Relationship between agribusiness and manufacturing sub-sector

Relationship between agribusiness and manufacturing sub-sector

Throughout the world, the agricultural sector has been identified as essential for the provision of raw materials needed to boost activities and performance of the manufacturing sub-sector. Role of the manufacturing sub-sector in the socio-economic development of countries across the globe cannot be overemphasised.

Manufacturing plays a significant role in the economic success of advanced and emerging countries such as China, the United States of America (USA), Japan, Germany, South Korea, India, Italy, France, United Kingdom, Brazil, Indonesia, Mexico, Russia, and Canada (Levinson, 2018), among others. To this end, strategic adaption and implementation of key manufacturing concepts in developing and other emerging economies including Ghana would yield positive dividends.

The Ghanaian economy is categorised into and dominated by three major sectors, namely agricultural, industrial and services sectors. The agricultural sector comprises crops and other commodities which constitute an integral part of agribusinesses such as cocoa and cashew; livestock; forestry and logging; and fishing, among others. Economic activities categorised under the industrial sector include manufacturing; mining and quarrying such as gold, diamond, bauxite, manganese and crude oil; electricity; water and sewerage; and construction, among others.

The services sector of the Ghanaian economy comprises trade; repair of vehicles; household goods; hotels and restaurants; transport and storage; information and communication; financial and insurance activities; real estate; professional, administrative and support services activities; public administration and defence; social security; education; health and social work; community, social and personal services activities (Bank of Ghana, 2019; Ghana Statistical Service, 2019).

Ghutidze (2017) revealed the objectives underlying the European Union’s common agricultural policy (CAP) formulated in 1962 are categorised into three significant parts. These include development of agriculture, provision of market support, and financial aid. The main purpose of this policy is to ensure the availability of food to consumers at reasonable prices; while assuring normal living conditions for farmers. Further, it seeks to assure increase in biodiversity and agricultural productivity; and stable climate. During 2009, the European Union included risk management tools in the common agricultural policy originally developed in 1962.

These tools include the introduction of an income stabilisation tool (IST) to mobilise and provide financial support for farmers who record severe income losses, especially losses in excess of 30% of average annual income; provision of financial support to farmers in insurance premium payments to insure crops and livestock against losses arising from farm and animal diseases, and unfavourable weather patterns; and the establishment of mutual funds to provide the necessary compensation for production losses incurred by farmers owing to unfavourable events related to the environment and climate. Implementation of the common agricultural policy among the 28-member states affected positively the lives and activities of about 12 million farmers; and contributed to the employment of about 4 million people in the food sub-sector.

Agribusiness involves the conduct of agricultural activities and production in commercial quantities. It refers to a group of individuals, companies or industries engaged in the production of goods and services required in farming. Thus, agribusiness involves growing, harvesting, processing, storage, and distribution of farm produce by individual or group of farmers. Agribusiness relates to manufacturing and distribution of supplies and equipment needed for effective operations by commercial farmers; it relates to businesses that market farm products through the activities of retail, wholesale, processing and warehouse.

A Commercial farmer is an individual or organisation engaged in farming with the underlying aim of harvesting in large quantities for sale in the domestic and international markets. A commercial farmer is a sharp contrast to a subsistence farmer who grows essentially to meet his or her home or domestic needs (Chait, 2016). Some organisations whose operations contribute directly and indirectly to the promotion of agribusiness in countries across the globe are Deere and Company, Dow AgroSciences LLC, Archer Daniels Midland Company, Monsanto Company, WH Group, and Agro Africa. Deere and Company is an organisation that deals in farm equipment such as John Deere tractor and baler.

Dow AgroSciences LLC is a wholly owned subsidiary of the Dow Chemical Company engaged in the manufacturing of pesticides, herbicides, and fungicides. It also markets seeds. Archer Daniels Midland Company transports crops to farmers at national and international levels; it processes corn into ingredients such as corn syrup, dextrose and starch; and processes oilseeds like canola and soy.

Monsanto Company deals in the manufacturing of herbicide Roundup (glyphosate) and various genetically modified seeds of Roundup Ready. WH Group is a Chinese Company formerly called Shuanghui International. It owns Smithfield Foods, Incorporated, the largest United States producer of pork. Smithfield Foods, Incorporated, owned and run its own farms.

