A state-backed modernisation drive has the potential to reinvigorate a key sector

As the foundation of Ghana’s economy, agriculture employs more than half of the population and is a key focus for the country’s inclusive economic development agenda. Yet as the industrial and services sectors have strengthened in recent years, agriculture’s contribution to overall GDP has steadily declined, falling from 32% in 2009 to 22% in 2013. The government’s priority for the sector is industrialisation, which would allow Ghana to simultaneously empower farmers, generate new industry and attract high levels of private investment.

Modernisation & Finance

While Ghana’s agriculture sector has significant economic weight, it remains underdeveloped, with the majority of rural farmers (accounting for some 90% of all farming employment) lacking the proper techniques, inputs, financing and infrastructure, such as transport networks and irrigation and storage systems.

“Financing is a key challenge for greater uptake of machinery in Ghanaian agriculture. Lending from formal banks is still low, but those that do lend to farmers find non-payment rates well under 1%,” Gerrie Jordaan, country manager at AFGRI Ghana Equipment, told OBG. Production is highly inefficient, and post-harvest losses of around 30% make it difficult to add value to raw materials. Food insecurity, particularly in the arid north, is thus a major concern.

Sector Reforms

However, new policy reforms, such as seed variation control and biosafety regulations, aim to both enhance yield quality and reduce waste. Other reforms focus on incentivising private investment, and the growing demand for public-private partnerships (PPPs) is expected to boost agri-processing capacity and lead to consolidation in the value chain, enabling farmers to earn more from their harvests. Such an outcome, however, depends on the agreements between investors and producers, which has proven to be a controversial issue.

The Numbers

According to Ghana’s Ministry of Food and Agriculture (MoFA), the country has 13.6m ha of agricultural land, 7.8m of which is under cultivation and 6.1m is not, highlighting the potential to boost crop production. Cocoa and maize account for the largest areas planted, with 1.6m ha and 1m ha, respectively. Around 90% of holdings are less than 2 ha, and there are 2m-3m small farms. Key crops include cocoa beans – the primary cash crop, representing over 20% of export earnings and employing more than 800,000 farmers – palm oil, cotton, fruits, coconut, shea nut, cereals, grains, rubber and starchy staples like plantains, cassava and yams. The sector also includes a growing livestock segment, in addition to small fisheries and forestry industries. Altogether, roughly 42% of the total workforce is employed across these subsectors.

According to revised 2013 GDP estimates from the Ghana Statistical Service, the agriculture sector expanded by 5.2%, compared to 2.3% in 2012, even though its overall contribution to GDP fell from 23% in 2012 to 22% in 2013. Crop production, accounting for 16.9% of GDP, is the largest economic activity. All crops combined – less cocoa – make up 61.3% of total agricultural GDP, according to a 2013 MoFA report, while cocoa accounts for 13.3%, livestock 7.5%, forestry and logging 11.1%, and fishing 6.9%.

While Ghana remains dependent on imports for the majority of its food, agriculture production has increased steadily in most subsectors. In 2013 crop yields rose 3% year-on-year, livestock 5.3%, fishing 8.9% (far exceeding its target of 2.3%), and forestry and logging 0.8%. The biggest gains were in maize, rice and other cash crops, such as tomatoes, pineapples, bananas, cocoa, coffee and palm oil.

Region By Region

Without adequate irrigation infrastructure, yields are highly dependent on weather conditions, limiting the cultivation of each crop to specific regions. Rainfall is most plentiful in the forested areas, which spread across the southern half of Ghana through portions of the Brong-Ahafo, Ashanti, Volta, Central, Eastern and Western Regions. In this area a long rainy season, from March to July, and a short one, from September to November, produce annual rainfall of 1000-1500 mm, enabling a biannual harvest for cocoa, oil palm, coffee, rubber, citrus fruits, cashews, rubber, plantain and banana. In the north, savannah stretches across the Upper West, Upper East and Northern Regions, and a single rainy season occurs between April and September. Conditions in the north are conducive for cotton, rice, sorghum, millet, yam, tomato and livestock. Along the coastal savannah, where the Volta River drains into the ocean, agricultural production includes rice, maize, cassava, sugarcane, coconut, mangos, livestock and aquaculture.

