Financing Organic Agriculture in Africa: Mapping the Issues

Financing Organic agriculture aFrica: Mapping issues Note designations employed presentation material imply expression opinion part United Nations legal status country, territory, city area, authorities delimitation frontiers boundaries. Material publication freely quoted reprinted, acknowledgement requested, copy publication quotation reprint UNCTAD secretariat. publication edited externally. UNCTAD/WEB/DITC/TED/2016/6 UNITED NATIONS PUBLICATION Copyright © United Nations, 2016 rights reserved Acknowledgements paper prepared Malick Kane Henrique Pacini supervision Bonapas Onguglo (UNCTAD). work received important contributions Olugbenga AdeOluwa, Jordan Gama, Musa Muwanga Mwanzo Millinga (AfrONet) Adebiyi Jelili (Michigan University). authors members AfrONet EOA Continental Steering Committee support preparation document. cover prepared Sophie Combette (photo credit Mwanzo Millinga), desktop formatting Rafe Dent (UNCTAD). Guillermo Valles Director Division International Trade Goods Services, Commodities 29 August 2016 1Mapping issues 1. IntroductIon Organic Agriculture (OA) rapidly growing sector Africa, strong links economic socio- cultural development continent (Willer Kilcher, 2012; Auerbach, 2013). OA relevant tool advance Sustainable Development Goals (SDGs) 2, 12, 13 15 sustainable agriculture, sustainable consumption production, climate change sustainable ecosystems. 2003, African countries endorsed Maputo declaration, committing allocate 10 percent national budgets agriculture rural development projects (AU, 2004). pledge demonstrated resolve African leaders revitalize agricultural sector underlined importance adequate financial resources ensure progress. objective promoting development OA endorsed African Heads State Government 2011 (African Union Decision EX.CL/Dec.621 XVIII). , 3rd African Organic Agriculture Conference (AOC) held October 2015 Lagos, Nigeria, organic farmers, entrepreneurs, researchers representatives national international institutions, highlighted effective funding solutions foster development OA Africa. Stakeholders AOC highlighted lack information options access finance. subsequent adoption Lagos declaration AOC called 10 percent public resources devoted agricultural sector specifically employed develop OA continent (UNCTAD, 2015b). led renewed emphasis suitable funding solutions develop OA sector. years, steady reduction proportion African government expenditure devoted agriculture1. view expressed African OA stakeholders, UNCTAD sought identify , challenges opportunities related funding OA continent. Due limitations official data, structured survey conducted, support AfrONet2, targeted OA stakeholders, including National Organic Agriculture Movements (NOAMs), farmers exporters 16 African countries. results, presented technical paper, line existing studies conventional Organic Agriculture Africa (FAO, 2012; UNCTAD, 2009). highlight existence persistent funding gap address barriers faced OA stakeholders securing external capital finance activities. 2. overvIew fInAncIng African leaders reaffirming strong political commitment promote agricultural development 2014 Malabo Declaration Agricultural Growth Transformation3, African agriculture faces major challenges terms investment access finance. FAO, rates investment worker agriculture declining stagnated decades4 Africa average share agriculture public expenditure fell 4.5 percent 2001 2.7 percent 20135, 10 percent target set Maputo declaration. period, share commercial credit devoted agriculture Africa dropped 3.6 percent average 2.8 percent, global average 5.8 percent6. specific situation OA terms access funding exception trend. average, 67 percent surveyed stakeholders funding sector insufficiently met. , 3 percent respondents considered OA stakeholders completely meet funding . critical areas terms external funding highlighted OA stakeholders certification, organization smallholder farmers production groups, marketing, purchase equipment. results surprise importance financing certification documented7. noted Chart 1 categories considered important terms external funding areas stakeholders funding scarce8. Chart 1 suggests considered area activity external funding moderate9, research area highest perceived level unmet funding . scarcity funding research observed Chart 2, shows research grants perceived funding instruments support OA development. acute shortage research funding poses challenge development OA Africa 2 Financing Organic agriculture aFrica: Chart 2: Perceived availability funding instruments support specific areas OA development Source: UNCTAD (2016). 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% State backed loans Subsidies grants conversion farmland Tax exemptions purchase inputs, equipment related sale organic products Research grants Subsidies grants provide extension/training distribute free inputs farmers Grants cooperatives organic producers Subsidies grants cover certi�cation costs Subsidies grants organize farmers productive groups Export facilitation (organization trade fairs, preparation market studies, .) Chart 1: Relationship importance securing external funding extent funding met key areas development OA Source: UNCTAD (2016). 