Standing strong: State programmes actively addressing challenges to sectoral growth

Agriculture is one of the most important drivers of growth in the Ivorian economy in terms of revenues, employment and value-added activities. Contributing 22% to GDP, the sector accounts for at least 50% of exports and provides jobs to 60-70% of the population, according to the World Bank. Fertile land and favourable weather conditions enabled the country to become one of the most successful yet diversified agricultural producers in the world, contributing the largest share of cocoa to the global market, equivalent to 40% of global output in 2013/14.

Although years of civil war obstructed investment, government initiatives are facilitating the restructuring and rejuvenation of production in crops as diverse as cocoa, cashew, cotton, rice and maize. State programmes also hope to address challenges to sectoral growth such as low agricultural productivity, poor access to credit and price insecurity.

Government Lead

Conflict over the last 10 years created a gap in state funding to support agricultural growth. To address this investment shortfall, the Ministry of Agriculture launched the National Agricultural Investment Programme (Programme National d’Investissement Agricole, PNIA), which will commit CFA2trn (€3bn) from 2012 to 2016 to achieve food security in major crops such as yam, rice, manioc and plantains, and reduce poverty from the 2012-13 level of 48.9% to 16%. Projected to create 2.4m jobs and relieve 6m people from hunger, the programme aims to increase sector growth to 9% by 2020 by diversifying production and processing activities, and providing training and increased access to agricultural inputs to boost farmer productivity. Seven of the 11 projects outlined for the five-year period have been launched so far, including efforts to boost production of palm oil, bananas, cashew, cocoa and coffee.

Funding

PNIA projects have been allocated CFA195.7bn (€293.55m) of state funds and will receive 5-7% of their total investment needs from the Inter-professional Research Fund and Agricultural Council. Consequently, private sector and donor funding will play a strategic role in the realisation of the PNIA. To attract private investment, the government has offered a number of fiscal incentives, including exemptions on registration taxes and reductions on value-added taxes for agro-industrial equipment. Investors will also receive exemptions on Customs duties and tax exemptions on profits for agricultural investments. Investment mobilisation efforts attracted CFA229bn (€343.5m) in 2012 and CFA745bn (€1.12bn) in 2013, amounting to 36.5% of the total investment needed. Of the funds garnered in 2013, CFA511bn (€16.5m) came from technical partners, donors and the state, and CFA233.85bn (€350.78m) from private investors.

Food Security

As one of the two objectives of the PNIA, achieving food security is a major government concern. “Unlike some of its neighbours, Côte d’Ivoire does not suffer from a chronic food deficit at the national level. However, there are pockets of food insecurity due to poor transport infrastructure and the displacement of certain communities due to the conflict. Government efforts have facilitated important increases in food production, but the country is still not close to satisfying national needs for crucial staples such as rice, creating problems with malnutrition,” Kacem Neijb, chief agroeconomist at the African Development Bank, told OBG.

In 2013 Côte d’Ivoire imported over 50% of its national rice needs (600,000-800,000 tonnes of rice annually), 98% of its milk and dairy products, 60% of its garden vegetable consumption, 80% of its fish resources and 56% of its meat needs. With a population growth rate of 3.3%, food imports are also expected to grow as Ivorians move to cities. Additionally, food production faces competition from lucrative crops such as rubber and cocoa, exacerbating problems with food security. Amidst political uncertainty, many farmers abandoned planting cassava, a staple in Ivorian cuisine, in favour of perennial cash crops such as rubber, which offer them a more stable and profitable income. This has contributed to rising prices for cassava, plus higher transport costs as distributors are travel further afield to secure supplies.

The quality of maize production has also suffered, as farmers prioritise the use of fertilisers and pesticides for cash crops. “Côte d’Ivoire produces slightly over 300,000 tonnes of maize annually, but if farmers use the appropriate inputs and techniques, annual production could easily double and the country could be a maize exporter,” Alphonse Coffi, COO of Ivograin, told OBG. Indeed, the ineffective use of inputs is an issue throughout the sector. “There are many products on the Ivorian market, such as phytosanitary products, that do not yet comply with international standards, although efforts are being made by the authorities to improve quality standards,” Henry Matray, managing director of RMG Concept, told OBG.

