Working 105 pdf d

No
105 - April 2010
Smallholder Agriculture in East
Africa: Trends, Constraints and
Opportunities
Adeleke Salami, Abdul B. Kamara and
Zuzana Brixiova

Editorial Committee
Kamara, Abdul B. (Chair)
Anyanwu, John C.
Aly, Hassan Youssef
Rajhi, Taoufik
Vencatachellum, Desire
Salami, Adeleke
Moummi, Ahmed
Correct citation : Salami, Adeleke; Kamara, Abdul B.; Brixiova, Zuzana (2010), Smallholder Agriculture in East
Africa: Trends, Constraints and Opportunities, Working Papers Series N° 105 African Development Bank, Tunis,
Tunisia.
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Smallholder Agriculture in East Africa: Trends,
Constraints and Opportunities (1)
Adeleke Salami, Abdul B. Kamara and Zuzana Brixiova
______________
AFRICAN DEVELOPMENT BANK GROUP
Working Paper No. 105
April 2010
(1) Adeleke Salami, Abdul B. Kamara, Zuzana Brixiova are Research Economist, Research Division Manager and
Principal Research Economist in the Development Research Department of the African Development Bank. This
Working Paper was produced out of the study on the Future of Smallholder Agriculture in Africa, implemented by the
Development Research Department (EDRE). The background study was conducted by a consultant, Abiodun
Falusi. The authors are grateful to John Anyanwu, Nizar Jouini and Abderrahim Kauther of Development Research
Department; Justus Joseph Kabyemera, Agriculture and Agro-Industry Department, (OSAN); and Lachaal Lashad,
Joint African Institute, for their insightful comments and input
Office of the Chief Economist

Abstract
Adeleke Salami, Abdul B. Kamara and Zuzana Brixiova
Smallholder agriculture continues to play a
key role in African agriculture. This paper
investigates trends, challenges and
opportunities of this sub-sector in East
Africa through case studies of Kenya,
Ethiopia, Uganda and Tanzania. In these
agriculture-based economies, smallholder
farming accounts for about 75 percent of
agricultural production and over 75 percent
of employment. However, contributions of
smallholder farming, and agriculture in
general, to the region’s recent rapid growth
during 2005 - 08 have remained limited.
Instead, growth was driven by services, in
particular trade. This paper finds that at the
national level, weak institutions, restricted
access to markets and credit. These factors,
including inadequate infrastructure, have
constrained productivity growth of
smallholder farming. Measures needed to
improve productivity of smallholder farmers
include ease of access to land, training to
enhance skills and encourage technology
adoption and innovation, and removal of
obstacles to trade. At the regional and global
levels, international trade barriers need to be
addressed.
Keywords: Smallholder agriculture, institutions, productivity, case studies, East Africa
JEL classification: O13, Q1, P52

Contents
ACRONYMS AND ABBREVIATIONS....................................................................................... 6
1. INTRODUCTION.................................................................................................................. 8
1.1 Background...................................................................................................................... 8
1.3 Methodology .................................................................................................................. 10
1.4 Structure of the Study .................................................................................................. 10
2. TRENDS IN SMALLHOLDER AGRICULTURE IN EAST AFRICA............................ 11
2.1 Smallholders and Agricultural Development............................................................... 11
2.3 Agricultural Productivity.................................................................................................. 16
3. CONSTRAINTS TO SMALLHOLDER AGRICULTURE IN EAST AFRICA.............. 21
3.1 Long-standing Constraints to Smallholder Agriculture.............................................. 21
3.1.1 Land Tenure, Access Rights and Land Management................................................. 21
3.1.2 Financing Agriculture and Access to Credit............................................................... 22
3.1.3 Access to Input and Output Markets .......................................................................... 26
3.1.4 Infrastructure ............................................................................................................. 27
3.1.5 Agricultural Extension and Innovation...................................................................... 28
3.1.6 Policy-Related and Institutional Constraints............................................................. 29
3.2 Constraints related to the Food and Financial Crises ............................................... 32
3.2.1 Smallholder Farmers in the Context of the Food Crisis............................................. 32
3.2.2 Implications of Volatility in International Fuel Prices............................................... 34
3.2.3 Implications of the Global Financial and Economic Crisis........................................ 35
4. OPPORTUNITIES IN EAST AFRICAN SMALLHOLDER AGRICULTURE.............. 36
4.1 Investment Opportunities............................................................................................... 36
4.2. Other Opportunities for Revitalizing Smallholder Agriculture................................... 38
4.2.1 Rising Global demand ................................................................................................ 38
4.2.2 Discovery of Mineral Resources ................................................................................ 39
4.2.3 Success Stories from other Developing Countries ..................................................... 39
4.2.5. Market Information and Partnerships......................................................................... 40
4.2.6 Food Insecurity in East Africa.................................................................................... 40
4.2.7 Supermarkets, Contract Farming and Collective Action............................................ 41
5. CONCLUSIONS ................................................................................................................. 43
BIBLIOGRAGPHY...................................................................................................................... 44