Livestock

Livestock expansion exceeded the 5% target for 2013, growing at a rate of 5.3%. Total meat production (including cattle, sheep, goats, pigs and poultry) increased from 76,914 tonnes in 2003 to 127,038 tonnes in 2012, according to the MoFA. Poultry had the highest growth rate, rising from 20,588 tonnes to 46,308 tonnes. However, since 2002 poultry imports have increased by more than 400% (aside from a slight dip in 2013), according to the US Department of Agriculture (USDA) Foreign Agricultural Service. While the industry is expanding, domestic poultry production can only supply around 10% of local demand. Increasing input costs make local supplies 30-40% more expensive than imports, which are mainly from the US. Such obstacles, however, have helped the local egg market, which has little foreign competition. According to the USDA, poultry producers have largely shifted from meat production to table eggs, and more than 90% of poultry farmers now raise layer birds for eggs.

The government remains committed to bolstering the livestock market, and is currently targeting the procurement of 2500 guinea fowl keets and 5000 broiler day-old chicks for 2014, in addition to 27 tonnes of broiler feed and 35 tonnes of layer feed. Furthermore, the government plans to support 100 medium- to large-scale farmers with the aim of delivering 30,000 tonnes of poultry products in 2014, according to the Ministry of Finance (MoF).

Imports

According to the USDA, Ghana’s total imports of food and agricultural products were estimated at $1.5bn in 2013, up from $1.2bn the previous year. Of this, rice accounted for $374m, followed by fish ($283.3m), wheat ($226.7m), poultry ($169.2m), cooking oils ($127m) and tomato products ($112.1m). The government is keen to reduce the country’s reliance on food imports – indeed, President John Dramani Mahama even highlighted the issue in his 2014 State of the Nation address. One potential means of achieving this would be to substitute local cassava for imported wheat in the production of flour. This is not without challenges, however, according to Michel Ghajar, operations manager at Takoradi Flour Mill. “For cassava to be a realistic import substitute for wheat, the country would have to scale up production significantly. Cassava must be consumed or processed within 30 days, which means that infrastructure development is of the utmost importance,” Ghajar told OBG.

Non-Traditional Exports

As the government works to promote non-traditional exports, the breakdown of export earning has changed in recent years. While cocoa, cotton and palm oil are the historical export heavyweights, concerted diversification efforts are in place to support fresh or chilled fish, particularly tuna, alongside a variety of horticultural products, such as pineapple, mango, banana, tomato, citrus fruits and chili pepper. Between 2003 and 2012, the value of all non-traditional agricultural exports increased from $138m to $276m. Boosting the local value chain for non-traditional exports is a priority, and the amount of processed exported products, such as cut fish and tomato paste, is rising steadily, particularly to Europe. In 2012 the EU imported $1.9bn in agricultural products from Ghana, according to the World Trade Organisation.

The US, Ghana’s other major overseas export market, imported $207m in agricultural products in 2013, mainly cocoa and cocoa-related products. According to local analysts, the government is becoming increasingly interested in promoting agricultural exports to growing Asian markets.

Budget & ABFA

The 2014 budget appropriation for the MoFA is GHS307m ($117m), compared to GHS295m ($112m) in 2013. Focus areas for funding include coastal fishing harbours and landing sites, fisheries and aquaculture infrastructure, the fertiliser subsidy programme and agricultural mechanisation service centres, among others, according to the MoF. Furthermore, at the time of press, a proposal to exempt agriculture and fishing inputs from the special import levy was awaiting approval. Examples of exempted items would include cutlasses, outboard motors and fishing nets.