The PNIA seeks to increase national production of staple food crops, which stood at 10.7m tonnes annually in 2013. Particular emphasis has been placed on cassava and plantains, for which new plant varieties have been developed that will increase yields two-fold and three-fold, respectively. Furthermore, a national institution, the National Office of Rice Development (Office National du Developpement du Riz, ONDR), was established in 2012 to work towards achieving selfsufficiency in rice production.

Rice

Under the direction of the ONDR, Côte d’Ivoire aims to produce 1.9m tonnes of rice by 2016, or 100% of national needs, up from 700,000 tonnes in 2010 and 1.3m tonnes in 2013. The project will cost CFA672bn (€1bn) between 2012 and 2016. Improvements in production have already reduced rice imports by 30% between 2012 and 2013.

As part of the government’s efforts to boost rice production, private investors have a notable role to play. In January 2013 a CFA30bn (€45m) deal was finalised with the French-Swiss commodities company Louis Dreyfus to develop rice paddies in the northern regions of Tchogolo, Bagoué and Poro. Between 100,000 and 200,000 ha of irrigated land will be made available to the company, leading to annual production capacity of between 300,000 and 400,00 tonnes of paddy rice and ensuring jobs for 50,000-60,000 local farmers. Investments in irrigation and processing facilities will also be made, including a new factory where 100,000 tonnes of rice will be whitened annually. The project was awaiting approval at the time of writing.

US-based Mimran Group will also invest CFA150bn (€225m) in rice paddy production to increase rice cultivation in the Bandama River region from 60,000 ha to 182,000 ha and construct irrigation infrastructure and dams. Additionally, General Alimentaire Africaine, based in Abidjan, Dakar, Bissau and Banjul, will invest CFA2bn (€3m) in a rice farming project that will facilitate cultivation for 7500 small producers and provide hulling plants.

The Algerian firm Cevital has also entered a CFA100bn (€150m) partnership with Ivorian company Confédération Internationale du Crédit Agricole to farm rice in the Bounkani region, where it will provide inputs and encourage mechanised agriculture while constructing processing facilities.

National rice production will also be supported by initiatives from the West African Development Bank, which will develop 3000 ha of lowland rice, while a CFA16.4bn (€24.6m) loan from the African Development Bank will transform another 923 ha of land, of which 873 ha will be used for rice cultivation. The Chinese government has also donated CFA1.5bn (€2.25m) worth of power tillers, fertilisers, mowers, shellers and threshers for rice production.

Cocoa

Côte d’Ivoire produces 40% of global cocoa output, making it the world’s largest producer. Contributing 15-20% to GDP, the industry provides about 900,000 jobs and therefore supports 3.5m Ivorians out of a population of 23.4m. The 1.74m tonnes of cocoa harvested in the 2013/14 season beat the previous record of 1.51m tonnes set in 2010/11. Sustained increases are expected in light of the newfound security enjoyed by cocoa farmers thanks to the establishment of an enforced minimum 60% cost, insurance and freight (CIF) price.

Price Reforms

Between 2003 and 2011, producers obtained an average of less than 50% of the CIF price for their crop, giving them little financial security and few incentives to invest in good planting, harvesting and drying practices.

Under this system, the average yield per ha dropped significantly to 450 kg, or less than half of the optimal output levels of around one tonne per ha, while poor drying and fermentation techniques led to an average bean humidity level of 12-14%, relative to the industry standard of 8%. Côte d’Ivoire’s deteriorating cocoa quality thus translated into lower futures contracts on the global market Implemented by the sector’s new regulatory body, the Coffee Cocoa Council (Conseil du Café-Cacao, CCC), which was established in 2011, the introduction of a minimum price has improved the financial returns for farmers while providing an incentive to reinvest in their plots and adhere to better planting and drying practices. Set at CFA725 (€1.09) per kg in 2012/13, or 64% of the average global price, the effect of price security and the introduction of a maximum humidity level of 9% have significantly improved the quality of cocoa beans.

Before the CCC’s reform, cocoa processors frequently had to overpay in order to secure beans that met the standard quality of 10 years ago, and even then beans typically had less-than-ideal humidity levels of around 12%. Following the reforms, the quality of beans has improved significantly, with average humidity levels now between 8% and 8.5%.

However, the minimum price has created financial difficulties for bean exporters and processors, particularly for small and medium-sized players (see analysis). Coupled with the introduction of a forwardselling auction system and amendments to export tax regulations, processors in particular have expressed concerns about the long-term viability of the sector if current policies remain in place (see analysis).

