How can Mozambique’s agricultural sector progress? In July, African Business held a series of agriculture-focused roundtables in Mozambique bringing government, the private sector and other actors in the agriculture space to discuss ways to derive more value from the sector in Mozambique.
Mozambique is comparable in size to Turkey and three times the size of the United Kingdom, but although there have been some success stories, such as cashew nuts, the country is a net importer of food. It has the potential to develop its agriculture and agro-processing industries but the solution will not be simple, as we find out from this discussion between a number of experts on the country’s agricultural sector.
African Business: Let’s start with the private sector perspective.Eduardo Sengo, Director CTA, what are you hearing from them? What’s stopping them from investing into the agriculture sector?
Eduardo Sengo: With regard to agriculture and agribusiness in Mozambique, many private sector [individuals and companies] mention issues such as access to finance, product certification, quality and market access. However, there is one essential element in this chain that we have noticed is still not working effectively: the processing industry.
In recent weeks, we have visited a few companies in the provinces and familiarised ourselves which some of the projects that they have been developing. We went to Inhambane and saw how production of cassava is growing because there is a company which is processing cassava, which in turn is creating a market and farmers are being encouraged to produce more.
We witnessed the same situation in the province of Nampula and here in Maputo with regard to sugar cane. In Inhambane there is a fruit project which is enabling approx. 40% of the mangos (as well as bananas, coconuts and pineapples) being produced to be processed into dried fruit for sale on the domestic market as well as for export. This is enabling small-scale farmers to get more involved in the production of these types of products as there is a market for them. So what actually is the market? It is the industry which enables preservation, collection, processing and consequent adding of value, including packaging, so that the products can then be moved to other locations.
However, it must be understood that part of this industry did not emerge under normal commercial market conditions but instead is the result of a kind of “sponsorship”, i.e. where an institution or the government itself provided some real incentives, either in terms of financing or equipment. The same can be said for electricity. This entire industry does not depend on the electricity supplied by EDM but in fact uses its own electricity. For example, DATCO in Inhambane uses diesel for its processing and provided us with estimates which show that if it were to use the national grid its operational costs would fall by 50%. The structural conditions around the industry need to be addressed.
African Business: You raise a number of points, and one is the issue of the chicken and the egg. What comes first? Do we develop the processing industry or do you focus on the farmers? Let me get the perspective from OLAM, who operate across the value chain, upstream, midstream, downstream, across 70+ countries. And maybe we can take an existing crop, the cashew nut for example, where Mozambique has got some comparative advantage and a crop that is being processed in the country. So, the value chain does exist there but how did we get there and what we can learn from it and replicate with other crops?
Sridhar Krishnan, Senior Vice President and Cluster Head, Olam, East Africa: Just to pick up from my colleague in CTA who talked about what should come first, should it be industry, or should it be the smallholder farmers. We started the meeting by saying that more than 70% of the population is involved in some form of agriculture or agri processing. So, the bulk of the people who are involved are in smallholder agriculture. And as a company, we are operating in 70 countries globally and in Mozambique also, we are operating for the last twenty years and largely operating with smallholder agriculture.
Just to give you the example of the cashew nut and the cashew value chain. So, we are today the largest processors of cashew nuts in Mozambique. We process and export almost 20% of the country’s crop. So, how did this all happen? Clearly, it all started off with a very positive policy framework for the industry. Mozambique is probably one of the few countries in the cashew growing world which has a very, very supportive policy for the processing sector, which means there is clearly support for the industry and it is clear the policymakers want the processing business to succeed.
If you look at it over the last 15 years, the cashew crop has almost doubled. So, doubling of the cashew crop is straight away impacting the processing sector that means jobs are doubled. Secondly, the growth has also impacted the farming sector because many more farmers have got involved in the cashew sector. And clearly, when we look at the jobs, 95% of the jobs which are created are in the rural areas and the entire jobs that are created are for the women.