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Transport storage Purchase production inputs Research Marketing Purchase equipment Organization smallholder farmers Certi�cation Importance securing external funding considered high Funding considered insuf�ciently met 3Mapping issues evidence suggest Research Development (&) investments crucial contributors growth agricultural productivity poverty alleviation10. 3. BArrIers fundIng Africa, access credit financial services restricted agriculture sectors economy11. High perceived levels risk, limited market infrastructure development, cost lack accessibility credit, unsupportive regulatory environment uncertainties arising informality sector, commonly identified barriers limit financing African agriculture12. shown Table 1, restrictions terms access finance apply OA, 5 percent surveyed stakeholders access finance effective country 67 percent respondents judging access limited. Table 1: Perceived level access finance OA stakeholders business usual scenario Perceived level access funding Limited Moderate Effective Percentage respondents (%) 67 28 5 relation importance factors limiting access finance, issues regarded key impediments, land tenure farmer capacity level information, considered moderately restricting access finance. time, respondents identified factors related banking system (.. limited credit backing mechanisms, high interest rates, .) greatest impact. Chart 3 illustrates barriers perceived importance. high perceived impact barriers related commercial credit suggests potential creation dedicated credit lines OA. view, initiatives offer promising prospects, AgriFin, supports partnering African banks identifying assessing risks business opportunities, developing financing solutions adapted agricultural clients13. 4. fundIng trends opportunItIes 4.1 Supported productions Securing price premiums organic products export markets main drivers development organic production Africa, increased environmental sustainability reduced dependence external inputs (UNCTAD, 2009). Major export oriented productions coffee cocoa Chart 3: Perceived Importance Barriers Finance OA Source: UNCTAD (2016). 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Limited commercialization opportunities Insuf�cient expected return investment Land tenure regime Limited capacity information organic agriculture stakeholders Level risk agricultural production Inaccurate perception agriculture/agribusiness commercial banks High interest rates, restrictive regulatory framework Lack funding commercial banks, high transaction costs Limited credit backing mechanisms Strong Moderate 4 Financing Organic agriculture aFrica: perceived benefiting facilitated access finance ( Table 2). survey sought identify organic produce potential development. large majority respondents (66 percent) identified horticultural products fruits (.. pineapple, mango banana), potatoes vegetables promising prospects. potential horticulture identified UNCTAD study agriculture tourism linkages Tanzania, highlighted potential organic horticulture products. exports, development regional domestic market (UNCTAD, 2015a). Table 2: Organic productions beneficiating facilitated access finance respondent countries Supported production Coffee Cocoa Maize Cotton Rice Shea Butter - centage res- pondents (%) 33 13 13 10 8 5 5. MArket developMent prIce preMIuMs Export markets regarded main destination certified African organic production, produced 1.3 million hectares land 2014 (EuropeAid, 2012; IFOAM, 2016), consolidated set data assess evolution traded values volumes OA production. , figures targeted support yield significant results terms export promotion. -documented illustrations export potential African OA East Africa Export Programme (EAEP), contributed raise regional organic exports US$ 4.6 million 2002/2003 US$ 35 million 2009/201014. EAEP led adoption common regional organic standard, inclusion organic products national trade strategies development supportive national policies programs. brought significant increase average crop yields number certified producers Burundi, Kenya, Rwanda, Uganda United Republic Tanzania (UNCTAD, 2011). Chart 4: Perceived evolution price premium organic crops Source: UNCTAD (2016). 