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    Big Players in African Fields: Small Farmers: Important Players in The Supply Chain

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    Poyzkiie Antolijao Bangot
    1) Large foreign companies in the African agribusiness sector are increasingly integrating small-scale African farmers into their supply chains through contract farming. 2) British American Tobacco works with over 50,000 smallholder tobacco farmers across Africa through contract farming schemes. 3) Foreign agribusiness companies are concentrated in countries with larger economies and higher GDP per capita, such as Nigeria, Kenya, and South Africa.

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    Big Players in African Fields: Small Farmers: Important Players in The Supply Chain

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    Poyzkiie Antolijao Bangot
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    1) Large foreign companies in the African agribusiness sector are increasingly integrating small-scale African farmers into their supply chains through contract farming. 2) British American Tobacco works with over 50,000 smallholder tobacco farmers across Africa through contract farming schemes. 3) Foreign agribusiness companies are concentrated in countries with larger economies and higher GDP per capita, such as Nigeria, Kenya, and South Africa.

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    1) Large foreign companies in the African agribusiness sector are increasingly integrating small-scale African farmers into their supply chains through contract farming. 2) British American Tobacco works with over 50,000 smallholder tobacco farmers across Africa through contract farming schemes. 3) Foreign agribusiness companies are concentrated in countries with larger economies and higher GDP per capita, such as Nigeria, Kenya, and South Africa.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    19 views3 pages

    Big Players in African Fields: Small Farmers: Important Players in The Supply Chain

    Uploaded by

    Poyzkiie Antolijao Bangot
    1) Large foreign companies in the African agribusiness sector are increasingly integrating small-scale African farmers into their supply chains through contract farming. 2) British American Tobacco works with over 50,000 smallholder tobacco farmers across Africa through contract farming schemes. 3) Foreign agribusiness companies are concentrated in countries with larger economies and higher GDP per capita, such as Nigeria, Kenya, and South Africa.

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    © All Rights Reserved
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    of 3

    Big Players in African Fields*

    Katharina Felgenhauer and Patrizia Labella

     Large foreign agro-food companies in Africa do not limit their activities to trading but manage
    entire integrated supply chains.
     Foreign private companies are increasingly adopting a business model which favours the
    integration of small-scale farmers into their supply chains.
     The agro-food industry is a key enabler of economic and social development in the continent by
    creating opportunities, including employment, along the value chain.

    There is finally a good business story coming the three most important. However, agricultural
    from Africa: the continent’s agro-food industry is input demand in the continent is still too low to
    becoming an important player in the supply be considered an attractive market. Africa plays
    chains of multinational corporations (MNCs). only a marginal role in the rise of global fertiliser
    consumption, projected to increase by 3 per
    African markets are gradually appearing on the cent in 2007-2008 with most demand (about 70
    radar screens of large MNCs in the agro-food per cent) coming from East and South Asia as
    sector. These very large corporations have well as North America.
    entered the most dynamic economies of the
    continent through a variety of activities Small Farmers: Important Players in the Supply
    including wholly owned subsidiaries or, in the Chain
    majority of cases, non-equity linkages such as
    franchises and licensing. They are also present in The majority of these foreign agro-food
    the continent through sales and marketing corporate giants – from the input side along the
    offices. value chain to retailers – have adopted a
    particular business model in Africa: linking small-
    The sub-sector in the agro-food industry scale farmers into their supply chain. Contract
    displaying the highest exposure to farming schemes provide security of supply –
    multinationals is that of beverages. For Coca- and integrity of the product – by planning better
    Cola – present in the majority of African states – cycles and limiting exposure to fluctuations in
    the continent constitutes a major market, the global market.
    averaging 5 per cent growth since 2002 and
    employing 16 per cent of its labour force. Yet not all smallholders can get on board since
    Anheuser-Busch InBev conducts licensed strict standards are imposed. In the case of
    production in five African markets and works SABMiller, both brownfield and greenfield
    with distributors in several other countries, suppliers are benchmarked according to their
    while the brewer SABMiller, which started in business acumen, set of skills, pricing, service
    South Africa and grew globally, has brewing and level and technical accreditation, i.e. quality of
    beverage interests, e.g. bottling services for machinery owned, explains Eric Leong, Supply
    Coca-Cola, in 30 African countries. Chain Manager for Africa and Asia.

    Chemicals and seeds are another area of high Three markets stand out in SabMiller’s portfolio:
    activity: seven companies in this sector operate Uganda, Zambia and South Africa. In these three
    in Africa. BASF, Dow Chemicals and Bayer are countries the company has put over 10 000
    subsistence farmers into job creation schemes. on site (see illustration). Relatively high levels of
    An analysis of SABMiller’s economic footprint in economic growth, reinforced by strong ties with
    South Africa demonstrates that beyond the the European single market, progress in
    9 000 direct permanent employees of the economic liberalisation and improvements in
    corporation in the country, an additional the infrastructure system, have positioned the
    378 000 jobs are created through the company’s region as the main competitor to South Africa’s
    operations along the supply chain. long established business market.