What can we really work on? We can do some basic things, like we keep talking about GAP – good agricultural practices. Just to share with you some data. Across the border in Tanzania, 1% of the cashews that are harvested and grown by smallholders is rotten. This rot happens only because you don’t take care of the crop well. Here and in other countries that figure is closer to 5%. It is a huge difference because that original 4% is just wasted, it is just thrown, so it has a straight impact on the revenue for the farmer. This can be easily sorted out by just handling it well.
When we talk about good agricultural practices, I’m not even entering into insecticide, pesticide or growing methods, it is “simple” changes so that you are able to implement so that when [the cashew] drops you ensure that it is picked right, at the right time, stored in the right way and delivered to the market in the right method.
Let me tell you what we are seeing in the cotton sub-sector where we also operate. There is clearly a great policy, a great framework, a great industry but it is just not growing. It is not growing, because again, it needs to address one critical issue, which in this case is about getting the right planting seed to the farmer.
I will give you examples from across the border. In Zimbabwe, the farmer pays $1,600 per ton of planting seed to plant the cotton and here, the farmer pays nothing. So, if you pay nothing, you won’t get anything right? The planting seed that we give to our farmers is 20 to 30 years old. A 20 to 30 years old planting seed will only give you that kind of yield and hence, it impacts the yield, it impacts the revenue, it impacts the industry, it impacts everybody. Again, a very good sector, very good policy, a very good working environment but we just need to fix something like that.
Eduardo from CTA says the farmers need markets and we need to develop our processing industry – absolutely right. We have a processing industry in the form of edible oil; we process edible oil but 40% of the country’s edible oil that we are today processing, all in the entire industry, is soya bean oil. So, what do we do? We import soya bean oil from Argentina, we refine it, pack it, and distribute it in the market. What do our neighbours do? They have their own soya bean production. Can soya bean grow locally here? Easily it can grow here. In fact, as Olam, we have the help of CTA, we are partnered with the Zambezi Valley Development Agency to push for soya bean production… Because soya bean is grown in Mozambique. It is a very small quantity, but it is grown. How much is soya bean grown, we grow about 15,000 to 20,000 tons of soya bean seed. How much do we need? We need 1.5 million tons of soya bean. Can we grow this? Why not? We have land, we have smallholders, we don’t need any commercial farmers from anywhere, we just need to venture that. Is there a market? Yes, there’s a market? Who is consuming? We all are as Mozambicans.
So, clearly there is an example of a great framework like cashew and cotton. It has taken off well and it can grow into greater heights. There is an example of processing industry, like the edible oil processing industry. Can edible oil seeds be grown here? Yes, it can be grown here and there’s a market here for it. It is possible, we just need to really put our act together and give the right direction for these businesses to make it a success.
African Business: Thank you Sri. We’ve got Dr Nicolau Sulu from the Ministry of Industry and Trade. He’s a director for private sector development and I wanted to hear his thoughts and comments on what Sri and Eduardo from CTA have said and also your thoughts on industrialization and import substitution. We’re hearing that Mozambique is importing soya bean. So, it seems like a classic case of we should be growing this ourselves, if we have got the competitive advantage and we know we’ve got climate and soil for it. Why aren’t we doing it?
Nicolau Sululo, Director for Private Sector, Ministry of Industry and Trade, Mozambique: I agree with CTA when they say that agriculture is the bedrock of our people and, as such, the government needs to adopt policies to better capitalise on this area of the country. Our “Industrial Strategy Policy” which contains an extremely important component which is the issue of added value. We have a very clear vision for the development of value chains here and have projects and programmes in place but there is still a lot to be done. This matter of the value chain is key as it will not only enable the country to industrialise the raw materials which are widely produced domestically but will also enable our production to be more competitive on the global market. As we heard here, there are concrete examples in the industrial area of cashew processing [from which we can learn].
African Business: So how do we go about it to encourage more investment?
Sululo: There are many ways in which the government could encourage more operators and investors to become involved in the process. The adoption of incentives for specific sectors deemed to be strategic sectors could be one option but I don’t know if there is still time to be implementing policies for subsidies in this country in light of the country’s current economic climate and the commitments which the government has with international institutions. I don’t know if we would be able to implement policies for subsidies. However, the adoption of agricultural incentives could be an option. We are open to dialogue with the different stakeholders and have had various debates with our colleagues from CTA. The area of agribusiness has been worthy of special attention in this regard. In our matrix of priorities which we have agreed every year with CTA, the sector has been providing proposals for the government to take executive measures which could encourage more investors to take part in this process.
