An overview of the need for investment in agriculture (especially for rural areas)

1. Public agricultural investment and rural
finance in Africa
Emmanuel Tambi
FARA Secretariat Accra, Ghana

2. Outline
• Introduction
• Performance of African economies
• Why public spending is important for agriculture and
AR&D
• CAADP and public spending in agriculture
• Relevance to rural finance and conclusion

3. African economies show good signs of progress
• High-growth economies
• Between 2000 and 2010, GDP grew at 5.6% per year, topping 7% in
2002, 2004 and 2007
0
5
10
15
20
25
%RealGDPgrowth
2011 2012
Source: Data from CIA
World Factbook

4. Agricultural productivity lags behind other regions
of the world
• Most of economic growth not coming from agriculture
• Agricultural output increased by 2.5% per year on average in
the last 40 years
0
50
100
150
200
250
300
350
400
1971 1981 1991 2001 2008
Gross agricultural output
index
Agric total factor
productivity index
• Agricultural total
factor productivity
increased by 0.75%
per year only between
1961 and 2008

5. Agricultural productivity lags behind other regions
of the world
• Negative TFP growth in Central Africa
• Five countries have TFP growth rates > 1%:
Benin, Kenya, Malawi, Swaziland, Zambia
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
Average TFP growth in
Africa, 1961 - 2008 (% per year)
0
0.5
1
1.5
2
Average TFP growth rates > 1%
(1961 – 2008)
Source: ASTI/IFPRI, 2011

6. o Increase in agricultural output has come from land
expansion rather than intensification
Increase in
production
‘88 – ‘08
Acreage
effect
Yield
effect Interactio
n effect
Rice 11.8m t 68% 18% 14%
Maize 17.2m t 50% 39% 11%

7. • Yields of strategic crops are 2 times lower than in other developing
regions of the world
• Cereal yields average 1.5 tons/ha compared to 3.5 tons/ha in Asia
0
1
2
3
4
5
6
7
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Cereal yields (tons/ha)
Africa Asia Europe North America South America World

8. • Yields of roots and tubers average 9.2 tons/ha compared
to 17.6 tons/ha in Asia
0
5
10
15
20
25
30
35
40
45
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Yields of roots and tubers (tons/ha)
Africa Asia Europe North America South America World

9. Several factors are responsible
• Smallholder rain-fed agriculture (economies of scale?)
• Irrigation
• Low input use (fertilizer, seeds, )
• Infrastructure
• Mechanization
• Low levels
of
spending
in agric.

10. Importance of public spending in agriculture
• Public spending in agriculture and AR&D is critical
o Productivity
o Rural household income
o Rural consumption
o Hunger & poverty reduction

11. Importance of public spending in agriculture
• Public spending in agriculture, rural roads and rural
education has large positive effect on growth and poverty
reduction
-2
0
2
4
6
8
10
12
14
16
18
Ghana Tanzania Uganda China India Thailand
Returns to agric Returns to roads Returns to educSource: IFPRI, 2009
L
C
U

12. Importance of public spending in agriculture
Public spending in agricultural research has positive
economic returns
• Investment in national & international agricultural
research has significant and direct effect on
productivity
• Research-to-TFP elasticities
o National (NAR) = 0.0394
o International (CGIAR) = 0.0403
• Facilitates development, dissemination and uptake of
new technologies

13. Importance of public spending in agriculture
• Public spending in agricultural research has positive economic
returns
• One US$ invested in AR&D yields US$3 on average
Benefit-cost
ratio
IRR (NAR) IRR (CGIAR)
Sub-Saharan Africa (31
countries)
3.1 23.8 29.3
Large economies (AgGDP >
$4b)
4.6 34.0 40.8
Midsize economies (AgGDP
$1 – 4b)
2.9 23.6 28.9
Small economies (AgGDP <
$1b) Fuglie & Rada, 2011
1.8 12.9 17.0

14. Global public and private spending on research and
development - 2009 = US$1.11 Trillion
(Pardey & Beddow, 2013)
S-S Africa spends US$11 billion on R and D
Developed Countries less USA 46%
USA 33%
China 13%
Brazil 2%
India 2%
S. Am. & Pacific less Brazil 1%
Asia & Pacific less China & India 1%
Mid East & N. Africa 1%
Sub-Saharan Africa 1%
Total 100
Developed
Countries less USA
USA
China
Asia & Pacific less
China
India
Brazil
Mid East and N.
Africa
Sub-Saharan Africa

