Abstract

Worldwide, the utilization of agro processing sector offers potentials for economic and social benefits including employment creation, income generation and reduction in postharvest losses and overall economic growth. Their impacts vary from country to country and from one product to another. This dissertation is aimed at assessing the contribution of agro processing sector on the economic growth of Cameroon, the case of coffee cocoa and palm nuts”.

Specifically, it examined the trend of coffee, cocoa and palm nut processing sector in relation to economic trend of Cameroon, To assess the individual impact of the cocoa, palm and coffee agro processing sectors on the economic growth of Cameroon and To assess the combined impact of the coffee, cocoa and palm agro processing sector on the economic growth of Cameroon.

The research made used of time series data obtained from the World Bank Development Indicators and FAO data base from 1980-2013 and made used of the ordinary least square technique to estimate. The result revealed that coffee processing sector had decreasing trend since the 1980, while the palm nut industry has an upward sloping curve.

Further empirical result shows there is an overall positive and significant effect (1% confident interval) (pro>F=0.000) of the agro processing sector on economic growth of Cameroon with Adj R value of 0.5970. Considering individual industries, coffee processing had a negative and significant (10%) effect on GDP with the other two having positive effect on GDP.

It is concluded, agro processing which is still at its growth stage in Cameroon though it has significantly contributing to economic growth, for the sector to acquire maximum gain, the government should set up farm settlement schemes with necessary infrastructure, favorable business environment that encourages investment in the agro processing sector especially the coffee industry that needs to be revamped.

CHAPTER ONE

INTRODUCTION

1.1Background to the Studies

Industrial growth is a vital pathway to economic development with multiplier potentials of significantly reducing poverty in the African continent. Unfortunately, African economies are dominantly narrowly focused on agricultural production and mineral extraction, generating limited incomes for a largely rural population.

The promotion of micro, small and medium-sized enterprises to further process the primary products generated from these sectors would provide alternative livelihoods for rural communities, empower citizens and generate employment opportunities as well as stimulate growth in the agriculture and services sectors(UNIDO, 2004).

As such, industrial growth is an indispensable pre-requisite of sustainable development. Most development forums focusing on development in Africa have endorsed this. For example, the New Economic Partnership for African Development (NEPAD) endorsed by African Heads of States and Governments.

It emphasize that African countries must diversify their economies away from their dependence on primary production and a narrow export base. It furthermore emphasizes that the logical starting point for doing so is to “harness Africa’s natural resource base and increase value added in inter alia agro- processing and that diversification should be based on strong inter-sectorial linkages” (UNIDO, 2004).

Several studies have shown that conditions for dynamic agro-industrial development and the promotion of agribusiness in Africa are yet to be achieved, but that there have been some progress made towards this end (FAO,2008; OECD/DC, 2013; Larsen et al.,2009, UNIDO, 2011). Thanks to greater effort to the work of the Comprehensive.

Africa Agriculture Development Program (CAADP) which was launched in 2003 and steered by the New Partnership for Africa’s Development (NEPAD) of the African Union (AU). CAADP, supported by some of Africa’s development partners (like the Bill & Melinda Gates Foundation and the Kofi Annan Foundation as well as the traditional multilateral and bilateral partners), Policy interest in developing African agriculture has risen in recent years.

Through these policies, most African countries have succeeded in raising awareness of and support for agricultural transformation. During the AU’s Summit of AU Heads of State and Government (in Malabo, Equatorial Guinea in June 2014) under the theme “Agriculture and Food Security”, calls were made for agricultural transformation on the continent, the importance of making agriculture attractive to the continent’s youth, of which agro processing was highlighted.

The time is therefore right for coming up with practical solution to the challenges of African agricultural transformation to help translate this clear policy intent into action (African Transformation Report 2015)

A good summation of the (Agro Processing Summit of 2015) indicated Africa is dominatedby agricultural sector, thusmaking the continent a prime location for the establishment of agro processing industries.

Processing of food adds value to agriculture and edible animal products by grading standardization, packing and preserving of produce so that products could be formed in such a way that they can be sold in market of the country and abroad.

It sees agro processing as being very vital since it creates employment and helps in import substitution, foreign currency earnings from exports of processed products. The agro processing value chain has high multiplier effects on the economy.

Agro processing is known for its potential to spur growth and create jobs because of its strong backward linkage with the primary agricultural sector. Agro processing is in essence manufacturing as it processes raw materials and intermediate products derived from the agricultural sector.

African governments and the private sectors need to develop concerted efforts and strategies to support agro processing ventures since they convert raw materials into manufactured products and reduce the number of farmers practicing at subsistence level.

Agro processing in Africa is in the hands of the few conglomerates and this effectively closes doors for aspiring small holder farmers and small business to benefit from the earnings that agro processing has to offer.

Agro processing can succeed if farmers and agro processors were able to access the requisite funding to embark on sustainable ventures. Investment, ICT, access to markets as well establishing and enabling environment also play a crucial role in making agro processing a success story. (Agro Processing Summit, 2015).