ACRONYMS AND ABBREVIATIONS
ACP Africa Caribbean and Pacific
ADLI Agriculture Development Led Industrialization
AEO African Economic Outlook
AERC African Economic Research Consortium
AfDB African Development Bank
AGOA African Growth and Opportunities Act
AGRA Alliance for a Green Revolution in Africa
ARD Agriculture and Rural Development
AU African Union
BROSDI Busoga Rural Open Source Development Initiative
CAADP Comprehensive African Agriculture Development Program
CERUDEB Centenary Rural Development Bank
CIRPÉE Inter-University Center on Risk, Economic Policies and Employment
COMESA Common Market for Eastern and Southern Africa
DFID UK Department for International Development
DPPA Disaster Prevention, Preparedness Agency
DSGD Development Strategy and Governance Division
EAC East African Co-operation
EAC East African Community
EBA Everything But Arms’
EDRE Development Research Department
EGTE Ethiopian Grain Trade Enterprise
EU European Union
FAO Food and Agriculture Organization
FDCF Financial Deepening Challenge Fund
FDI Foreign Direct Investment
GDP Gross Domestic Product
ICT Information and Communication Technologies
IFAD International Fund for Agriculture Development’
IFPRI International Food Policy Research Institute
IGAD Inter Governmental Authority on Development
IIED International Institute for Environment and Development
IMF International Monetary Fund
ITC International Trade Centre
KACE Kenya Agricultural Commodity Exchange
KTDA Kenya Tea Development Authority

MAAIF Ministry of Agriculture, Animal Industry and Fishers (Uganda)
MDGs Millennium Development Goals
MCA Millennium Challenge Account
MFPED Ministry of Finance, Planning and Economic Development (Uganda)
MOFA Ministry of Foreign Affairs ( Uganda)
MTID Markets, Trade, and Institutions Division
MTTI Ministry of Tourism, Trade and Industry (Uganda)
NEPAD New Partnership for Africa's Development
NGO Non Governmental Organizations
NMB Tanzania’s National Microfinance Bank
NSE Nairobi Stock Exchange
NTBs Non-Trade Barriers
ODA Official Development Assistance
ODI Overseas Development Institute
OECD Organization for Economic Cooperation and Development
OSAN Agriculture and Agro-Industry Department
PEAP Poverty Eradication Action Plan
RATIN Regional Agricultural Trade Intelligence Network
R&AWG Research and Analysis Working Group
ReSAKSS Regional Strategic Analysis and Knowledge Support System
RIFF Regional Integration Facilitation Forum
RMC Regional Member Countries
SADC Southern African Development Community
SSA Sub-Saharan Africa
TAI UNDP Achievement Diffusion Index
UN United Nations
UNCTAD United Nations Conference on Trade and Development
UNDP United Nations Development Programme
UNIDO United Nations Industrial Development Organization
USAID US. Agency for International Development
WFP World Food Program
WOUGNET Women of Uganda Network
WTO World Trade Organization