15. Global public food & agricultural R & D spending
2009 = US$33.7 billion (Pardey & Beddow, 2013)
S-S Africa spends US$2 billion on food and agric R and D
Developed Countries less USA 35%
USA 13%
China 19%
India 7%
Sub-Saharan Africa 6%
Brazil 5%
S. Am. & Pacific less Brazil 5%
Asia & Pacific less China &
India 5%
Mid East & N. Africa 5%
Total 100%
Developed
Countries less
USA
USA
China
Asia & Pacific
less China
India
Brazil
Mid East and N.
Africa
Sub-Saharan
Africa

16. Intensity of investment in AR&D
(AR&D spending/AgGDP)
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Source of data: IFPRI, 2011
US$
• Africa spends $0.6 per $100 AgGDP
• Lower than NEPAD target of $1.00 per $100

17. CAADP and public spending in agriculture
• Maputo Declaration:
o 6% agricultural growth per annum (FAAP: assumes a 4.2%
growth in TFP)
o Allocation of 10% national budget to agriculture
• Number of countries endorsing CAADP framework is
increasing
o 30 Compacts signed
o 26 Investment plans developed
o 22 Business meetings organized

18. CAADP and public spending in agriculture
0
5
10
15
20
25
30
35
1-Mar-07
1-Jul-07
1-Nov-07
1-Mar-08
1-Jul-08
1-Nov-08
1-Mar-09
1-Jul-09
1-Nov-09
1-Mar-10
1-Jul-10
1-Nov-10
1-Mar-11
1-Jul-11
1-Nov-11
1-Mar-12
1-Jul-12
1-Nov-12
Country Compacts
Investment Plans
Business Meetings
No
of
coun
tries
Endorsement of CAADP gained momentum in 2009

19. CAADP and public spending in agriculture
Country support to agriculture is
increasing. So far,
• 7 countries have surpassed the
10% target
• 13 countries allocate 5 – 10% to
agriculture
• Remaining countries allocate less
than 5%
> 10% 5 – 10%
Burkina Faso Benin
Cape Verde Eq. Guinea
Chad Gambia
Ethiopia Ghana
Mali Guinea
Malawi Kenya
Niger Lesotho
Madagascar
Mozambique
Senegal
Sudan
Tunisia
Zimbabwe

20. CAADP and public spending in agriculture
Global support to agriculture is also
increasing
• L’Aquila (Italy) Joint Statement on Global
Food Security, July 2009 G8 Summit
• US$22 billion to agriculture
• G20 meeting (Pittsburgh) – Scale-up US
assistance to agriculture
• Feed the Future (FTF) support to 12
countries
• GAFSP Trust Fund – support to 11
countries
• Joint Africa-EU Strategy support
FTF GAFSP
Ethiopia Burundi
Ghana Ethiopia
Kenya Gambia
Liberia Liberia
Malawi Malawi
Mali Niger
Mozambique Rwanda
Rwanda Senegal
Senegal Sierra Leone
Tanzania Tanzania
Uganda Togo
Zambia

21. CAADP and public spending in agriculture
Funding support received from GAFSP ranges from US$22m
to US$50m per country
0
10
20
30
40
50
60
US$millions
Funding support received from the GAFSP Trust Fund

22. CAADP and public spending in agriculture
Donor support to AR&D in Africa (CGIAR and CAADP) 2011
• Over US$300 million through CGIAR
• About US$100 million through CAADP Pillar IV
0
50
100
150
200
250
300
350
CGIAR CAADP Pillar 4
(FARA&SROs)
non-CAADP
Pillar 4 aligned
non-CAADP
Pillar 4 alignable
NEPAD CAADP
Pillars 1,2,3.
IARCs & CB/PPs

23. Relevance to rural finance and conclusion
Increased public spending enhances agricultural and rural
finance
• Facilitates smallholder farmer access to rural finance
• Catalyzes agricultural value chain finance
• Promotes financial linkages between agriculture and
agribusiness
• Mitigates agricultural finance risk
• Stimulates growth of other sectors and fosters
economic growth
• Creates economic opportunities for rural people

24. Thank You