Despite the efforts of most SSA countries to achieve greater economic diversification, agriculture continues to dominate the economies of the majority of member countries. The majority of the economies in the region are agriculture and natural resource based, with up to 80 percent of the population in the SADC region, 48 percent in East Africa, and 50 percent in West Africa being dependent on agriculture for subsistence, employment and income (EIA, 2007).

Agro-processing sub-sector in SSA has experienced diverse significant growth since the 1990s. The expansion of processing sector witnessed by SSA is as a result of foreign direct investment (FDI) from relatively rich countries, such as South Africa, into the smaller and/or poorer countries (Reardon & Berdegué, 2002; Reardon et al., 2003).

In addition to FDI, urbanisation and concomitant food diversification have increased opportunities for the processing sector in SSA. The development of the industrial agro- processing sector in Western and Central Africa was predominantly promoted by the need of processing export-oriented cash crops (such as cotton, coffee, cocoa, fish canneries, etc.) or with the local processing of imported agricultural commodities (milling industry, breweries, milk reconstitution, etc.).

In most countries, industrial processing of local products for local markets is often limited to a few products, for which both western technology and a mass standardised market are available (e.g. sugar, tomato concentrate) (Kanyili, 2003). In other words, industrial-scale food processing has been present in ‘local-to-global’, as well as in ‘global-to-local’ value chains.

But it often fails regarding domestic, ‘local-to-local’ markets. This is due to the difficulty of inserting an industrial segment into local food supply chains, which are characterised by the atomisation of production on one hand and by a diverse and fragmented demand on the other hand (Sautier, 2000).

Urbanisation and subsequent food diversification is an area of opportunity for processed African foods. The growing importance of the urban environment reinforces the trend toward food diversification and increased demand for processed food.

Agriculture in Africa is currently characterized by: (a) a large traditional smallholder sector (over 80 %) with farmers generally uneducated and operating without use of modern inputs or commercial orientation, and with low productivity; (b) a very small large-scale and modern commercial farm sector (often owned by ethnic minorities, settlers or foreign firms); (c) a tiny and struggling small and mediumsize modern commercial sector owned and operated by nationals and (d) little domestic processing of agricultural products and weak linkages between agriculture and other sectors of the economy.( African Transformation Report, 2015).

According to the African Development Indicators, the average agricultural value added per capita in Sub Saharan Africa was lower in 2008 than in the early 1970s. Haggblade and Gabre Madhin (2010) also reported instance that SSA remains the only developing region where per capita agricultural production has fallen between 1960 and 2005.

(see table 1)

Table 1 shows that Africa’s agro-industrial exports increased from about $14 billion in 1990 to $51 billion by 2008—an average annual compound growth rate of 7.2 %.Despite this, the region’s world market share of agro-industrial merchandise imports fell by half from 18 % to 9 %, partly reflecting the increasing importance of non-agricultural products, especially oil and other mineral commodities. Trade in horticulture and processed commodities exported for final use grew faster than total agro-industrial exports, albeit from a low base.

These commodities grew annually at 10.7 % and 10.8%, respectively, compared with only 7.2% for total agro-industrial exports and 5.0% for unprocessed commodities exported for processing. In part this faster export growth for horticulture and processed commodities reflects the global shift in the commodity composition of agro-industrial trade.

Compared to its neighboring countries and more generally to countries of the CEMAC (Commission of the Economic and Monetary Community of Central Africa), Cameroon has a relatively diversified industrial base both in terms of variety of activity and in company size, with a large number of SMEs and informal businesses.

According to the last general census of enterprises (RGE, 2009), Cameroon counts 12 154 companies in the secondary or manufacturing sector, which represent approximately 13 % of the total number of enterprises. The breakdown of manufacturing firms by sector is the following: mining (0.2 %), food industry (6.1 %), beverages and tobacco (0.3 %), electricity, water and gas (1.6 %), and others (11.3 %), including the textile, wood, metallurgical and chemical industries.

Manufacturing accounts for 22.8 % of total employment and turnover represents 34.3 % of the national total. On average, each company in this sector employs 8 people and generates an average turnover of XAF 300 million (CFA Francs).

1.2 Problem Statement

Cameroon is endowed with high Agriculture resources which for ages has been the back bone of most African economies and African agriculture as a whole and Cameroon in particular is currently based primarily on traditional smallholders producing food items for home consumption or local consumption through traditional markets or for exports in unprocessed forms which are always in bulk and of low value thus leading to low earnings. (Dada, 2007).

Higher agro processing holds the capacity to improve development moving the core agricultural activity from the farm gates to the agro industry sector and it services represent higher level of incomes, productivity, nonfarm employment, especially in rural areas.