1. INTRODUCTION
1.1 Background
Until recently, the African agricultural landscape was characterized by sluggish growth,
low factor productivity, declining terms of trade, and often also by practices that
aggravated environmental problems. Since the late 1970s to mid 1980s, many African
countries have implemented macroeconomic, sectoral and institutional reforms aimed at
ensuring high and sustainable economic growth, food security and poverty reduction.
Some recent agricultural growth accelerations notwithstanding, the sector’s growth
remained insufficient to adequately address poverty, attain food security, and lead to
sustained GDP growth on the continent (Dessy et al., 2006 and World Bank, 2008).
All four East African countries examined in this study - Ethiopia, Kenya, Tanzania and
Uganda - can be characterized as “agriculture-based,” that is, agriculture is the
backbone of these economies.1
Agriculture is dominated by smallholder farmers who
occupy the majority of land and produce most of the crop and livestock products. The
key long-standing challenge of the smallholder farmers is low productivity stemming
from the lack of access to markets, credit, and technology, in recent years compounded
by the volatile food and energy prices and very recently by the global financial crisis.
Despite the number of sound agricultural policies adopted by most countries,
implementation has been lagging. Moreover, growing disenchantment of some donors
with the sector amplified the gap between policy formulation and implementation.
Continued involvement of a few donors, including the African Development Bank
(AfDB), notwithstanding, investment in agriculture has suffered from a declining trend in
several decades before the crisis. The recent surge in food prices as well as the need
for greater diversification towards domestic-oriented production brought about by the
financial crisis could serve as a wake up call for the sector to receive due attention,
given its importance and untapped potential.2
African smallholder farmers can be categorized on the basis of: (i) the agro-ecological
zones in which they operate; (ii) the type and composition of their farm portfolio and
landholding; or (iii) on the basis of annual revenue they generate from farming activities.
In areas with high population densities, smallholder farmers usually cultivate less than
one hectare of land, which may increase up to 10 ha or more in sparsely populated
semi-arid areas, sometimes in combination with livestock of up to 10 animals (Dixon et
1
In agriculture-based economies, rural population accounted on average for almost 70 percent of total population,
while agriculture amounted on average to 29 percent of GDP in 2005. Annual agricultural growth during 1993 -2003
amounted to 4 percent and slightly exceeded that of non-agricultural growth (3.4 percent). At 51 percent in 2002,
rural poverty remained substantial (World Bank, 2008).
2
The African agriculture is believed to have an enormous potential for growth given the continent’s natural resource
endowment (FAO, 2009).

al, 2003). On the basis of farm revenue, smallholder farmers range from those
producing crops only for family consumption to those in developed countries earning as
much as USD 50,000 a year (Dixon et al, 2003). Most smallholder operations occur in
farming systems with the family as the centre of planning, decision-making and
implementation, operating within a network of relations at the community level.3
In this
study, smallholder farmers, defined on the basis of land and livestock holdings, cultivate
less than 2 hectares of land and own only a few heads of livestock.
Taking a close look at agriculture in four countries of East Africa is timely, especially
given the countries’ rapid pre-crisis growth rates of 7.3 percent during 2005 - 2008.
These growth rates were attributed to relatively stable macroeconomic conditions,
reduced conflict since the mid-1990s, improved governance and market liberalization,
as well as increased private sector involvement in their economies. Furthermore, the
institutional advancements, stronger regional and sub-regional organizations, and
stronger civil society and community networks have made governments more
accountable and thus also contributed to the impressive economic performance
(AfDB/IFAD, 2009; AfDB and World Bank, 2009). Given that all East African economies
are agriculture-based, it is important to understand to what extent the sector contributed
to the strong growth performance before the crisis.
While Africa’s longer-term growth has been threatened by the impact of the global
financial and economic crisis, growth performance of East Africa has remained strong.
In October 2009, the AfDB predicted that Africa’s economic growth would reach only 3.9
percent in 2010 (up from 2 percent in 2009), well below the pre-crisis rates. With an
expected growth rate of 5.8 percent in 2010 though, the longer-term growth prospects of
East African countries, and especially the agriculture sector, remain bright for several
reasons. Firstly, provided that these economies continue to expand at rapid rates, their
growth will translate into increased incomes and upward shifts in the aggregate demand
for higher value-added agricultural products, such as processed food. This will generate
opportunities for expansion of more complex production and value-addition in the
agriculture sector in the region. Secondly, the focus of donors on infrastructure will
improve market access of the agriculture sector, leading to economies of scale. By
utilizing their comparative advantages, smallholder farmers would be able to specialize
and exchange products through markets. Put differently, smallholder farmers would
become market-oriented agricultural producers. Finally, since the majority of the poor is
engaged in smallholder agriculture, there is need for a better understanding of its
contributions to attaining the MDGs and reducing poverty in East Africa.
Despite the importance of smallholder agriculture in East Africa, the strategic
conceptual and empirical analysis in the context of the crisis, which would guide
policymakers and development practitioners in their efforts to revitalize agriculture in the
aftermath of the crisis, is sparse. Moreover, recent studies tend to examine specific
constraints to smallholders’ activities (Liverpool and Winter-Nelson, 2010; Reardon et
al., 2009; Markelova et al., 2009; Obare et al., 2003 and others), but do not take a
3
Smallholder farming is often referred to as family farming, subsistence farming and low-income farming.