WH Group remained the world’s largest producer of pork; and China’s largest meat producer (Onuh, 2016; UNIDO, n.d.d). Agro Africa is located in Ghana. It is the country representative for Big Dutchman, a global leader in animal farming technology. The Company sells farm equipment such as tractors, tillers, planters, seed drills, crop treatment, fertilizer spreaders, sprayers, harvesters, threshers, shellers, trailers, silos, millers, dryers, among others.

Agro Africa assists commercial farmers with logistics, including extension services in crops and piggery farming. Activities and operations of the foregoing agribusinesses create the enabling environment for the supply of raw materials needed by the manufacturing sub-sector to boost its performance and contribution to national economic development and growth.

Manufacturing sub-sector activities and related ones constitute an important component of total economic output in Ghana; and in many economies throughout the world. This affirms the need for leaders of various economies including Ghana to pay close and important attention to this component that could positively define and shape their respective economies; and positively enhance national development and growth. In Ghana and many other economies, manufacturing is a sub-sector of the industrial sector.

Ghana’s Industrial Development in Perspective

On 6th March, 1957, Ghana attained independence from Great Britain; and on 1st July, 1960, the country attained a Republican status. Since then several measures have been rolled out by governments to assure massive industrialisation of the Ghanaian economy. Prior to Ghana’s independence, the industrial sector constituted a small segment of the colonial economic system; the colony’s (Gold Coast’s) natural resources were exported to the United Kingdom in their raw state for processing; and finished goods were imported to meet the needs of the people.

The industrial sector under the colonial administration was dominated by the domestic manufacturing sub-sector; and the sector’s contribution to national economic growth was relatively insignificant. Generally, the occurrence or implementation of Ghana’s industrialisation drive could be categorised into three: import substitution industrialisation (ISI) strategy from 1965 through 1983; liberalised industrialisation (LI) strategy from 1984 through 2000; and accelerated industrial development (AID) strategy from 2001 till date (Ackah, Adjasi & Turkson, n.d.).

The import substitution industrialisation strategy which spanned from 1965 to 1983 was inward and provided overprotection for local manufacturing companies. Thus, protectionism was the dominant industrial strategy during the period under review. Protectionism, as the name connotes, ensures the formulation of policies that encourage local manufacturing; while discouraging massive importation of goods. This helps to reduce the level of competition likely to be introduced and posed by the latter. Ghana’s pioneer political administration led by the late Osagye Dr. Kwame Nkrumah perceived industrialisation as the catalyst for modernising the economy; and accelerating its development and growth.

As a result, several programmes were implemented by Ghana’s first political administration to ensure the success of the industrialisation strategy. That is, manufacturing goods locally to substitute for imports. The overarching idea was to reduce Ghana’s dependence on colonial and western influence; reduce the nation’s dependence on primary exports; and reduce the level of poverty, so her intended objectives (modernisation and accelerated development and growth) could be realised within the shortest period.

It was intended to correct unfavourable balance of payments attributable to high imports and low export earnings. Massive transformation of the small industrial sector inherited from the colonial administration resulted in the provision of infrastructural facilities in key areas across the country.

State-owned manufacturing industries dominated the import substitution industrialisation strategy; agricultural produce provided the raw materials needed to sustain production by established manufacturing companies in strategic parts of the country. One of the important considerations under the import substitution industrialisation strategy was proximity to raw materials.

To practically illustrate this important industrial need, most of the processing factories were established close to farming areas with large scale output, so they could provide the requisite raw materials to facilitate production. Industries were established for machinery, electrical, electronic, and building materials. The import substitution industrialisation strategy led to the construction of the Akosombo Dam to generate electricity for domestic and commercial consumption.

Electricity generated by the Akosombo dam was in excess of immediate consumption capacity. The idea was to make provision for energy needs for industrial expansion and development in the medium- and long-term. Similar monumental companies that emerged from the import substitution industrialisation strategy and have survived till date are the Tema Oil Refinery (TOR) and Ghana Cement (Ghacem). Some factories and companies that could not survive till date were the Benso Oil Palm Plantation, Pwalugu Tomato Paste Factory, Bonsa Tyres, among others. The success of the import substitution industrialisation strategy at the early stages manifested in gross manufacturing output figures.

Available statistics indicated the contribution of state-owned enterprises (SOEs) to gross manufacturing output increased from 19% during 1962 to 32% and 42% during 1966 and 1967 respectively (Ackah et al., n.d.; Steel, 1972; Killick, 2010). However, fluctuating contributions were recorded from non-Ghanaian privately-owned enterprises to gross manufacturing during the same period. These manufacturing setbacks were attributed largely to the government’s decision to takeover many of the privately-owned enterprises in the country (World Bank, 1985).