In an effort to enhance productivity, the government has significantly increased its allocation of petroleum revenues to agricultural modernisation. Only 1.5% (GHS4.6m, $1.75m) of the annual budget funding amount (ABFA) in 2013 went to agriculture, while in 2014 this figure rose to 15%, or GHS136.4m ($52m). Critics continue to highlight that even with the rise in oil revenues going to agriculture and education, the expenditure and amortisation of loans for the oil and gas sector still retains the largest proportion of the ABFA, at GHS364.9m ($139m) in 2014. According to the Africa Centre for Energy Policy, “The ABFA according to Act 815 can only be spent on development infrastructure; and of all the 12 areas to which the ABFA can be applied… there is no oil and gas infrastructure.” The size of the ABFA increased from GHS299.4m ($114m) in 2013 to GHS900m ($343m) in 2014.

Oversight

The MoFA is the primary sector overseer and policymaker. However, due to the historic importance of cocoa production, a specialised state-owned body, the Ghana Cocoa Board (COCOBOD), is responsible for that subsector. It was established in 1947 and reports directly to the MoF. Other agencies that are also involved in agriculture policy include the Ghana Investment Promotion Centre (GIPC), which assists in export policy; the Ghana Forestry Commission, which regulates the timber industry; and the for-profit National Food Buffer Stock Company, which is in charge of price controls and storage regulations for staple crops.

A variety of programmes are in place to carry out MoFA policy. The government’s current agricultural policy is based on the Food and Agriculture Sector Development Policy (FASDEP II) and the Medium-Term Agriculture Sector Investment Plan (METASIP) 2011-15. FASDEP II focuses on the modernisation and industrialisation of the sector, while maintaining sustainable best practices for production and boosting incomes for poor farmers. The investment mechanism to implement MoFA programmes, METASIP targets 6% agricultural GDP growth annually to 2015, although current levels have fallen short of this. METASIP was designed in accordance with the ECOWAS Agriculture Policy and the Comprehensive Africa Agriculture Development Programme. Other schemes that are in place include the Ghana Commercial Agriculture Programme and the Savannah Accelerated Development Authority. Each of these schemes focuses on increasing private sector investment for the development of agribusiness.

New Alliance

In 2012 Ghana also signed on to the G8 New Alliance for Food Security and Nutrition to incentivise private investment. According to the New Alliance Ghana policy, 10,000 ha of land will be open for private investment by end-2015 (see analysis). However, small farmers are nervous about potential land grabs by multinationals. Seth Dankyi Boateng, senior lecturer at the University of Ghana’s Agriculture College, told The Guardian that the situation remains precarious: “For the peasant farmers in Ghana, land is life. If multinational producers are given the ability to buy large quantities of land, then naturally the farmers who depend on those facilities may be deprived of their livelihood. And so most people would have serious concerns about that.”

There are alternatives, however. “The best way to stimulate agribusiness while empowering farmers is to enable large farming companies to serve as a nucleus local farmers can support,” Amit Agrawal, senior vice-president – West Africa for Olam Ghana, a major player in a number of subsectors, told OBG. “Independent, private ecosystems where farmers have full access to the processing facilities, development finance institution funds and, most importantly, evacuation infrastructure would be a win for both parties.” Reliance on the government for evacuation infrastructure and utilities has hampered efficient farming practices and contributes to waste.

Private Investment

As greater investment in agricultural modernisation and agribusiness is the key goal of the METASIP policy, the GIPC is busy promoting new investment opportunities for the private sector. METASIP has an incremental implementation cost of GHS1.53bn ($583m) over five years ( 2011-15). A significant amount of this is expected to come from PPPs to reduce the cost for the government and help facilitate private investment.

In 2013 the GIPC recorded a total of 14 registered agriculture projects with an estimated value of $154m. The GIPC’s priority investment areas for 2014 include processing facilities for cash crops, value-addition facilities for cocoa, irrigation technology, cold chain technology, fertilisers and pesticides, packaging materials and storage centres. In addition, the government is also promoting opportunities for wood and non-timber forest manufacturing, and commercial aquaculture production.

