoFA increased efforts to raise tree and industrial crop production in 2012, including rubber, coconut, cotton, cashew and oil palm. Palm oil is an especially promising industry, with a host of new multinationals flocking to West Africa in the search for land.

Ghana’s palm oil industry has been dominated by small-scale farmers since the 16th century, and interest in palm oil production dwindled into the 1960s, when the country first began importing oil. With an average annual production of 250,000 tonnes, Ghana falls short of domestic demand by 50,000 tonnes each year. However, Harrie Hendrickx, project manager of development agency Solidaridad, told international press in April 2013 that production could double within five years if farmers adopt new practices and fertilisers.

Though Malaysia and Indonesia currently dominate world markets, producing 85% of global supply, major producers are coming to West Africa to search for new land and production sites. Singapore-based Wilmar has pushed especially hard and currently owns the second-largest palm oil plantation in West Africa, Ghana’s 4678-ha Benso site, located in the country’s southwest. The government is also pushing for palm oil expansion. In 2012, 3000 ha of palm oil plantations employing 922 farmers were established, and the government plans to construct a 77-km feeder road to growing areas, which will improve the export process.

LIVESTOCK: Livestock showed the strongest performance in 2012, with a 5% growth rate, following new MoFA initiatives put in place to increase livestock production. Poultry and cattle farming is picking up across the country, although demand for animal feed is still largely met by imports. In the poultry segment, for example, 70% of chicken feed is made from maize and soya crops. Increasing production of maize and soya within the country would therefore allow farmers to expand their operations to include poultry.

Apart from developing livestock inputs, the government is pushing new programmes to boost agricultural activities in the segment. Keen to reduce its poultry imports, in 2012 the MoFA reported that 5687 roosters were raised and distributed to 250 farmers in 25 districts across Ghana. In 2013 the government plans to distribute 30,000 chickens to 1500 farmers, and ramp up livestock production under its Youth in Agriculture Programme (YIAP); YIAP was introduced in 2012 and aims to create employment for young people in commercial farming and food production. The MoFA announced it will provide 100,000 birds and pigs for distribution to 60,000 young farmers in 2013.

SEEDS & FERTILISER: Biotechnology could be one method by which to improve agricultural production. The government has 13 Council for Scientific and Industrial Research (CSIR) facilities in its portfolio, of which eight are dedicated to food and agricultural research. Cotton, maize, rice and soybean production all stand to benefit from biotechnology developments, and the government moved forward on implementing a National Seed Policy in 2013, which is set to include an updated framework on the use of hybrid seeds.

The government announced plans in 2012 to increase cotton production through the use of biotechnology, with then-minister of environment Sherry Ayittey noting that Ghana’s cotton production had declined drastically since the 1990s, when it peaked at about 45,000 tonnes per year. According to the MoFA, there were 28,297 cotton farmers in 2012 producing 13,790 tonnes of seed cotton and 5383 tonnes of lint, but hybrid seeds could significantly increase yields.

According to the GIPC, Ghana’s seed industry meets 5% of national demand, with the rest provided through the informal sector and re-planting. Going forward, hybrid seeds could allow for a huge increase in production. For example, Ghana’s current maize production base is 1.4 tonnes per ha, whereas the maximum production base could be as high as 6 tonnes per ha.

The government created a National Seed Council in early 2013, and Daniel Ohemeng Boateng, deputy director of the MoFA, told local media in August that the government is working to develop a national seed policy in line with regional seed policies implemented across ECOWAS countries. Developing a national seed policy is expected to boost private sector participation in seed provision and agriculture, according to the GIPC.

In 2012 the West Africa Agricultural Productivity Programme funded the construction and refurbishment of a biotechnology laboratory at the Crop Research Institute in Kumasi, and improved seeds, which are drought- and pest-resistant, have already been distributed to farmers. In 2012 the MoFA gave 20,000 kg of improved seeds of maize, rice and soybean to farmers in an effort to boost production Meanwhile, In 2012 the MoFA provided 300,000 farmers with 170,000 tonnes of fertiliser, with plans to distribute an additional 180,000 tonnes of subsidised fertiliser in 2013. According to the GIPC, at least 50% of fertiliser costs are subsidised, ensuring that farmers pay the same price across the country, and that prices are affordable.

MECHANISATION & IRRIGATION: Agricultural mechanisation is one facet of FASDEP II’s first programme to improve food security and emergency preparedness. Mechanisation represents a critical step in Ghana’s agricultural development; in the 2013 budget, high priority was given to agricultural modernisation, with the continuous introduction of technology to improve agricultural production being a key policy intervention.

New petroleum revenues are aiding the process, with the government using portions of its annual budget funding amount (ABFA), fed by petroleum receipts, to increase agricultural modernisation. The government spent GHS13.15m ($6.8m) of ABFA on modernisation in 2011, and GHS42.1m ($21.6m) in 2012, according to the 2013 budget statement. The authorities will use GHS20m ($10.3m) of ABFA annually for agricultural mechanisation in 2013-23, according to METASIP.