    There are 40 markets in Africa where


    British American Tobacco (BAT) has a Spread of Foreign Agro-Food MNCs in Africa
    presence. Altogether 77 per cent of the
    tobacco produced in these countries
    comes directly from smallholder farmers,
    all managed through contract farming
    schemes (the remainder comes from third
    parties). In the six countries where BAT
    sources tobacco leaf, the company has
    signed contracts with 50 000 farmers.

    BAT assesses its suppliers by their historic


    Note: The number of companies present in each region covers only those listed in
    performance. Profitability, quality of
    Fortune Global 500 and may include multiple subsidiaries of the same firm.
    supply and payback rates are crucial Source: OECD Development Centre (2008)
    indicators. For new farmers, land
    availability, the size of the family working
    Southern Africa as a whole also ranks as very
    unit and membership of tobacco unions count popular among foreign MNCs, second only to
    the most.
    North Africa. By contrast, the economies of
    West, East and Central Africa are less attractive
    Most foreign companies do not invest financially
    to foreign corporations. Yet within these
    in their business partners, but may provide them
    regions, individual countries are perfect fields
    with services in kind (e.g. seeds and fertilisers),
    for foreign agribusiness multinationals.
    advice on cultivation techniques or preferential
    financial terms, especially in the case of The level of concentration of agro-food related
    greenfield suppliers. Therefore, local sourcing firms appears to be higher in countries recording
    translates into benefits for both sides: it keeps above-average GDP (size of an economy) and
    costs down for a foreign corporation and scales GDP per capita (proxy to the level of
    up opportunities for farmers. Overall “the development of a country) (see chapter 2 of
    economics of doing it locally are better”,
    Business for Development 2008). Thus Nigeria –
    summarises Richard Morgan, Corporate
    a country with 47 per cent of the entire
    Relations and Communications Director at
    population of West Africa and a GDP of more
    Unilever. than one-and-a-half times the aggregate GDP of
    the rest of the region – is the most important
    Inter-regional Differences: Market Size Matters
    hub in West Africa hosting about one-third of
    the leading international agro-food
    While some areas on the continent seem to corporations.
    attract intensive business activity, others are
    completely marginalised from economic
    In East Africa, Kenya is the number one
    dynamism. North Africa leads with the highest
    destination for foreign MNCs and it dominates in
    number of foreign agro-food companies present
    terms of market size. The geographical
    concentration of large agro-food enterprises in the next 10 years”, envisages M.D. Ramesh,
    major regions and countries of Africa President and Regional Head – South and East
    underscores the importance of the size of a Africa. Not only does the company span the
    target economy as a criterion for doing business. globe, it also integrates entire supply chains into
    its management strategy. Olam taps into
    Asia Venturing into African Fields sourcing, processing and distribution of raw
    materials such as cocoa, sugar, beans and nuts.
    Petroleum and metals from Africa have been in The potential of the continent is well recognised
    high demand from Asia, boosting Africa-Asian and reflected in the company’s portfolio: 27 per
    trade relations. At the same time, agro-related cent of total sourcing volume comes from Africa
    products have taken an increasing share in the where 29 per cent of sales turnover is
    trade flows between the two continents. The generated.
    world’s two most populous countries, China and
    India, are among Africa’s most important export Rice extension farming in Nigeria and
    markets for agricultural products, accounting for outgrowers’ programmes in cashew processing
    about 7 per cent of world agricultural imports in Tanzania and Mozambique exemplify Olam’s
    from Africa. approach in linking farmers to its supply chain.
    In these countries, the company supports
    Their relationship, though, goes beyond that of farmers through extension services, providing
    mere imports and exports: Asian agribusiness training, buying back produce, acquiring farm
    companies invest directly in the African equipment, etc.
    continent. Such a strategy has been adopted by
    the Currimjee Group, based in Mauritius. From a Olam boasts of the employment it generates:
    commodity-trading company back in 1890 when 5 200 outgrower farmers are employed in
    it was founded by an Indian entrepreneur, the Nigeria (compared with only 1 000 in 2005);
    Currimjee Group later diversified into the 5 500 women work in cashew processing in
    distribution and services sector across various Tanzania and 3 000 employees are based in
    African countries. Bottling, marketing and Mozambique (in both these cases, thousands of
    distribution of Pepsi Cola and mineral water are incremental jobs have been created since 2005).
    some of the activities carried out by the group. In addition, Olam plans to “support 50 000
    farmers through rice-farming initiatives by
    Olam International, founded by the Indian 2010”, says Ramesh.
    diaspora in Singapore, spreads across 24
    countries throughout Africa and “plans to
    expand its coverage to 10 more countries in the
    next three years and to the whole continent in

    Further reading:
    OECD DEVELOPMENT CENTRE (2008), Business for Development: Promoting Commercial Agriculture in Africa, OECD
    Development Centre, Paris.
    Five detailed case studies (Ghana, Mali, Senegal, Tanzania and Zambia) are available at:
    www.oecd.org/dev/publications/businessfordevelopment

    *
    The authors would like to thank M. D. Ramesh (Olam), Christine Thompson, David Grant and Eric Leong
    (SABMiller), Richard Morgan (Unilever), and Ben Guest and Karin Mueller (British American Tobacco) for their
    valuable insights provided during interviews.

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