African Business: Dr Mucavele, Is there anything else you’d like to add to what Dr Sululo has just said?
Carlos Mucavele, Advisor to the Minister of Agriculture of Mozambique: Thank you very much for inviting us to this forum which is extremely important not just for agriculture in Mozambique but agriculture all over the world. I would like to quote the Minister for Agriculture who said that the economy is not experiencing provincial or regional competition but global competition. We need to compete on the global market. Previously, we had to distinguish between two systems: centrally planned economy and market economy. And, as such, developing agriculture requires us to define parameters which make us globally competitive and, in Mozambique, there is the clear case of the cashew sector which my colleague was talking about.
I have worked a lot in this sector and have seen how successful we can be when there are favourable policies in place, which is key. This is what enabled Mozambique to now become Africa’s number one cashew processor. And I am very proud of this and believe it can inspire us to roll out this experience for other crops. The point I am making now is: why is this still not happening with other crops? Don’t we have favourable policies for other crops? I’m going to refer to the example of soya beans to demonstrate the differences in policies that exist.
We are seeing success with soya beans because of the huge initiative by TechnoServe which could be rolled out and replicated for other crops. TechnoServe selected a group of farmers and provided them with a range of support measures including subsidised credit, technical assistance and research and that group of farmers increased their production from less than one tonne to two or even two and a half tonnes. Now, soya bean production in just one district fulfils more than half of the industry’s demand.
We need to adopt an approach whereby we transform the family-based agricultural sector and, sometimes, we make the mistake of choosing rather ineffective policies and think that we are providing workers for the 4.5 million farms and that this will solve the problem. But it doesn’t because of the problem of dispersion. And why am I bringing this up? During the last steering committee meeting, someone said that a fund had been put in place in order to buy 2,000 tonnes of rice to supply to a plant in Namacurra and the fund ended up being withdrawn because there was no rice to buy. The question is whether there was no rice or whether the rice was dispersed.
Cashews are a good example of wealth which is widely distributed amongst the population. However, this is happening because there is a set of incentives ensuring that the private sector fills the dispersion gap itself and manages to establish itself where production is located. We should develop the synergies between the private sector and small-scale farmers.
African Business: So why has cashew succeeded? What specific interventions yielded the right results, the tipping point?
Eduardo, with regard to cashews, one of the key political points was the existence of guarantee funds which provide access to cashew nut commercialisation resources with low rates of interest. For me, this was the key. The Cashew Act, Act 13/99, prioritises the industry. You cannot export before supplying the industry with a certain proportion of raw materials. Another aspect is the export surcharge. Exporters have to pay a surcharge to sell cashews.
And why did I bring up the example of soya beans? When TechnoServe arrived in Gorué, soya bean production was practically zero. Today, it produces approx. 25,000 to 35,000 tonnes of soya beans. What did TechnoServe do? It said to a group of producers that over a period of 5 years it wanted to beat their record. There were 32 of them and it freed up resources to provide subsidised financing. And it set up a technical assistance network, an efficient group of 3 technicians for 30 [farmers], and provides technical assistance with regard to banking, negotiation of credit terms as well as interaction with the Agricultural Research Institute of Mozambique (IIAM) for research. There are [now] five varieties of soya bean which are being assessed and [where we] are seeing success. My idea here is to replicate this, to scale it up.
Eduardo Sengo, CTA: I think it would be interesting to hear Professor Paulo Mole’s perspective who works at AGRA and has extensive knowledge in this particular field.