On 24th February, 1966, the Nkrumah-led administration was overthrown through a bloodless coup d’état. The Military government of the National Liberation Council (NLC), led by General Joseph A. Ankrah abandoned most of the industrial projects initiated by the previous regime. In October 1969, the Busia-led administration assumed the reins of government following the conduct of general elections earlier during the same year.

The latter changed the economic direction of the country from centrally-planned to market-based. The latter strategy implied more private participation and less government control over manufacturing and other industrial activities in the country. Thus, there was a paradigm shift from protectionism to trade liberalisation.

The austere economic measures such as development levy, import taxes, trade liberalisation, withdrawal of subsidies, abolishing of free transport and free education, and devaluation of the Ghanaian currency by 44%, among others, introduced by the Busia-led government were short-lived by a Military overthrow on 13th January, 1972. The National Redemption Council (NRC) led by General Ignatius K. Acheampong promised to propel Ghana’s economy to greater heights. The NRC sought to abolish the market-oriented economic approach.

Further, benefits to public sector workers were fully restored; the country’s currency (Cedi) was revalued by 42%; most of the country’s foreign debts were cancelled by the NRC – the regime refused to pay; development levy was abolished; and efforts were made to achieve food sufficiency through Operation Feed Yourself (OFY).

The NRC’s economic measures gained immediate domestic popularity, but later worsened the nation’s economic position. The NRC regime was believed to have been characterised by economic mismanagement. This affected the nation’s foreign exchange earnings; and her ability to import spare parts and other raw materials to meet the growing needs of numerous manufacturing factories and industries across the country (Brydon, 1999; Brydon and Legge, 1996; Nugent, 1995).

During the 1970s, the Office of Business Promotion which was later called the Ghana Enterprise Development Commission (GEDC) was established by the Government of Ghana, as part of the mitigation measures, to provide financial and technical support for manufacturing companies. It was the sole government body responsible for co-ordination and strengthening of small scale manufacturing firms in the country.

In 1981, the National Board for Small Scale Industries (NBSSI) was established through an Act of Parliament, Act 434, to provide training, advice, and loan schemes for small scale manufacturing companies. The NBSSI was established to operate as an arm of the Ministry of Industries, Science and Technology. Ntiamoah, Li and Kwamega (2016) identified lack of adequate funding, political influence and poor remuneration of employees as major setbacks to the successful performance of NBSSI’s role as facilitator of manufacturing improvements in Ghana. And during the same year, Ghana was heavily dependent on international trade and foreign aid for economic survival.

As of 1983, the nation’s coffers were virtually empty; the country was in disarray; Ghana’s economic ranking in the world had shrunk considerably; and the nation did not have the economic and political muscle to be independent of the western economies. Ghana’s economic conditions were worsened further by the Nigerian government’s decision to repatriate over one million Ghanaians in January 1983. The preceding factors subjected Ghana to the dictates of external forces, especially the industrialised (now called advanced) economies (Ahiakpor, 1991; Azindow, 2005; Boafo-Arthur, 1999b).

The second major economic reforms in the annals of Ghana’s history were the introduction of the Structural Adjustment Programme (SAP) under the leadership of the late Flt. Lt. Jerry John Rawlings.

Ghana’s SAP had two dimensions: political and economic. Politically, government machinery must be structured on democratic lines. Thus, the Provisional National Defence Council (PNDC) was to ensure a transition from military rule to democratic rule. Economically, government must embrace market-oriented policies, including privatisation, trade liberalisation, and fiscal discipline, among others.

The SAP is a generic phrase used by the International Bank for Reconstruction and Development (World Bank) and the International Monetary Fund (IMF). Adaption and implementation of the SAP vary from one country to the other.

In Ghana, SAP was launched and implemented under the caption, “Economic Recovery Programme (ERP).” The ERP was launched in Ghana in 1983 under the guidance of the World Bank and IMF. The overarching objective of the ERP was to create the enabling environment for capital creation in the Ghanaian economy; and to improve Ghana’s trade position in the international market while reducing debt to an appreciable level.