According to the 2014 budget statement presented by Ghana’s finance minister, Seth Terkper, there is a concerted government effort in place to integrate local stakeholders in the industrialisation process to expand the value chain. “The ministry will facilitate the linkage of agro-businesses with smallholding farmers, design and launch a market promotion programme for made-in-Ghana commodities, and also facilitate the enforcement of anti-dumping regulations,” said Terkper. The government intends for the G8 New Alliance to be a central component of its linkage strategy. A number of major companies have signed on so far, including SABM iller, Unilever, fertiliser company Yara and commodities investment firm Armajaro.

Other investments also highlight growing interest in the agri-processing market. Olam’s new $55m wheat mill, commissioned in February 2012, now employs approximately 200 workers and has a capacity of 150,000 tonnes per year.

Regional Draw

While strong GDP growth has drawn significant foreign direct investment, regional integration provides the greatest potential for new investment opportunities. Today’s agricultural investments, outside of the cocoa industry, are focused predominantly on processing for the local market. Palm oil, tomato paste, biscuits and juices are among the products that international firms like Olam and local ones like Jei River Farms currently have in the pipeline. However, further opportunities for export are anticipated with the development of an ECOWAS Customs union, which should result in more efficient intra-ECOWAS trade. The ability of West African firms to enter the Nigerian market, with a population of around 160m people, is a key factor.

“The capacity of the single market is limited. However, when you open up the West African market, mainly Nigeria, the potential for successful manufacturing facilities is vastly greater,” said Agrawal. “There is still some more work to be done on the Nigerian side to achieve that goal.”

Trade Agreement

The extent of regulatory protection for local industry, particularly agriculture, is being hotly debated. At time of press, industry stakeholders were paying close attention to the news on Ghana’s decision to sign an Economic Partnership Agreement (EPA), a proposed trade agreement between the EU and African, Caribbean and Pacific countries, which at a sub-regional level in West Africa is being negotiated with ECOWAS. Negotiations towards the regional EPA started in 2003 and the current proposal would allow ECOWAS countries 100% open access (i.e. no Customs or import duties) for their goods to enter the European market, while the EU would receive 75% market access to ECOWAS over a period of 20 years. The restricted market access maintained by the African nations is intended to protect sensitive industries, such as agriculture, according to EU negotiators, though critics argue it does not go far enough.

Ghana and Côte d’Ivoire agreed “stepping-stone” agreements with the EU in 2007 and 2008, respectively, making them the only ECOWAS countries to have initialled interim agreements. However, Ghana has not yet signed its agreement and Côte d’Ivoire’s remains to be ratified. Nigeria, the region’s – and now the continent’s – largest economy has held off due to the potentially huge losses of government revenue from the lack of tariffs.

Debate

The debate is between local producers – who fear that the “dumping” of European products in an already import-dependent market would hamper the development of Ghana’s small- to medium-sized industrial firms – and exporters and importers, who want to take advantage of the vast European market, reduce production costs and maintain a competitive advantage over other emerging markets. Roughly 50% of Ghana’s exports already go to the EU, and the country risks losing significant market share should it fail to sign the agreement.

“Our operations are generally dependent on the EU. We export solely to the EU, and not signing the EPA means that our cost of operations will rise,” said Charles Mensah, the general manager of Pioneer Food Cannery, speaking on behalf of tuna processors and exporters at a meeting of the Association of Ghana Industries. “We will face tariffs and the high cost of our products will make them uncompetitive.”

Certain officials, civil society groups and local manufacturers that target the domestic market think differently. Even though Ghana’s exports to the EU would be exempt from import tariffs, the removal of such duties (up to 75%) on Ghana’s side could amount to $1bn-5bn in revenue losses over a 14-year period, risking jobs and infrastructure spending, according to government officials opposed to the deal. Many local companies fear that opening markets to European products would also hamper the sustainable development of local industry.