28% 56% 3% 10% 3% 0% 10% 20% 30% 40% 50% 60% Increased 10% Increased 10% Remained stable Decreased Decreased 10% 5Mapping issues , information country studies main African organic producers land statistics suggest export domestic markets expanding. , order stronger business case organic produce, accurate data market trends trade organic products collected. regard price premiums, significant variations recorded depending commercialized crops, periods markets. Based estimates, premiums organic products range 10 percent 100 percent ( ) price conventional variety (EPOPA, 2008). premiums play important role profitability organic crops compensate additional costs incurred organic farmers, arising compliance organic practices certification. Survey results confirm variability price premiums premiums organic products remained stable 5 years ( 56 percent respondents). significant share stakeholders (28 percent) reported growth 10 percent price premiums 5 years, reflect increased profitability organic products. chart illustrates perceived evolution price premiums. Findings Africa suggest export domestically-oriented organic farming increase income livelihood conditions smallholders. , studies export-oriented organic cotton, fruits vegetable production productions opened financially rewarding market opportunities, boosted income livelihoods smallholder farmers (Jermann, 2011; Mamuya, 2011). studies concluded income contractually- linked export oriented organic producers consistently higher conventional, spot- market dependent farmers (Gibbon, 2006, UNCTAD, 2008; Bowig al., 2009; Mamuya, 2011; Kleemann, 2011; Faturoti al., 2012; Kleemann al., 2014;). regard, noted ability farmer cooperatives support members capacity building, facilitated access financial services, market information, play key role allowing farmers benefit organic premiums (Jena . al., 2012). 6. perceIved evolutIon Access fInAnce positive signs, growing markets potentially higher profitability, access finance OA sector remains constrained survey results suggest situation improving. shown Table 3, majority (64 percent) surveyed stakeholders , 5 years access finance remained , close quarter respondents (23 percent) suggested access finance restrictive. Table 3: Perceived evolution access finance organic agriculture Africa 5 years Evolution access finance restrictive Stable efficient Percentage respondents (%) 23 64 13 perceived lack progress terms access funding OA’ potential income generation, export growth environmental sustainability regarded signal inclusion funding considerations OA development plans, national continental levels. 7. conclusIon growing market positive evolution price premiums organic produce, literature survey results suggest OA stakeholders insufficient access funding, strategic areas certification, producer organization, research, purchase equipment. Limited credit guarantee mechanisms insufficient capacity commercial banks integrate specificities organic agriculture major hindrances ability OA stakeholders finance activities Africa. , coordinated effort improve data collection domestic export OA needed business case organic agriculture. addition, financing issue integrated existing future efforts promote development OA continent. commitment support sustainable agriculture expressed 2015 Addis Ababa Action Agenda 6 Financing Organic agriculture aFrica: Financing Development, unanimous approval Ecological Organic Agriculture Strategic Plan (2015-2025)15 African Union Ministerial Council, opportunities bridge OA funding gap. regard, efforts embed OA Comprehensive Africa Agriculture Development Programme (CAADP) play key role allocation funding systematic inclusion OA considerations national agricultural development plans strategies. 7Mapping issues References Adebiyi (2014). 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Government expenditure agriculture - Experimental series: http://www.fao.org/economic/ ess/ess-economic/expenditure/en/. 2 AfrONet continental network Organic Agriculture (OA) stakeholders Africa. information AfrONet : http://www.africanorganicnetwork.org/. 3 : http://pages.au.int/sites/default/files/Malabo%20Declaration%202014_11%2026-.pdf. 4 FAO (2012), State food agriculture 2012. 5 Source FAO. Government expenditure agriculture - Experimental series: http://www.fao.org/economic/ ess/ess-economic/expenditure/en/ ReSAKSS: http://resakss.org/region/africa-wide/growth-options. 6 Source FAO stats. Data : http://www.fao.org/economic/ess/ess-economic/credit/en/. 7 Gama (2014) UNCTAD (2015) Tanzania. 8 74% 85% respondents funding met certification purchase equipment. 9 perceived respondents. 10 FAO (2012). 11 Honahan Beck (2007), World Bank, Making finance work Africa. 12 AfDB (2013), Empirical Analysis Agricultural Credit Africa: Role Institutional Factors, Honahan Beck (2007), FAO (2004), Financing Agriculture Rural Development Africa: Issues, Constraints Perspectives, FAO (2012). 13 World Bank, AGRIFIN, Centenary Bank - Uganda, Project Result Lessons World Bank, AGRIFIN, Centenary Bank - Uganda, Project Result Lessons. : https://www.agrifinfacility.org/ general_resourcespublication_type=Field+Lesson&country=&keywords_v=. 14 Governments Burundi, Kenya, Rwanda, Uganda United Republic Tanzania, UNCTAD (2011) IFOAM (2014). 15 Ecological Organic Agriculture Strategic Plan. Source FIBL & IFOAM (2016) World Organic Agriculture 2016.