The ERP was designed to curb inflation through stringent monetary, fiscal, and trade policies; increase Ghana’s foreign exchange inflows; direct the foreign exchange inflows to prioritised sectors of the Ghanaian economy; restore incentives for production in the economy; restructure economic institutions; rehabilitate infrastructure to increase production and export; and increase supply of essential goods within the Ghanaian market (Ahiakpor, 1991; Azindow, 2005; Boafo-Arthur, 1999a; Boafo-Arthur, 1999b).

Further, the ERP was carried out in three phases: ERP I; ERP II; ERP III. In phase I of the ERP (1983 – 1986), emphasis was on creation of incentives for private production; reduction in government expenditures; improvement in tax collection; reduction in budget deficit (6.3% of GDP in 1982; 0.1% of GDP by 1986); and easing government’s pressure on the banking system. Phase II of the ERP (1987 – 1989) was characterised by divestiture of state assets through privatisation; introduction of more stringent foreign exchange reforms, leading to further devaluation of the Cedi; and introduction of foreign exchange bureaus in 1987 to minimise, if not eliminate, the activities of black market operators.

In Phase III of the ERP (1990 – 1991), Ghana witnessed reduction in private corporate tax; private sector growth; more monetary reforms; improvements in repayments of international debt; improved economic reputation in the international community; and first entry into the international market after over two decades of exit (Ahiakpor, 1991; Azindow, 2005; Boafo-Arthur, 1999a; Boafo-Arthur, 1999b). Implementation of the liberalised industrialisation (LI) strategy was dominant during this period.

These reforms had positive effect on the performance of the industrial sector and manufacturing sub-sector of the Ghanaian economy. Ackah et al. noted annual average growth rate of 11.2% over a five-year period (1984 through 1988) in the industrial sector following an implementation of the ERP. This was significant improvement over the successive three negative growth rates recorded by the industrial sector prior to the launch of the ERP in 1984. However, the industrial sector’s performance took another nose dive from 1989 through 1994.

Findings from a committee set up by the government to examine factors that accounted for the industrial sector’s uninspiring performance identified three significant challenges: local industries that enjoyed protection were overexposed to competition from imported manufactured inputs; exchange rate reforms and liberalisation of the financial sub-sector led to rapid fall in value of the Cedi and corresponding increase in costs of production. Many manufacturing firms met this challenge with production cuts; and most industries could not adjust and restructure adequately due to limited time.

Recommendations of the committee led to the establishment of various bodies by the government to mitigate the potential negative economic effect. Some of these included the Ghana Trade and Investment Gateway (GHATIG) project; Fund for Small and Medium Enterprises Development (FSMED); Export Processing Zone (EPZ); Business Assistance Fund (BAF); Trade Investment Programme (TIP); and the Private Enterprise and Export Development Fund (PEED).

Ghana’s industrial development in the new Millennium is dominated by the accelerated industrial development (AID) strategy. This strategy has been characterised by many government and foreign development partners-sponsored medium-term programmes; and interventions intended to enhance national economic growth through the various sectors, especially the industrial and agricultural sectors.

Some programmes initiated through foreign multilateral financial institutions include the Growth and Poverty Reduction Strategies I and II, which were implemented from 2003 through 2005 (GPRS I) and from 2006 through 2009 (GPRS II) respectively; and the Interim Poverty Reduction Strategy Programme (IPRSP) implemented from 2000 through 2002.

The GPRS I and II sought to orient Ghana’s private sector to the applications of science and technology to enhance the private sector’s participation in and contribution to the performance of manufacturing, industry, and national gross domestic product (Ackah et al.).

It is worth reiterating, following independence from Great Britain in 1957, Ghana’s economy was characterised by the following features: well-developed infrastructure for trade servicing; and world’s leading producer of cocoa. Further, the economy was endowed with natural resources such as gold, diamond, manganese, and bauxite in commercial quantities; and endowed with oil palms in commercial quantities. The economy was characterised by relatively advanced system of education; stability and prosperity; central economic planning; while availability of resources encouraged the adaption and implementation of State-led economic strategy.

Moreover, there was limited room for free trade. However, there were provisions for free health care, housing, and education (Socialist-driven policies); positive economic recognition in the international community; redistribution of national prosperity; agricultural-led economy; State perceived as “mother” and “father” of citizens; and maintenance of an irreversible process of economic, social and political development (Brydon, 1999; Brydon and Legge, 1996; Nugent, 1995).

