The Importance of Having a Market in Agriculture

The pineapple sector in Ghana is interesting.  Unlike maize, rice, and, to a lesser extent, soyabean, which are all considered staple crops, fruits, including pineapple, mango, and citrus (oranges) are cash crops for which there is an export market.  In mango, for example, there are a few companies and independent traders (usually Lebanese) with export markets in the UK, Europe, and the Middle East.  More often than not, exporters in the country are either foreigners or Ghanaians who have lived abroad.  The reason for this is simple: the person with the most leverage in this industry (aside from the massive retail supermarkets who can literally sink an industry in a matter of years) are those with access to markets.  Production is cheap, and production is easy.  It is finding someone to buy your products that is the hard part.

For the last four decades, agriculture aid in Africa has revolved around training, capacity-building, and mechanization.  Bring tractors and train the hell out of the farmer to use them.  Give them fertilizer and teach them how to apply it properly.  Unfortunately, these approaches rarely take into consideration where all those increased yields are going to be sold.  What inevitably happens is that supply grows faster than demand (or at least people/companies who know where demand is and have the money to buy the materials to supply it), which drives the prices down.  Rural smallholder farmers tend to be poor and have nonexistent cash flow, so they cannot store their products during the high season and sell for a higher price during the low season.  Instead, they have to unload all their product at a lower price, and maybe end up with less money than they had before.  The banks who ended up financing all the fertilizer for the production usually end up writing off the loans, because the farmers aren’t making any more profit than they did before.  The end result is an agriculture sector that doesn’t work.

The key factor is the market.  That is what aid projects have gotten wrong all these years.  If you build it, they will come.  If you provide a strong market with consistent buyers, farmers will grow and banks will lend.  In the pineapple industry, however, this can be tricky.

First, some background on the industry.  The country used to have a fairly strong pineapple sector.  The main variety grown was called smooth cayenne, and it had a good market in the EU.  West Africa was competitive in the EU markets because of its proximity by air.  At some point, it lost its edge a bit when the industry switched to sea freight shipping, which closed the gap between Ghana and Costa Rica.  But the real knife in the back of the industry was when Del Monte Foods created a new variety in Costa Rica called MD2, which became the preferred variety of the supermarkets in Europe (translation: the preferred variety of Europe).  Ghana (as well as Cote D’Ivoire, which dwarfs Ghana’s pineapple industry) was caught off-guard, so they scrambled to switch from smooth cayenne to MD-2, but didn’t realize that the climatic and soil conditions were not ideal for growing MD-2.  The end result was that the pineapple industry collapsed (somewhat) and has never really recovered.

Goodbye West Africa. Hello Costa Rica.

There is one major processor/exporter in the country.  It is called Blue Skies, and it is the sun of the pineapple galaxy in Ghana.  The company was started by a Brit, and it has factories in Ghana, Egypt, and South Africa.  It has a strong market for fresh cut pineapples in the UK and other European countries.  They have been around for about 15 years and have set up a very good operation.  The company uses outgrowers (farmers who grow pineapples exclusively for purchase by Blue Skies), with whom it has been with for years.  It has a few agronomist who inspect the fruits every day, and provide training to the farmers when needed.  They provide financing for inputs (fertilizer, mechanization, etc.) and have contracts to buy a certain amount of fruits from each farmer.  As a result, the Blue Skies farmers have grown from small to large and become rich.  The market is guaranteed, the support is there, and the banks trust the farmers to repay since they have contracts with a specific buyer.  Blue Skies sponsors its farmers for Global GAP certification, which is required for sale in the EU markets.  The company, in turn, gets its pineapples regularly, which it transports to its factory, cuts up in its processing facility, transports it down to the port in Tema via cold-storage truck, and flies to the UK for sale on the supermarket shelf.  At 9 AM today, there was a pineapple sitting in a field somewhere in the Eastern Region of Ghana that was planted 15 months ago.  By 9 AM tomorrow, a tray of vacuum-sealed pineapple chunks (the butchered remains of said pineapple) will be purchased by a housewife in suburb outside of London.  This is how a successful chain in the agriculture industry works.

In the rest of the industry, there are a handful of other processors engaged in pineapple, a large and disparate group of small-scale juice processors who are manufacturing out of two-machine factories next to their homes, and market “queens” who come with trucks and buy up all the excess for sale on the local market.  Unfortunately, some of these markets are tenuous and it is difficult to build a solid chain around them.   The industry could use another Blue Skies.  But as long as Costa Rica is producing one and a half million tons of MD2 with the efficiency of Deep Blue, the market will remain daunting.

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"Josh Weinstein is a visionary. I read his blog every day." - Bono
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