comprehensive view of the sector. In contrast, this paper investigates the overall trends,
challenges and strategic opportunities for smallholder agriculture. The study aims at
helping this important segment of the population to benefit from opportunities emerging
from East Africa’s economic growth and increasing regional integration. The analysis
has also examined how the recent escalation of food prices and related opportunities
can be seized to fully utilize East Africa’s agricultural potential, with a view to applying
experiences and best practices from East Africa to the rest of the continent.
1.2 Objectives of the Study
The study investigates the trends, constraints and opportunities facing smallholder
agriculture in East Africa in light of the enormous changes taking place in the world and
on the continent, as well as the evolving international financial conditions. The study has
the following objectives: (i) to assess the performance and future challenges and
opportunities facing the smallholder agriculture in East Africa; (ii) to highlight the
conditions under which smallholder agriculture in the region can be revitalized and
effectively adapt to (and where possible benefit from) the changes in the external
environment such as the food and fuel price rises, the global financial and economic
crisis; and (iii) to guide the Bank’s development operations in the sector, with a view to
helping it deliver more effective support to East African agriculture.
1.3 Methodology
The study was conducted by the Bank’s Development Research Department, with the
support and collaboration of the Agriculture and Agro-Industry Department (OSAN) and
the Bank’s field offices in the study countries. The study combined review of the existing
literature and country case studies on Kenya, Ethiopia, Uganda and Tanzania. The
countries studied were selected based on the size of their economies, the high
proportion of smallholder farmers (over 75 percent) and relatively high contribution of
agriculture to the GDP.
In addition to drawing on the Bank’s database, secondary data on agricultural policies,
agricultural output, processing and other economic indicators were obtained from
relevant government institutions and agencies such as the FAO, IFAD, IMF, World
Bank, country research institutes, and other agencies. The interpretation of the data
was informed by discussions with relevant country officials from the study countries.
1.4 Structure of the Study
The remainder of the report is organized as follows. Section two examines the trend in
agricultural development in East Africa, with a focus on the performance of smallholder
agriculture. Section three analyzes the major constraints to smallholder agricultural
production, while section four outlines the opportunities for revitalizing smallholder
agriculture in the region. Section five presents conclusions and policy implications.

