Macro-economic Challenges in Agriculture

About 70% of Africa’s population is employed in agriculture. Around 70% of them are engaged in subsistence farming. Unfortunately, average productivity of subsistence farming in Africa is around 40%. This means that around 49% of Africans employed have peak productivity of 49%. A major cause of this are the ineffective input systems still in use in this part of the world, which often threatens food security of most African nations, hinders their ability to harness their potentials to the full and earn substantial foreign exchange from agriculture.

Some of the seedlings used by these farmers are low-yield, disease prone and easily infested by pest, unlike the hybrid seeds are employed by most farmers in other climes. Since most of these farmers are in it for subsistence purposes, they do not see the need for spending so much on farm machinery and adopting mechanized farming methods. The government in Nigeria is trying to make fertilizer, hybrid seeds, pesticides etc. available to farmers at a subsidized cost, but more needs to be done, to guarantee good returns for farmers and encourage more investors’ entry into the sector and take advantage of available opportunities.

Aging rural farming population is another challenge in this sector of the economy. Several of the studies reviewed found that about 80% of youth residing in the rural areas are engaged in agricultural activities, and about 90% residing in urban areas are engaged in non-agricultural activities (Adekunle et al. 2009). Sample surveys by different researchers, show that youth labor markets in rural (engaged in agriculture) and urban (not engaged in agriculture) areas are dominated by males. Early marriages could explain the disparity, since approximately 70% of youth in rural areas are married as opposed to 25% in urban areas. Economic factors that discourage them include: inadequate credit facilities, low farming profit margins, and a lack of agricultural insurance, initial capital and production input. Social factors include public perception about farming and parental influence to move out of agriculture. Environmental issues include inadequate land, continuous poor harvests, and soil degradation.

These findings are largely in agreement with the results obtained from the interviews conducted with selected youth leaders. The results further reveal that economic based constraints seem to be the most important factor.

Reasons for rural youth involvement in non- farm activities and migrating to urban areas could be attributed to the economic pull factors, which include the perception of greater job opportunities due to the presence of industries or companies in cities; poor physical infrastructure and social amenities in the rural areas, search for education and skills acquisition, and the absence of desirable job opportunities. Other factors include a general dislike of village life or expulsion from rural communities resulting from the commitment of an offense or crime. The results reveal that economic factors were the dominant reasons for the increased involvement of rural youths in non-farm activities and migrating to urban areas.

Unstable farming input and output prices generally is another challenge. A major problem inhibiting investment in agriculture is the escalating cost of major farm inputs. Average prices of major farm inputs such as hoe, machete, sprayer, tractor, and agrochemicals have been rising over the years. The rising prices of inputs are the results of instability in the factor markets arising from instability in macroeconomic policy actions leading to inflationary pressures, high interest rates, and volatile exchange rate. Invariably, the deficiency in macroeconomic policy environment constituted a major constraint to the growth of investment in production of agricultural products. This has a tendency to cause high factor cost to the farmers cultivating agricultural crops.

Moreover, the rising prices of fuel have led to rising cost in transportation of farm inputs thus aggravating the rising cost of production. The rising costs of farm inputs combined with dearth of investible funds pose a serious constraint to investment in agriculture. This could lead to reduction in production and domestic supplies of agricultural products. The high interest charges on loans for agricultural production have resulted in escalation of production costs. Most of agrochemicals are imported. The situation not only made procurement difficult but again resulted in cost escalation arising from the depreciated naira exchange rate. The prices of many commodities also increased although due to wide fluctuations it has not resulted in persistent rise in profitability of farm enterprises. The cassava experience provides an illustration of the possible effect of price fluctuations on output of commodities.

When the Presidential initiatives which commenced in 2002, farmers were encouraged to expand the production of cassava. Initially, the farmers received remunerative prices. As further campaigns continued and support for the production of the commodity increased, output was further increased. However, today there seems to be a glut in the cassava market due to marketing bottlenecks. Prices are now falling and farmers are likely to reduce the area under cassava production. Urban consumers will support falling prices of food staples, but net producers are unlikely to derive adequate income to guarantee profitability of production of the commodities.

Government should sustain its drive to achieve a stable macroeconomic environment, which manifests largely in price stability. On the social front, government should ensure security of life and property to attract domestic and foreign investment to the sector.

Also, absence of quality standardization has robbed Africa of potential earnings from exportation of agricultural produce. Continued rejection of non-oil exports from Nigeria and other African countries, especially agro-allied commodities, translates to a yearly loss of $23 billion in earnings, the United Nations Conference on Trade and Development (UNCTAD) has said.

Latest data by UNCTAD show that developing countries lose an estimated $23 billion per year, equal to about 10 per cent of their exports to the Group of 20 (G20), through failure to comply with non-tariff measures. Non-tariff measures cover a broad range of legitimate and important policy instruments, including measures to protect the health of a country’s citizens and its environments.

With trade organisations advocating decline in tariff to ease trade flows, non-tariff measures have replaced them as a key barrier on faster global trade growth, as governments introduce more non-tariff procedures to protect consumers and thriving local industries. In terms of rejection rate, the number of rejects in major foreign markets between 2012 and 2013 revealed that Benin Republic had two; Egypt had 95; Ethiopia, three; Zambia, five and South Africa, 56, while Nigeria recorded 102.

These kinds of measures are becoming increasingly widespread,” said UNCTAD Deputy Secretary-General, Joakim Reiter. “For example, measures on the cleanliness and pathogen-free status of food, known as sanitary and phytosanitary measures cover more than 60 per cent of agricultural trade.

“Such regulatory measures disproportionately increase trade costs for small and medium-sized enterprises and developing countries, particularly the least developed. We estimate, for example, that the impact of the European Union’s sanitary and phytosanitary measures comes to a loss of about $3 billion for low-income country exports. That’s equal to 14 per cent of their agricultural trade with the European Union.”

Reiter added: “We certainly don’t expect G20 countries to drop all their non-tariff measures, which serve important policy objectives such as health and safety but we do need to manage this issue better.

“Non-tariff measures are the new frontier in our quest for greater global trade,” he said, noting that better information would reduce the costs of non-tariff measures. “It’s all about transparency and harmonising regulations.”

Aiming to enhance transparency on non-tariff measures, UNCTAD also launched a database to list the non-tariff measures of 56 countries, covering 80 per cent of world trade. The database allows policymakers to search by country and product, to find out quickly relevant non-tariff requirements.

“This database will improve countries’ ability to understand the regulatory requirements, helping them to comply more easily and at less cost,” said Guillermo Valles, director of the Division on International Trade in Goods and Services and Commodities.

The African Union has already requested that UNCTAD support it with the Continental Free Trade Area by setting up a similar database. This database will provide necessary information on non-tariff measures, so that negotiators can harmonise their regulations, cutting the costs of trade.

“The use of non-tariff measures in the world will increase but this should be done in a smart way, for example, by using international standards to a maximum extent,” said Ralf Peters, Chief ad interim of the Trade Analysis Branch. “Use non-tariff measures to protect your citizens but don’t let them compromise trade because that will block economic growth and job creation,” he added.

REFERENCES

1. Oni Timothy Olukunle (2013). Challenges and Prospects of Agriculture in Nigeria: The Way Forward. Journal of Economics and Sustainable Development. Vol.4, No.16 : 43
2. Sunday Brownson Akpan (2010). Encouraging Youth’s Involvement in Agricultural Production and Processing. Nigeria Strategy Support Program Policy Note No. 29: 2-3
3. The Guardian Newspaper