This scenario could be more feasible if a dynamic link exited between the farm sector and the industry in the country. This situation is worsen by the fact that data is not always made available and its unreliability. In fact both the farm and the industries lack or do not provide data that could be used for their own measurement of productivity and thus give them room for expansion.

The government too has been trying to provide data with its institution concern like the national institute for statistic but this data are inadequate. The disconnection between the smallholder farmers and the Agro-Industries has prohibited the traditional supply driven agro-production system from evolving into a commercial demand driven agro-production system.

Thus, there are little or no incentive for the smallholder farmers to produce the desired quality and consistent quantity of raw materials demanded by agro processors, which in turn has severely affected the competitiveness of Cameroonian agro-industry in an increasingly globalized market. Cameroon is for example importing large quantities of cereals to feed its people and meet the demand of the brewing industry (UNIDO 2016).

Agricultural value added per worker in the least developed countries is $336 compared to $1,060 in middle-income and $18,497 in high-income countries. This is due to the fact that in the developing countries on average only about 38 per cent of products are processed, this leaves the sector with huge untapped resources (UNIDO ANNUAL REPORT 2014).

Even though the country signed the Comprehensive Africa Agriculture Development Program (CAADP) on July 17th 2013, it has not yet met the CAADP 10% expenditure target as its agricultural spending in 2013 only stood at the CAADP annual increase of agricultural productivity of 6%. All of this could be blame on government slow pace in the implementation of its policies and administrative bottle neck Cameroonian enterprises still support heavy regulatory and administrative constraints than other regions, and property rights and investors’ rights are not well protected in the country.

Cameroonian authorities have put an accent on the facilitation of enterprise creation, trade opening, fight against corruption and reduction of importation and exportation cost (World Bank, 2009). According to the World Economic Forum report’s on the global competitiveness in 2009, Cameroon was classified 18th in Africa and 111th in the world on a total of 133 countries.

The most considerable efforts were observed at the level of macroeconomic stability (34th), recruitment and firing (40th), flexibility of salaries (61th) and transparency of the government in driving economic policy (76th).

However, more efforts should be mobilised with respect to the improvement of Institutions (112th); bureaucratic efficiency of the Government (102nd); “access to financing” (125th) and the quality of infrastructures (121th) which are important for investment (MINFI, 2010).

In the Growth and Employment Strategy paper (GESP, 2003) of the government of Cameroon agricultural development features prominently as a way to reduce poverty. Specifically, as the key income generating activity and the main source for economic growth and poverty reduction in rural areas, this document highlight the importance of economic diversification with a strong focus on agricultural development.

However, the developments since have shown how difficult changes in the sector are and how severe the poverty situation still is. The development of agriculture faces structural constraints and weaknesses that should have been adequately addressed since then.

Full utilization of small agro-processing firms offers the potential for economic and social benefits, including employment creation, income generation and reduction of post- harvest losses. As the world’s poorest region, with half of its population living in extreme poverty on less than $1.25 a day (World Bank & IMF, 2010), sub-Saharan Africa (SSA) to which Cameroon belong is behind the curve in terms of industrialization with manufacturing accounting for 15 per cent of GDP.

The estimated youth unemployment rate in Sub-Saharan Africa is one of the highest in the world at 40 percent to which Cameroon belongs. Moreover, by 2040, Africa will be home to one in five of the world’s young, and will have the world’s largest working age population.

According to the International Labour Organization (ILO), between 2000 and 2008, Africa created 73 million jobs, but only 16 million were for young people (African Development Bank, 2012)), thus the is great need to open avenues for more decent and sustainable jobs. With regards to two of our product under consideration, the trade of Cocoa and coffee involves so many intermediaries who most often exploit the farmers due to bad roads (no means to transport) or using false scales. Some of these intermediaries (licensed buyers) sell to local bigger exporting organizations such as TELCAR COCOA, sell to local cocoa processing companies in Douala or they export themselves to Europe. A small amount of cocoa butter, paste and powder are produced in Cameroon and sold/consumed locally or sold to neighboring countries.

 

Cameroon has the capacity to be an important palm oil exporter, but currently, domestic production does not meet total demand, hence, the imports from other countries such as Indonesia and Malaysia.

Cameroon exports limited quantity of palm oil to its regional partners in CEMAC (PAPI 2015) thus with those series of lop holes plaguing agriculture as a whole and agro processing in particular the studies seek to the address the following objectives.

1.3 Research Objective

The main objective of this study is to assess the contribution of the agro processing sectors on economic growth of Cameroon case of coffee, cocoa and palm.

Specific objective

1. To assess the production trend of coffee, cocoa, and palm processed products in Cameroon
2. To assess the impact of the cocoa agro processed sector on the economic growth of Cameroon.
3. To assess the effect of the coffee agro processed sector on the economic growth of Cameroon.
4. To assess the impact of the palm agro processed sectors on the economic growth of Cameroon.
5. To assess the combined impact of the coffee, cocoa and palm agro processed products on the economic growth of Cameroon