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Will Revamping Africa’s Seed Industry pay Dividends?

Most small holder farmers lack easy access to affordable, quality maize seed. 
Establishing an efficient and sustainable seed supply system is a critical prerequisite for agriculture led development since seeds are the single most essential input in crop agriculture. They are the carriers of genetic potential of plants and determine the upper limit on yield while other inputs such as fertilizers and crop protection products simply build the environment enabling the plant to perform productively.

Both multinational seed companies and a growing number of small and medium seed companies are critical elements in the service delivery chain to Africa’s smallholder farmers since they provide the mechanism for technology dissemination and adoption, a source of innovation along the value chain, providing alternative income through crop diversification and a means for the advancement of women who produce over 70% of Africa’s food crops.

According to International Seed Federation statistics, the global seed market is estimated at USD 30 billlion and Africa commands only 3% of this at USD800 million largely concentrated in Eastern and Southern Africa, Egypt, Nigeria and Senegal. Although the African seed market is largely conventional, there is gradual increase in adoption of biotechnology in the cotton, banana and plantain seed sub-sectors.

A major study by the International Maize and Wheat improvement center (CIMMYT)  shows the need for active investments in Africa’s seed sector. Despite strong growth in the private seed sector in East and Southern Africa over the last decade, most of the regions millions of small holder farmers still lack easy access to affordable , quality seed of maize, the number one food staple.  In 2006 – 2007 cropping season, registered companies produced the bulk of just over 100,000 tons of improved maize seed that were marketed in the region, enough to sow 35% of the regions maize lands.

The farmers who don’t purchase fresh seeds are therefore using unimproved home saved seed and losing out on potential yield. Since the start of this century, efforts have been put in place to harmonize seed policies and laws in Eastern, Southern and West Africa. The core objective of this initiative was to improve access to seed by smallholder farmers because the seed industry in Eastern and Central Africa was facing many different standards and regulations in each country which translated into high transaction costs.

The high cost coupled with relatively low effective demand made the sector unattractive to investment to either local or international seed companies.  Harmonization of seed policies and regulations among the countries of the region was expected to help establish a common market with an effective demand large enough to induce needed investment and create the competition required to establish sustainable and efficient seed industry in the three sub-regions. The harmonization initiative addressed 5 specific areas where constraints existed: Variety evaluation, release and registration; Seed certification; Phytosanitary regulations; Plant variety protection and Import export regulations.

Progress has been made to harmonize seed standards and regulations at different levels in the three sub-regions but implementations of agreements have been very slow by the policy organs.  Seed associations in the region have been generally weak in advocating for and overseeing implementations.  Instead adoption rate of improved seed is low with numerous factors limiting seed market development

1) Unavailable /inadequate extension service and production risks. The smallholder farmer category has limited production skills in high input farming. Even when productivity-enhancing inputs are availed to them, they cannot realize their full production potential unless extension service is provided which is unavailable in most of rural Africa or where available they are inadequate since extension agents/workers are too few to match the number of dispersed small farmers. This leads to very low adoption rate of seed based technologies that in turn hampers seed market development. This is compounded by their vulnerability  to production risks as drought and floods which are becoming frequent  

2) Access to finance.  Commercial banks all over Africa consider agricultural investors to be high-risk clients. This problem is aggravated in emerging seed markets by the absence of financial institutions focusing on addressing the financial needs of the small and medium enterprises. The entire seed supply chain from seed companies to distributors and rural stockists find difficulties in accessing finance for expansion or to put up agri-input shops and stock adequate seed. Small and medium enterprises with limited collateral  in which category the entire seed distribution system falls that seeks to raise USD 50,000 and above in capital have nowhere to go for financing. They constitute the missing middle or the gap between micro-finance and large-scale finance. So the critical constraint limiting seed enterprise development and growth is rarely the lack of funds to lend from financial institutions but rather limited access to available funds.

3) High cost of finance. In the few cases where entrepreneurs access finance, the high cost of finance in African economies with interest rates ranging from 18% - 25% in urban areas and 28% - 40% in the rural areas makes it difficult for emerging entrepreneurs to grow their business.  Such high interest rates, coupled with the unwillingness of banks or micro finance houses to lend for agriculture and agribusiness and the issue of stringent collateral requirement are detrimental to seed market development.

4) Failure of a commercial-scale farming industry to develop. Small holder farmers on average have limited production Knowledge with subsistence  based production cultivating on average of 1 – 2 hectares and depend on family labor.  Because of their low literacy, they also have limited production knowledge of modern technologies and rely on traditional cultural practices. They produce mostly for domestic consumption and unless benefits are clearly demonstrated, they do not adopt new technologies.  Small holder farmers on average have limited production Knowledge with subsistence  based production cultivating on average of 1 – 2 hectares and depend on family labor.  Because of their low literacy, they also have limited production knowledge of modern technologies and rely on traditional cultural practices. They produce mostly for domestic consumption and unless benefits are clearly demonstrated, they do not adopt new technologies

5) Inconsistent legal and regulatory framework. There is no legal framework for the new business environment stemming from globalisation. This is underscored by the fact that many African countries that are WTO members are under obligation under TRIPS (Trade Related Aspects of Intellectual Property Rights) to have in place a sui generis system or UPOV compliant legislation for the protection of their plant varieties by January 01 2006. Many of these countries notably Uganda, Ethiopia, Sudan have failed to meet this deadline and cannot attract new investments in their seed sector because breeders and seed companies prefer to invest where their new varieties can find legal protection. Weak regulatory enforcement hampers seed market development because emerging seed companies and agri- input dealers cannot be protected from unscrupulous traders who disseminate counterfeit seed varieties undermining farmer confidence and snatching market share. Regulatory enforcement bodies should act as watchdogs against abusers of liberalization and ensure investors in the seed sector get their return.

6) Absence of human capital. The agri-input industry is in transition in most parts of Sub Sahara Africa and because of it, marketing skills, business acumen, financial management and the technical know how needed to make input markets function properly are severely limited. Shortage of human capital in many of the emerging seed markets has prevented the private seed sector from integrating into the world seed market because of the absence of both institutional and human capacity to obtain accreditation to international seed certification schemes as OECD (Organization for Economic Cooperation and Development) and ISTA (International Seed Testing Association) The increasing number of seed companies in these markets continue to rely on the public sector for the certification of their seed products and yet this public sector is frequently dogged with financial constraints and does not have adequate number of trained personnel to meet the certification needs of the emerging seed companies.

The African seed industry has a key role to play in integrating Africa’s predominantly agricultural economies into world markets. Strategies that can help to reverse the declining trend include adopting the Integrated Agricultural Research for Development (IAR4D) approach,  having  policy and business frameworks that improves access to finance by focusing on mitigating the risks and transaction costs of commercial banks servicing seed companies / agri-input sector, access to credit by small holder farmers and micro enterprises. Developing sound agricultural policies that are integrated into poverty eradication strategies and thereby creating conditions for farmers to adopt existing and emerging productivity enhancing technologies including biotechnology. Supporting investment in research in food crops, high value crops and research that increases value addition in primary commodities exported from Africa. Financial and non financial institutions should encourage innovation and support programs that develop the capacity of women to engage in the agricultural entrepreneurial process.

By Josephine Okot
Josephine Okot is the CEO of Victoria Seeds Ltd.

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