The Structure of an Agriculture Industry

I have been in Ghana now for one week, and think that it is time to give an update on what I am doing here.   I will be working on the ADVANCE project, which has the lofty goal of establishing an effective value chain in the agriculture industry.  It is a four-year, USD $30 million project with about 100 staff, including a mix of agronomists, business development people, rural finance specialists, and a handful of outside consultants providing support.  To describe the project requires providing an overview three dynamics:

  1. The structure of an agriculture industry
  2. The state of the current agriculture sector in Ghana
  3. The specific challenges in the West African context.

I will address each of these topics in three posts, beginning with an overview of how the agriculture sector works.

The term “value chain” refers to the pathway that crops take in their journey from the ground to your plate, or your wardrobe, or the tires of your car.  The farmer plants the crops and tends to them sporadically throughout the growing season.  With sugar in the Philippines, the growing season is nine months.  During the first two months, the farmer spreads fertilizer, sprays the crop with pesticides and fungicide, and weeds the plot.  He then lets it sit for six months before harvest time, which lasts one month.   The amount of inputs (fertilizer, pesticides, etc.) and mechanization used by the producers depends on the location.  Most farmers in sub-Saharan Africa (SSA) are smallholders, managing less than two hectares, on average.  In contrast, the average farm size in the U.S., which is dominated by corporate giants like Archer Daniels Midland and Cargill, is 431 hectares.  These economies of scale give American agribusiness a big advantage on the global market.

The next step is processing.  In the case of a crop like maize or rice, the product must be milled to remove the husk.  In the U.S., corporate farms are typically vertically-integrated, meaning they process and mill their own products.  In developing countries, where most farmers are small-scale, farmers have two options.  If they are large enough, they can sell directly to a mill.  Most do not produce adequate yield to deal directly with the processors, and choose instead to sell their product to an aggregator, who works with several hundred farmers, functioning as a middleman.

Next, the refined product must be sold to a wholesaler.  The processor may also market the product, selling to a network of buyers.  Other times, a farmer’s association or marketing board will take responsibility for bringing the crops to market.  The wholesaler distributes the products to smaller retailers, like supermarkets and restaurants, or prepares it for export.  These five types of businesses – producer, aggregator, processor, wholesaler, and retailer – are called “value chain actors,” and they comprise the agriculture supply chain.

There are other value chain actors that do not participate directly in bringing the product to market.  Input dealers supply fertilizer, pesticides, fungicides, and seeds to farmers to increase yield.  Mechanization dealers provide tractors, milling machines, and other tools to improve productivity. And financial institutions supply the capital to the entire system that functions like oil in an engine, facilitating and smoothing the process.

These are the primary actors in an agriculture supply chain.  In my next post I will give an overview of the economy of Ghana and its agriculture industry in order to provide further context about what Technoserve’s work here.

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About Josh

"Josh Weinstein is a visionary. I read his blog every day." - Bono
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One Response to The Structure of an Agriculture Industry

  1. Sinead O'Connor says:

    I can’t believe you’re talking about my hair with all the bloody starvation and suffering in the world right now.

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