Irrigation is also identified as a main priority for agricultural expansion. Though much of Ghana’s land benefits from large, reliable water tables, irrigation could help some producers, such as pineapple farmers, grow year-round. “The dry season has been longer in some years, shorter in others, and it affects our processes. You cannot schedule things the way you want to. A pineapple farm is not that mechanised so when it comes to planting, selecting suckers, harvesting, it’s all handson. You could add things on to it like automated irrigation systems, but the cost of that is quite high,” Addo told OBG. Several irrigation projects were highlighted in the 2013 budget statement, expected to improve cash and staple crops in the Greater Accra and Volta regions. The government has already completed 90% of work on the Tono irrigation scheme in northern Ghana, adding 320 ha to the region’s cropped areas. Under the proposed Accra Plains Irrigation Project, 4.45 ha in the Greater Accra region will be irrigated in the next several years, which could be beneficial to rice farmers in the region (see analysis).

PRIVATE PARTNERSHIPS: As agriculture’s economic foothold has been slipping, the GIPC is promoting new investment opportunities in agriculture and agribusiness. Private partnerships are key to the METASIP strategy, and the plan proposes that the government spends “very significant amounts on public-private partnerships (PPPs) to reduce the cost of capital and stimulate market-oriented investments”. According to METASIP, the government would need to invest some GHS300m ($154.2m) in infrastructure and equipment to make the industry more attractive to investors, with the plan estimating that the government would recover GHS132m ($67.9m) of this within three years.

Private sector funding could play a critical role. “Sourcing funding as a start-up is a major challenge, and due to the scarcity of affordable financing, most projects fall apart. Venture capital funds in Ghana could be a game changer,” Chris Samson Andoh, managing director of Star Africa Commodities & Minerals, said.

The GIPC has identified several priority investment areas in Ghana, including dairy product processing, floriculture, agro-processing, irrigation, installation of cold chain, packaging and factory building technology, post-production services including transport and packaging, training and certification, production of inputs such as fertilisers and pesticides, and storage. “We are trying to put agriculture in the domain of the private sector. At present, I would advise potential investors to enter the processing and packaging segments, as we view these as areas with the highest potential and greatest need,” said Nicholas Neequaye, deputy director of policy and planning at the MoFA.

Indeed, food processing may hold rewards for international investors, with some major multinationals already moving to diversify their agricultural portfolio and expand all facets of food production in Ghana.

FLOUR: Flour milling is taking off in Ghana, with Singapore-based Olam continuing its aggressive expansion into West Africa through new channels in the country. “Overcapacity of flour production in Ghana is still a concern, mounting up to 50% above [demand]. If border inefficiencies between ECOWAS countries would be resolved there certainly exists the opportunity to export flour,” said Serge Bakalain, chairman of Takoradi Flour Mill. In 2011 Olam invested $55m on a new flour milling plant with a capacity of 150,000 tonnes per year. According to Amit Agrawal, senior vicepresident of West Africa for Olam, government-subsidised imports from Turkey are the biggest source of concern for millers in the country. “Our plant is currently operating at 70% capacity, and we hope to reach full capacity by the end of 2013, but the demand is not there yet. About 15% of the market is catered by imports, largely from Turkey, when we could be meeting demand through local supply,” Agrawal told OBG.

Olam is moving into other areas of food production, and recently took over the Tasty Foods tomato processing facility in Accra, with plans to produce 16,000 tonnes of tomato paste annually. Others, including global chocolate companies Barry Callebaut and Cargill, have established local facilities in Ghana. “The foods industry is one of the most attractive business segments in Africa at the moment. As the population increases and purchasing patterns shift towards convenient, packaged foods, I expect we will see more activity in the processing sector in the coming years,” said Agrawal.

However, there are plenty of challenges facing firms who make the move into processing. “High energy costs are one of the biggest challenges of any processor here, along with port congestion,” John Andre, managing director of Barry Callebaut, told OBG.

The government offers incentives to sector investors. In the processing segment, any business converting crops, fish or livestock into edible canned or packaged products will receive a three-year tax holiday from the time commercial production kicks off. Processing businesses set up after January 2004 receive a five-year tax holiday, as do firms producing cocoa by-products from cocoa waste. Cocoa farmers are exempt from income taxes, and farming losses can be carried over for five years. Machinery and equipment also receive import duty exemptions, and there are no import tariffs on agricultural inputs, plants and machinery.

LAND ACQUISITION: Land availability has been classified as both the most- and least-attractive element of Ghana’s agricultural sector. Ghana offers vast tracts of untilled land suitable for farming, but land acquisition remains one of the biggest obstacles to increased foreign investment. With 80% of land classified as being under tribal administration, land acquisition can be an arduous process due to the lack of a national land registry. All land deals are examined on a case-by-case basis, and delays in acquisition continue to pose a significant challenge to the sector. In April 2013 GIPC’s research director Kofi Antiru warned that difficulties in land acquisition could hinder foreign investment.

According to the GIPC, these issues will be addressed by establishing a land bank system, with a listing of all arable lands available to lease or purchase. District Lands Commission offices were established in 2012 to decentralise land administration services, and a policy on large land grants was created to avert land grabbing and speculation. There are also plans to improve surveying and data collection by establishing five operating reference stations in addition to the 42 that currently exist, according to the 2013 budget statement.

OUTLOOK: As the government continues to expand and modernise the agricultural sector, the industry should see steady growth over the coming years. Though hampered by production inefficiencies and infrastructure and equipment deficits, Ghana holds high potential for investment, particularly in cash-crop production and food processing, which could reduce food import demands. Going forward, new efforts at mechanisation and an intensified focus on international and private investment should help the sector see strong growth.