Paulo Mole, Country Head, AGRA: In addition to representing the Alliance for a Green Revolution [in Africa] I am also here in my capacity as a citizen. I think that, with regard to the examples that have been mentioned here, what we really need to do is discover what the tipping point is, what has actually been done and what has caused these impacts. In terms of cashews, I think this has already been mentioned, it was the protection given to the private sector which invested in the sector and in order to produce [for domestic agro-processors] instead of the incentive to export. I think it is important to examine this type of protection, the elements of this protection, in detail, and to try to see if they can be used as an example for other crops. I think there is a lesson to be learned there: production wasn’t designed just to ensure local industrial processing but was also to ensure that industrial production was involved in the production of cashew trees. Up until now, a large proportion of cashew nuts which were purchased and exported came from investments made by producers over many years. They need a local industry to serve as an incentive to maintain the cashew trees. The Wanbao case has been mentioned, and even in that case, I think that we need to ask which was the most important factor in ensuring that Wanbao would produce? I think that there was public investment in infrastructure in the Wanbao area which encouraged the producers to be there and that’s why they are now requesting a surcharge, they are requesting another type of protection against rice coming from outside. In the case of soya beans, the dynamics are completely different. They are a cash crop, they have different dynamics in terms of private sector investment to cashews. They have more applications than cashews and rice but there is a series of related industries which are currently sprouting up and we need to ask what type of incentives these industries are implementing in order to make soya beans an important option for producers.
There is no one-size-fits-all policies for everything. It is important to study each of these chains and find out what can be done. Cassava has been mentioned. CDM had invested in other crops and needed cassava but wasn’t going to get it from dispersed family-run farms because the costs were very high but someone came up with the technology to collect cassava, process it locally and transport the paste to Nampula and Maputo. What AGRA did was to work with the Agricultural Research Institute of Mozambique (IIAM) to discover which species had the highest yield rate. There is an element which reduces dispersion. CDM now does not manage to absorb all the cassava which is produced!
The market drives local production. But we’re talking about a market based on a food industry. People don’t eat maize, they eat flour. And if we don’t have a flour-producing industry we are going to struggle to fight the export of maize but this will require a level of quality which currently doesn’t exist. And we have industries that currently import maize from South Africa. We have been teaching producers to produce for 40 to 50 years but to produce what, for whom? This is what we have to understand in order to have a viable industry.
African Business: Does anyone want to react to what Paulo has just said?
Felizberto Dimande, Ministry of Agriculture: I am involved in an FAO project which provides support to small-scale seed producers. I would say that what our producers need is a good handle on technology and this comes from best practice, from using the best materials which ensure the required quality for the industry. This technology is not being provided to the small-scale producers. We live in a globalised world and we can go and get the technology from neighbouring countries. We need triangulation between the producers, those who have the technology and those who need to get the technology to the producers.
The other important issue for driving agriculture is infrastructure. We have a wealth of water resources running to the Indian Ocean and groundwater. And we need to invest in setting up reservoirs and not depend only on rainwater, especially in light of climate change because rainwater is no longer regular. The other infrastructure is access roads to productive areas in order to facilitate the flow of production and the use of railways.
African Business: I want to raise an issue, or square the problem up. We all seem to understand the issues at stake and the constraints. We’re seeing that there’s demand from a company like Olam, for example. You mention that the seeds that are being used [in cotton] are outdated and therefore the yield is poor. But there’s demand in that you’re happy to purchase the product. Why can’t yourselves, the bank, lend the money to purchase the seeds with a certain guarantee from Olam that once the production is there, the products will be purchased at a certain price. Therefore, they’ll be able to pay back the loan. I mean it seems like a relatively straightforward formula to apply. So, I’m intrigued into why this isn’t happening? Providing the farmers funding from the banks and other institutions to buy those inputs, with a certain guarantee that there will be a market for their produce. I think that’s happening in the cocoa sector in West Africa, quite successfully in terms of the trade finance instruments that have been developed for a particular crop. Why’s isn’t it happening in other areas?
Sri, Olam: I think it’s largely to do with who bears the cost of the funding. So, either the farmer has to bear it, or the bank has to bear it, or the government has to bear it. Somebody has to bear it. There are larger economies who subsidise agriculture, just look at the US. So, if I am a bank owner providing a loan and there is always a risk associated with funding, who will provide coverage for that risk? In many economies, it is subsidised largely by the government. The US is the largest producer of cotton in the world and the cotton farmer gets a minimum guaranteed price by the government. It doesn’t happen anywhere else.