Rubber Plantations

Although Africa represents less than 5% of total global rubber production, Côte d’Ivoire is the continent’s largest natural rubber producer. Since 2011 Côte d’Ivoire’s rubber production has expanded from 230,000 tonnes in 2011 to 290,529 tonnes in 2013, when the sector enjoyed a turnover estimated at CFA350bn (€525m).

According to a 2013 report from Ecobank, continued investments will facilitate the replanting of 50,000 ha of existing plantations and the planting of 300,000 ha of new plantations, bringing total production to 600,000 tonnes by 2020.

Sector Players

Out of the nearly 300,000 tonnes of rubber produced in 2013, approximately 70,000 tonnes were produced by industrial rubber plantations, while the balance of 230,000 tonnes was accounted for by small-scale producers, who number around 120,000. Small-scale production is particularly diverse and includes farms ranging from 1000 ha to less than two ha. Due to prevailing land laws, which prevent large companies from buying land, growth in industrial production has been limited relative to the production of smallholders. Productivity levels vary significantly between small-scale and industrial plantations, with average yields of 1600 kg of dry rubber per ha versus 2000-2050 kg per ha, respectively.

Industrial rubber plantations and rubber exports are largely owned by two companies that possess a 73% market share combined: the Société des Caoutchoucs de Grand-Béréby (SOGB) and the Société Africaine de Plantations d’Hévéas (SAPH). With a 31% market share, SOGB is owned by Socfinaf, an African subsidiary of the natural rubber and palm oil company, Socfin. SOGB’s main competitor, SAPH, has a market share of 42% and began as a state-run entity in 1956 but was subsequently privatised and purchased by SIFCA in 1999. SAPH owns four main plantation sites, with three smaller production areas and five factories. Of the 300,000 tonnes produced in 2013, SAPH produced approximately 35,000 tonnes and purchased another 85,000 from farmers. The firm expected to boost its production capacity by 15,000 tonnes by the middle of 2014, with additional increases of 20, 000-25,000 tonnes and 50,000 tonnes per annum scheduled for 2015 and 2017, respectively.

Competition

Fierce sector competition prevailed between 2010 and mid-2012 due to high international rubber prices, which peaked at €4.27 per kg in February 2011. However, the global downturn in the tyre production industry led to a collapse in world prices, which fell to €1.79 per kg in mid-April 2013. Nevertheless, world rubber production rose 7% in 2012 to 11.8m tonnes though global consumption remained at 11.7m tonnes, contributing to a sharp decline in country revenues between 2011 and 2012 from a peak of €823.63m to €698.31m.

Throughout 2014, international rubber prices fell by an additional 33%, before eventually stabilising at around €1.2 per kg, resulting in additional financial constraints on the sector’s activities.

Taxes

Segment revenues are limited by the implementation of a 5% levy on rubber companies’ annual revenues. “The break-even point for producers is around €1.2 per kg, and between the break-even point and €1.5 per kg we pay a 25% tax on profits. Once the 5% levy is implemented at €1.5 per kg, the level of taxation reaches 90% of your profits,” Marc Genot, director-general at SAPH, told OBG. “As the price per kg reaches €2.6-3, the taxation rate declines to about 30% of revenues, but until the international price picks up, companies are very vulnerable and are unable to invest in capacity increases, which will only hurt sector expansion in the end,” he added.

Although large-scale companies remain profitable, the local market’s slow performance may incentivise farmers to either switch out of rubber cultivation for more lucrative crops or to sell their goods in Liberia or Ghana, where they are not subject to the 5% levy.

In response to these concerns, the government revised the tax on natural rubber to increase farmer incomes and promote development. Late in 2014, the Ivorian government agreed to reduce the tax on rubber sales from 5% to a more graduated level of 2.5% between CFA1000 (€1.50) and CFA1300 (€1.95) per kg, then 3.5% when prices were between CFA1300 (€1.95) and CFA1600 (€2.40) per kg, with the 5% rate only applying when prices are above CFA1600 (€2.40) per kg. Under this model, tax was only due for sales in January 2014, as rubber prices subsequently fell below the minimum threshold.