The Problem

It is estimated the world covers a total land area of 38,575,282,915 hectares. The continent of Africa’s share of this total land area is estimated at 3,037,000,000 or 3.037 billion hectares; while Ghana covers a total land area of about 23,900,000 or 23.9 million hectares. In percentage terms, Africa and Ghana respectively occupy about 7.87% ((3,037,000,000 hectares ÷ 38,575,282,915 hectares) x 100% = 0.0787 x 100% = 7.87%) and 0.06% ((23,900,000 hectares ÷ 38,575,282,915 hectares) x 100% = 0.00062 x 100% = 0.06%) of the world’s total land area. Ghana’s share of the total land area on the African continent is approximately 0.79% ((23,900,000 hectares ÷ 3,037,000,000 hectares) x 100% = 0.00787 x 100% = 0.79%).

Though the second largest continent in the world, Africa’s share (7.87%) of the world’s total land area is relatively insignificant; and less than the total land area of Russia, which remains approximately 11.48% (Mattyasovszky, 2019). Ghana can best be described as a small- to medium-sized country on the African continent. This is affirmed by her (Ghana’s) occupation of less than 1% (0.79%) of the total land area on the African continent (FAO, 2014, n.d.).

Similarly, the world’s total cultivable land area is approximately 4,893,769,600 hectares. The total cultivable land area on the African continent is about 173,000,000 hectares whereas Ghana has an estimated total cultivable land area of 13,600,000 hectares. Africa and Ghana’s respective cultivable land areas translate into 3.54% ((173,000,000 hectares ÷ 4,893,769,600 hectares) = 0.0354 x 100% = 3.54%) and 0.28% ((13,600,000 hectares ÷ 4,893,769,600 hectares) = 0.00278 x 100% = 0.28%) of the world’s total land area available for cultivation purposes (FAO, 2014, n.d.).

Available statistics from the Food and Agricultural Organisation (FAO) (2014) revealed the world has a total irrigable land area of about 324,000,000 hectares; the total irrigable land in Africa is estimated at 38,000,000 hectares; and Ghana’s share of irrigable land across the globe is approximately 1,900,000 hectares. Respectively, the total irrigable land area in Ghana constitutes about 13.97% ((1,900,000 hectares ÷ 13,600,000 hectares) x 100% = 0.1397 x 100% = 13.97%) of the country’s total cultivable land area; and 7.95% ((1,900,000 hectares ÷ 23,900,000 hectares) x 100% = 0.0795 x 100% = 7.95%) of the nation’s total land area.

This implies a significant proportion of Ghana’s total land area is conducive for agribusinesses; and fertile for general farming and related activities on subsistent and commercial scales.

Further, the foregoing implies Ghana’s agricultural sector has the potential to provide the requisite raw materials to positively affect contribution of the manufacturing sub-sector to national economic development and growth. However, one observes fluctuating contributions of the manufacturing sub-sector to national economic development and growth in recent years.

The imminent question is: why is the manufacturing sub-sector’s contribution to Ghana’s national gross domestic product (GDP) relatively low when the economy has the potential to produce the raw materials required to improve on its performance?

The general management problem is inability of leadership to efficiently and effectively harness resources to assure significant contribution of the manufacturing sub-sector to national economic development and growth. Though evidence of this phenomenon exists, there are limited scientific studies to establish, clearly, the implications of the manufacturing sub-sector’s performance for Ghana’s industrial sector development and growth, and GDP; and for Ghana’s contribution to total manufacturing values at the global level.

The specific management problem is how leadership could identify potential manufacturing and agribusinesses, the requisite raw materials; and provide the necessary support through public-private partnerships and other interventions to accelerate the manufacturing sub-sector’s performance; its relative contribution to industrialisation drive; and to national economic development and growth.

The foregoing makes it imperative for experts in the subject area to consistently develop strong interest in the conduct of empirical research to examine how the activities of contemporary agribusiness could be effectively harnessed to provide the requisite raw materials to feed the manufacturing sub-sector to improve on its performance; and to contribute meaningfully to growth of the Ghanaian economy.

This empirical initiative could be replicated by experts in countries at various levels of the global economic development strata: least developed, developing, emerging and emerged or advanced economic development levels.

Author’s Note

The above write-up was extracted from an earlier publication on “Role of Agribusiness in the Development of Robust Manufacturing Sub-Sector” by Ashley and Gyekye (2021) in the International Journal of Business and Management.

The writer is a Chartered Economist/Business Consultant.

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