Zenadine Delsuco, Premiogrupo: With regard to investors, we need to structure the way that we make information available. We advised a potential investor who was interested in the area of tomato processing but in the end he went elsewhere because there was no satisfactory statistical information for 3 months. And it is a little more complicated who to back, what to protect because consumers are becoming increasingly demanding in terms of quality. Producers have to guarantee quality and regular production. We shouldn’t protect domestic production just because it is domestic. We should protect if it is good quality. I am in favour of incentivising production, not excessive protectionism.
Olman Serrano, Country Director, Food and Agriculture Organisation: There are solutions. The FAO has made a decent contribution to making family-based agricultural sector viable. I will refer to three initiatives requested by the Ministry of Agriculture. One is a project we carried out in the area of agricultural insurance, which was developed by the Instituto do Algodão de Moçambique (Mozambique Cotton Institute) and which involved banks and insurance companies and we managed to carry out this pilot experiment for establishing an insurance system in two or three districts in the province of Nampula. We used a model which involved three ingredients: firstly, a set of production data based on the Annual Agricultural Survey, secondly, agro-meteorological data from the past 50 years to constitute part of the model and thirdly, references with regard to prices. As part of this, we worked with the Instituto do Algodão de Moçambique (Mozambique Cotton Institute) on what is referred to as the Cotton Price Stabilisation Mechanism, whereby if the price applied is lower than the price established, the producer can be compensated. We have learned at the FAO that this system can be supplemented with the e-voucher system, an electronic password, and this creates triangulation between producers, agro-dealers and the banks. We have two packages, one for subsistence farmers and another for emerging farmers, the value of which is higher. Farmers contribute 30% of the value of the kit that they receive. In the previous campaign we carried out analyses and concluded that, for a group which was covered by the e-voucher system, in which 19,500 producers were involved, their contribution reached a value of 750,000 dollars. Funds can be obtained through this type of scheme and the Ministry is interested in rolling it out to other provinces.
Claudia Manjate, Olam Moçambique: There is no one-size-fits-all policy covering the various areas. Olam, for example, works with cotton, cashew nuts, and cooking oil refineries and the approaches adopted for each of these business units are completely different. Oil is a particular challenge. We have two oil processing plants, we fulfil all the necessary requirements, in particular with regard to fortification and we face challenges such as importations and illegal oil. Ultimately we want to achieve [domestic] mass production. What policies and measures can we think of when we talk about cooking oil? We acknowledge that we import crude, we have already mentioned the partnership that we are developing with the Vale do Zambeze agency in order to find out how we can produce more soya beans domestically. We are one of the companies that imports rice but we are open to looking at local production and seeing if we can achieve the necessary volumes and then we can discuss producing a local brand and distributing to the domestic market. We are open to this. But, again, we’re talking about dispersion, in terms of price efficiency, and quality. We need to see which other stakeholders we can get involved here and add in order to create a national brand and distribute.
African Business: Thank you all for your comments and contributions. As we can see there is still much to do to achieve a green revolution in Mozambique but there is no lack of will and effort. The three take-home points are: we need more engagement between government, the private sector and other stakeholders, i.e. producers, and that is something that CTA can take forward. One comforting fact is that I see a willingness from the different actors in the industry from whom we’ve heard, to do more – so there is a willingness to be more involved in the agricultural sector. The questions is, how do we translate that willingness into concrete action and investments, and that again requires a better understanding from government to see what is stopping these private sector players from taking that next step, and how do we create that enabling environment for them to be able to do so.
And really the point that I think that you are also trying to make is that the private sector is not the enemy of public sector and the most important thing is about implementation; the need to understand what the market needs and then to work together to actually overcome the problems that are well documented and that we are aware of.
Finally, if there is one area we can work on is data. To make the right decisions, to attract investment, we need to ensure that there is data readily available. And without data, as we have heard, investors will shy away from investing in the country. Thank you all once again, and let’s hope that in a few years’ time we will be able to talk about improved production not just in cashew but in soya beans and a variety of other crops.