Modernisation

Increasing productivity by modernising practices would help to strengthen competitiveness. At present, the sector’s structure inhibits the introduction of new agricultural technologies and techniques. These are often difficult to employ due to limited adaptability and accessibility.

A lack of credit, low levels of organisation, limited land and high interest rates mean many small farmers are not integrated into the market, according to Erich Schaitza, the Africa coordinator for Brazil’s EMBRAPA, a state-owned enterprise devoted to pure and applied agricultural research. “The aggregation of small-scale operations throughout the entire value chain – for example, from fertiliser to crop to animal feed to animal processing – is not happening effectively in Ghana, raising input costs and final product costs,” said Schaitza. “Local production of each product with more local inputs will make the industry much more competitive.”

Various multilateral agencies, in partnership with the government, are helping to address this. In support of the New Alliance agenda, the US Agency for International Development partnered with the Alliance for a Green Revolution (AGRA) and the International Food Policy Research Initiative (IFPRI) to roll out the Scaling Seeds and Other Technologies Partnership (SSTP) across Ghana, Ethiopia, Tanzania, Mozambique, Senegal and Malawi.

The three-year, $47m SSTP will boost small-scale farmers’ access to modern agricultural technologies. Quality seed production is intended to rise by 45% over the course of the project, with 40% more farmers gaining access to new technologies. In Ghana, AGRA and IFPRI will provide the necessary IT support for the development of a national technology platform, which will ensure greater distribution of agricultural technologies throughout Ghana.

Seeds & Fertiliser

In September 2013 the Cabinet approved the National Seed Policy, which aims to consolidate the seed market and enhance the adoption of high-quality seeds (i.e., drought- and pest-resistant varieties).

In 2013 the MoFA distributed 2000 tonnes of improved maize seeds for cultivation, and distribution of 3000 tonnes is planned for 2014. The local seed industry has met around 5% of national demand, according to the GIPC, and the majority of seeds are purchased through the informal market.

Meanwhile, the recently established National Fertiliser Policy facilitated the distribution of some 142,000 tonnes of fertiliser up to September 2013. The MoFA intends to distribute 180,000 tonnes of subsidised fertiliser in 2014.

In line with the National Seed Policy, the Plant Breeder’s Bill is currently before parliament, and aims to regulate the production and sale of new seed varieties. The bill has generated considerable criticism due to the perception that it would eventually lead to multinational bioengineering companies dominating the seed market and introducing genetically modified foods to the country.

Insurance

Due to the unpredictability of rainfall, the newly established Ghana Agricultural Insurance Programme (GAIP) is providing farmers with a system to mitigate against the risk of poor yields. The basis of the pool – which is also supported by German development organisation GIZ – is formed by 19 Ghanaian insurance companies.

According to a 2012 UN survey that took place in 38 districts in Northern, Upper West and Upper East Regions – where droughts are more common – 140,000 citizens out of the total 680,000 interviewed were experiencing significant food insecurity. The response from farmers and other stakeholders toward the insurance programme has therefore been overwhelmingly positive, as when extreme weather events occur these people lose their income. GAIP’s current product portfolio comprises both index insurance (weather, area-yield) and indemnity insurance (single, multi-peril) for crops.

In an interview, Evelyn Debrah, GAIP’s agro-meteorologist, said, “Banks are likely to expand their agriculture lending portfolios once the risk of default is reduced via locally relevant insurance products, increasing their profitability in the process.”

Outlook

The continuous public and private sector focus on the modernisation and reform of Ghana’s agro-industrial sector means local output, export levels and private investment are likely to continue to grow. Key developments to monitor include the consequences of the government’s decision to sign the EPA with the EU, the potential effects of the Plant Breeders’ Bill on the domestic seed market and the impact of the New Alliance policy on private investment in land, all of which have the potential to change the dynamics of the agriculture sector.