Palm Oil Production

Côte d’Ivoire is West Africa’s second-largest palm oil producer after Nigeria and ranks eighth in the world’s palm oil production market. Although national crude palm oil exports dropped 14% in the first quarter of 2013 relative to the same period in 2012, from 60,548 tonnes to 52,216 tonnes, Côte d’Ivoire constitutes the largest exporter of crude palm oil on the continent.

Palm oil production initially began in West Africa, yet despite its origins, industrial production has been dominated by producers in South-east Asia. In 2011 Malaysia and Indonesia produced around 85% of global production, or 43 tonnes out of 50.5 tonnes. However, with land becoming increasingly unavailable in South-east Asia, Côte d’Ivoire is well placed to benefit from growing global demand.

According to Africa-focused research firm Consultancy Africa, demand for palm oil continues to expand strongly, increasing annually by around 2.2m tonnes, or about 8%, largely due to growing consumption in Asia. Although annual production fell from 415,900 tonnes in 2010 to 360,000 tonnes in 2012, the industry is projected to bounce back strongly and aspires to produce 600,000 tonnes by 2020, nearly doubling its 2013 production of 390,000 tonnes.

Ivorian production is dominated by small village plantations ranging from three to five ha, which produce approximately 60% of the country’s palm oil. The remainder of production is represented by the industrial plantations of large-scale corporations such as DekelOil and SIFCA. Relative to their industrial counterparts, small-scale plantations are characterised by low levels of productivity and produce seven to eight tonnes of fresh fruit bunches (FFB) per ha, while industrial plantations yield up to 15 tonnes of FFB per ha. Average crop returns are well below those of its Southeast Asian competitors, where yields are generally two to three times higher than in Côte d’Ivoire.

The significant role of small-scale plantations has somewhat limited the growth of palm oil agribusiness. “Sourcing local food products can be a challenge for food-processors. It is not so much a problem of quality, but more an issue of quantity, regularity and availability. In Côte d’Ivoire large-scale plantations are not yet well-developed, small-scale village plantations are still dominating the market,” Patrice Thomas, director-general of Servair Côte d’Ivoire, told OBG. Despite this limitation, palm oil production plays an important role in the country. Speaking to the local media in September 2013, Ivorian palm oil producer Desiré-Jacques Porquet said, “Palm oil is important because it supports 2m people [in Côte d’Ivoire]… farmers, producers, workers… and they use the fruit for food.”

Sector Participants

Côte d’Ivoire’s largest palm oil refiner is SIFCA, an Ivorian-owned firm that is invested in sugar, rubber and palm oil production across West Africa. Owned in part by Olam and Wilmar International, SIFCA operates in Côte d’Ivoire through its subsidiaries, Sania-United Oil Company, Palmci and COSAV. Together, these subsidiaries possess a processing capacity of 450,000 tonnes of raw palm oil, which is exported to Senegal, Burkina Faso and Mali. Within this, Palmci is responsible for around 60-70% of palm oil processing. In June 2013 SIFCA also announced its intention to increase palm oil production by 33% over the next four years by planting more trees and investing in new seeds, fertilisers and improved planting.

The foremost player in the cocoa industry, US-based food processing company Cargill, is also expected to invest in palm oil. Valued at about CFA200bn (€300m), the company’s five-year plan details the establishment of 50,000 ha of industrial palm oil plantations, as well as a new processing plant that could support 150,000 jobs. Although the project was postponed in 2013 by a number of factors such as land availability, Cargill is expected to continue with the project.

Major industry players include DekelOil, a London-listed Ivorian palm oil firm, which recently opened a €14.3m palm oil processing plant. Built in partnership with Siva Group, the turn-key Modipalm-designed mill has an annual capacity of 70,000 tonnes of crude palm oil, with an hourly extraction capacity of 60 tonnes. The new factory will process palm oil fruit from 27,000 ha of plantations surrounding the plant.

“The palm oil industry is essential to the economics of Côte d’Ivoire. You need to start with agriculture. Such a project… can contribute to the feeding of more than 50,000 people and that is a way to take the economy forward,” DekelOil’s CEO, Youval Rasin, told OBG.

Advantages

Palm oil production in South-east Asia has been complicated by the politics of deforestation and efforts to conserve natural habitats. However, Côte d’Ivoire’s production of palm oil will not share the same burden, as only an estimated 4% of the country’s virgin forest remains, facilitating the expansion of palm oil plantations. Côte d’Ivoire also benefits from growing demand in the sub-region, with an estimated shortfall of 2m tonnes per annum among ECOWAS member states in 2013, of which 500,000 was from other countries within the West African Economic and Monetary Union. The region already consumes approximately 30% of Ivorian exports.

