The agricultural sector, though a major employer in most African countries, is often characterized as risky and low-productivity business largely run by small-holder farmers. Despite the fact that a number of African countries have registered fast growth in agricultural value added, with an average growth rate of 4.4 percent in sub-Saharan Africa compared to a world average of 2.8 percent in 2014, the majority of sub-Saharan Africa’s poor households are found in rural spaces where credit, insurance, and land market failures are severe, and population pressure on scarce natural resources is persistently high. Clearly, jump-starting Africa’s agricultural sector will lift millions out of poverty.
Recently, leading researchers, African policymakers and private sector partners gathered for Structural Transformation of African Agriculture and Rural Spaces (STAARS) conference in Addis Ababa to identify major challenges and discuss ways forward to do just that. During the high-level policy roundtable involving agricultural policymakers, researchers, and investors, the panelists largely agreed that market failures, limited technology adoption, and high risk of and vulnerability to climate change are some of the major constraints of productivity of small-holder agriculture in Africa.
Transforming African agriculture from subsistence to market-led, tech-intensive business requires addressing failures in the credit, insurance, and land markets. Better access to finance allows farmers to buy key agricultural inputs such as fertilizer and improved seed varieties in order to improve productivity. In addition, at a macro level, access to finance is essential for building resilience in the sector by relaxing financial constraints on investments on large-scale irrigation, skill formation, and agricultural technology adoption as well as the mechanization of agriculture.
Another deterrent to productivity is uninsured risk, due to limited presence of rural safety nets and agricultural crop and livestock insurance. Risk of harvest loss due to climate change and continuous mutation of plant and animal diseases, price volatility of agricultural exports, and policy uncertainty are some of the causes of risky returns to investment in agriculture. Efforts to achieve structural transformation of agriculture, therefore, need to address not just improving agricultural productivity but also intensifying efforts on income diversification as a means of risk management strategy, and transferring risks from farmers to rural safety net and agricultural insurance programs.
Perhaps one of the largest obstacles, though, is the inconsistency and uncertainty around land policy in the region. Seven of the 10 countries with the weakest policies on secure access to land in the world are found in sub-Saharan Africa. This is not good news for the region’s already low level of agricultural productivity. Land tenure policy uncertainty not only discourages farmers from making long-term investments in soil and water conservation, but it also deters efficient allocation of land to more productive farm households. In places where participation in off-farm activity or migration signal excess land holding, farmers are also less likely to have diverse sources of household income for fear of potential land redistribution. Addressing the state of tenure insecurity in the region is thus key to improving agricultural productivity and effectiveness of income diversification strategy.
Several studies in Asia and Africa find that the ability to participate in land rental markets, as a result of improvement in land tenure policies, is associated with higher rural-urban migration, participation in non-agricultural sectors, and improvement in agricultural productivity in China, India, Vietnam, and Ethiopia. Households with limited ability to farm are able to rent out their land and engage in other sectors in which they expect to have competitive edge. Land-poor households that find farming to be more profitable, on the other hand, are able to rent additional plots to intensify engagement in the sector. As a result, tenure security facilitates transfer of scarce resources to more productive farmers and thus spur structural transformation of rural economy.
A complete overhaul of land tenure policies is not always easy and cost effective. Land certification programs are often considered intermediate solutions to formalize traditionally held farmlands and reduce land-related conflicts among farmers in some African and Asian countries. Against a long history of state ownership of land and frequent land redistribution, a land certification program was introduced in four regions of Ethiopia covering more than 5 million rural households during 1998-2007. The program simply acknowledged farmers their user rights and relaxed some of the restrictions on farmers’ ability to temporarily transfer land and its use as collateral in a process that involved series of negotiations among participating farmers and implementing officials. The program spurred a considerable amount of research evaluating its impact on land rental market participation, long-term agricultural investments, and productivity. A recent addition to the evaluation of the program is a study on its impact on rural off-farm employment participation. The study shows that while the program is found to increase a household’s participation in unskilled non-farm employment and food-for-work programs, it is unlikely that rural households turn into relatively skill-intensive non-farm employments (such as teaching, health, and other administrative work) in the short run, indicating the need for complementary investments in human capital and job creation to achieve a sustainably diversified rural economy.
In conclusion, if backed with complementary risk management strategies and investments in skill formation and job creation, ensuring secure access to land can be an important policy instrument for improving productivity and reducing inherent vulnerability of the sector.