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USAID

Poverty reduction and agricultural trade in Sub-Saharan Africa:
Recommendations for USAID interventions


Discussion Paper

Nathan Associates

May 2004

SARPN acknowledges Nathan Associates website as the source of this report: www.nathaninc.com
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Executive Summary

The purpose of this paper is to describe a path for trade-led sustainable economic growth in sub-Saharan Africa (SSA) that will directly benefit the rising numbers of poor people who live primarily in rural areas. Our research has uncovered ample evidence that agricultural growth can deliver the increased incomes and better food supplies the poor require while increasing opportunities for profitable trade in domestic, regional, and global markets.

The key target sector for agriculture-led growth consists of 140 million small farmers occupying 90 percent of the agricultural land in the region. The individual contributions of these small farmers underpin the region’s bulk commodity exports of cotton, cocoa, coffee, and tea. High-value export sectors rely completely on these small farms either for hired labor or for their skills as “outgrowers” and smallholders. Domestic and regional food markets are supplied by such farmers, who profit little from the trade that is built around them.

To derive greater benefit from the trade that they help generate, and thus to effectively reduce poverty, small farms will need assistance to improve their production and marketing conditions. The first step will consist of ensuring access to better infrastructure services, to be followed and complemented by more focused improvement in production technology and business skills.

On the trade front, improved market linkages and access, in a more favorable regional and global trading environment, will increase the flow of profits to the farmer. Policymakers, for instance, need to be aware of the dynamics of the global marketplace in order to help farmers be effective in it. Different export commodities present many and varied challenges. Traditional exports face problems of oversupply and shrinking margins, while competition among suppliers of non-traditional exports is fierce and supermarkets increasingly dictate terms of trade.

Changes in the regional trade environment can also spur agricultural growth. Regional bodies such as ECOWAS, WAEMU, SADC, and COMESA could do much to reduce cross-border transaction costs by focusing on reducing barriers to intraregional trade, including arbitrary and non-transparent border measures and high tariff walls. They could also facilitate creation of region-wide markets by improving communication and transportation infrastructure linking regional trading centers.

SSA must also find ways to become more effective in the multilateral trading system. First, SSA countries need to develop coherent trade policies based on solid analysis of each country’s trade and development needs. This will require some assistance for capacity building. SSA negotiators must also learn to work together in addressing the problems of agricultural subsidies and relatively high tariffs on food products—in developing as well as developed countries. Second, SSA countries need to participate in international standards bodies and in decision-making processes for standards that directly affect SSA exports. Donors can make a significant contribution here and thereby improve the ability of SSA to penetrate the largest developed country markets. Third, SSA countries need to raise small and medium producers’ awareness of and ability to comply with international standards. Extension services, better information infrastructure, regional producer associations, and standards training for associations could all improve producers’ abilities to comply with quality, safety, and ethical standards.

The policy agenda outlined in this paper has the potential to not only reduce poverty but also engender sustainable economic growth for the entire region. Only the agriculture sector has the potential to effect such radical change in a region afflicted by the world’s most severe poverty. African agriculture possesses the physical, human, and technological resources necessary for a foundation for broad-based economic growth. And pro-poor agricultural growth can significantly reduce poverty in SSA.

Many of the region’s agricultural sectors are not performing up to their potential, but others are—and on a global scale. In fact, sales of agricultural exports have far outperformed domestic agriculture sales. Exporting to markets with greater purchasing power can accelerate growth, and developing regional markets can benefit internal markets where growth opportunities are frequently underestimated.

SSA farming livelihoods could be much improved if developed nations reduced domestic subsidies and all nations reduced tariff protections on imported processed agriculture products. But SSA countries do not control the agenda nor the means and pace of implementation of the WTO Agreement on Agriculture. They therefore should not rely on this path to relieve poverty among rural dwellers in the immediate future.

SSA countries, however, can and do determine and implement their own policies of pro-poor agricultural development, with some assistance from the international community. By following sound principles of inclusive agricultural development SSA can achieve its development objectives while lobbying for a more open and less distorting multilateral trading environment. The international community can help provide the means for both of these objectives by
  • Facilitating investment in economic and social infrastructure in rural areas;
  • Following through with capacity building activities in farm production, marketing, export development, and trade; and
  • Nurturing a more outward-looking approach to the multilateral trading system through policy dialogue on domestic, global, and regional platforms that will eventually lead to reform of farm subsidies and tariff protection in developed and developing countries.
Our recommendations for trade-led growth in the agriculture sector are as follows:
  • Focus development assistance on increasing the proportion of tradable goods generated by small farmers. Develop policies to assist productive small farms in converting from subsistence to tradable goods agriculture through infrastructural and institutional development and improved production technology.
  • Where commercial agriculture development is constrained by endemic poverty, but both the resource base and market conditions allow agricultural intensification, provide individual poor farmers and laborers with direct support to create a foundation for sustainable commercial farming as a precursor to producing marketable products for foreign customers.
  • Continue support for agribusiness, but focus on improving SSA policy, regulatory, and institutional environments that strengthen markets and private sector initiatives.
  • Provide support to exporters of high-performing non-traditional goods in shortening the value chain through vertical integration and by moving into higher-return portions of the chain, such as processing and marketing.
  • Assist SSA in increasing its market leverage and, in turn, improving its terms of trade, especially through capacity building within the context of regional trade bodies such as WAEMU, ECOWAS, SADC and COMESA, as well as the WTO.
  • Help SSA governments and producers cut transaction costs and shorten delivery times by cutting red tape, expediting customs clearance, and improving transportation and other infrastructure links.
  • Assist SSA governments in building awareness among the general public and policymakers of the relationship between trade and poverty, and help SSA develop an empirical basis to support trade policy decisions regarding regional and global markets.
If these measures are implemented in a coordinated and balanced fashion, poverty reduction in SSA could be substantial.



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