Coffee

As one of Africa’s major coffee producers, Côte d’Ivoire produced around 450,000 tonnes annually in the early 1990s, peaking at 4.8m 60-kg bags in 2000-01. However, production later collapsed due to a downturn in global coffee prices and instability that restricted investment, and by 2010-11 production had fallen to 982,000 bags. Yet, Côte d’Ivoire remains West Africa’s largest coffee producer, and after producing 100,000 tonnes in 2013, the crop’s regulator, the CCC, pledged to increase annual output to 198,000 tonnes in 2018 by investing CFA8.33bn (€12.5m) over the next five years, bringing the sector’s revenues to CFA200bn (€300m). By 2023 the CCC hopes to produce 402,000 tonnes, putting Côte d’Ivoire on par with Ethiopia, Africa’s largest coffee exporter.

Although sector observers agree that the increase in output could be achieved, many argue that the focus should be on developing the quality and diversity of the crop rather than the quantity. “Côte d’Ivoire’s Robusta coffee is of a relatively low quality compared to its global competitors and is very bitter, but it has a successful niche market in Mediterranean countries – specifically Algeria, Spain and Italy – where it suits local tastes. Côte d’Ivoire can expand its volumes, but to make a comparison with Ethiopia’s production is not appropriate due to the quality and type of coffee that Côte d’Ivoire produces,” Edward George, head of research at Ecobank, told OBG. “The government would be much better off focusing on improving yields, using new varieties and increasing the quality of the beans — how they are dried and the use of inputs to produce them — and it can continue to build on its niche market,” he added.

CCC ambitions therefore include improving coffee quality and diversifying production away from Robusta towards niche markets such as certified beans, washed coffees and new varieties such as Arabusta coffee, a blend between Robusta and Arabica. Sector heavyweights like Olam will assist government rejuvenation programmes by providing seeds and technical assistance to farmers.

Côte d’Ivoire will also need to increase domestic consumption of coffee to promote production. “In Ethiopia coffee is a part of the culture. Although it is the largest producer in Africa, half of the crop is consumed locally. This is not the case in Côte d’Ivoire, and the success of the crop will partly depend on building a domestic market,” George told OBG.

Key Coffee Exporters

Although there are around 10 local coffee exporters, three actors have historically dominated the Ivorian market, though their activities have dwindled with the decline of production. Local firm Compagnie Ivoirienne de Promotion pour l'Exportation et l'Importation (CIPEXI) was once the largest coffee exporter alongside Olam, accounting for around 30% of exports, or about 35,000 tonnes of coffee. CIPEXI’s coffee exports fell significantly behind Olam’s for 2014, leaving Olam as the largest exporter in the industry, with Nestlé exporting around 40,000 tonnes annually.

Sector Reforms

Limited sector competition translated into poor coffee prices for farmers, which then encouraged many to switch to more profitable crops. However, with the creation of the CCC, new reforms have been introduced to revitalise farmer interest in coffee production. As with the cocoa industry, coffee producers now benefit from a minimum farm gate price, set at 60% of the CIF price, which is expected to provide farmers with increased financial security as well as an incentive to expand output.

However, despite the appearance of a stabilised price market, the reforms have not completely eliminated speculation. As of late 2014, there were 35 companies buying coffee in the market, of which only 10 companies are exporters. This creates a situation through which the remaining 25 companies can buy up coffee stocks and try to increase the price that the exporters must pay in order secure beans to meet their client obligations. Exporters are unable to freely change their prices due to the price controls and therefore they end up being forced to accept a loss in order to meet their export contracts.

Outlook

The diversity and potential of Côte d’Ivoire’s agricultural activities will ensure the sector remains a key source of economic growth and employment. Renewed emphasis on the production of soft commodities such as cocoa, cotton, cashew and coffee will see agriculture’s share of GDP increase, but improvements in access to credit and agricultural inputs will be needed to fully realise the country’s potential. Despite the scope for a thriving processing sector, fiscal incentives in commodities such as cashew and cocoa may need to be considered to encourage investors to establish and expand local activities. With a range of well-established multinational firms already operating in the country, Côte d’Ivoire is well positioned to continue building up its local processing capacity.