2. TRENDS IN SMALLHOLDER AGRICULTURE IN EAST AFRICA
2.1 Smallholders and Agricultural Development
The four East African economies covered in the study – Uganda, Ethiopia, Kenya and
Tanzania— are all agriculture-based, but there are variations in terms of the sector’s
contribution to GDP. In Ethiopia and Tanzania, agriculture remains the main contributor
to the GDP, contributing 47 percent and 43 percent, respectively. In Uganda and Kenya,
however, the rapid development of the service sector with a growth rate of about 9.5
percent, has outpaced agriculture, contributing 45 percent and 60 percent of the GDP,
respectively, far above agriculture’s contribution of 30 and 34 percent. Nevertheless,
agriculture still accounts for about 75 percent of the labor force in all the study countries,
underscoring the importance of the sector in job creation and poverty reduction across
countries (Figure 2.1 and Table 2.1).
Figure 2.1: Economic Contributions of the Agricultural Sector in 2007
Source: AfDB (2009) and FAOSTAT (2009).
0
10
20
30
40
50
60
70
80
90
100
Uganda Ethiopia Kenya Tanzania
Percentage
0
0.5
1
1.5
2
2.5
3
3.5
4
Av.sizeofholding/household(ha)
&Irrigatedland(%)
Agric Labour force (%) Agric Share of GDP (%)
Share of Smallholder in Production (%) Av. size of holding/household (ha)
Irrigated land (%)

In spite of its population that is almost double that of the three other countries and vast
land area, Ethiopia has still not realized a commensurate economic potential, as the
country has the lowest per capita GDP in this group and one of the lowest on the
continent. Its economy, however, has recorded the highest growth rate (11.4 percent on
average) in recent years including in agriculture.4
With respective GDP growth rates of
6.5 percent, 7.0 percent and 7.3 percent in 2008, Uganda, Kenya and Tanzania have
also been able to realize high growths of GDP per capita, but the contribution of
agriculture to growth in these economies has been mixed. For example in Uganda,
agriculture contributed only marginally to Uganda’s rapid GDP growth of 2005 – 08
(Table 2.2). Instead, growth was driven by services, in particular trade.5
4
Growth was mostly driven by public investment with minimal involvement of the private sector.
5
The low contribution of agriculture to the overall growth holds for other countries as well, with exception of a few
years in Kenya and Ethiopia.
Table 2.1: Economic Profile and Contribution of Agriculture to the
Economy 2007
Economic Indicators Uganda Ethiopia Kenya Tanzania
Population (million) 31 78 38 40
GDP (USD billion PPP) 29.04 62.19 58.8 48.9
GDP Per capita (USD) 900 800 1,700 1,300
GDP Growth Rate (%), 2000
– 2007
6.5 11.4 7 7.3
Agricultural GDP Growth
Rate, 2000-2007
7.1 10.0 7.1 6.9
Agriculture Share of GDP
(%)
30.2 47 23.8 42.8
Industry (%) 24.7 13.2 16.7 18.4
Services (%) 45.1 39.8 59.5 38.7
Agricultural Labour force (%) 82 80 75 80
Total Land Area (000’ km2
) 236 1,127 583 945
Arable land area cultivated
(%)
21.7 10 8 4.23
Irrigated land (%) 3.8 0.26 0.18 2
Ag. size of
holding/household (ha)
2.5 1.06 2.5 2
Share of Smallholder in
Production (%)
75 87.4 75 75
Sources: AfDB (2009) and FAOSTAT (2009).

Table 2.2: Contributions of agriculture to growth in Uganda, 2005 - 2008
2004 2005 2006 2007 2008
(In 2002 Shillings)
Total GDP 13,467 14,814 15,859 17,156 18,582
Agriculture 2,773 2,842 2,791 2,838 2,902
Industry 3,139 3,658 3,892 4,201 4,571
Services 6,590 7,170 7,908 8,537 9,444
Net taxes 965 1,144 1,269 1,580 1,666
(growth in percent)
Total GDP … 10.0 7.1 8.2 8.3
Agriculture … 2.5 -1.8 1.7 2.3
Industry … 16.5 6.4 7.9 8.8
Services … 8.8 10.3 8.0 10.6
Net taxes … 18.5 10.9 24.5 5.4
(contribution to growth)
Agriculture … 0.5 -0.3 0.3 0.4
Industry … 3.9 1.6 1.9 2.2
Services … 4.3 5.0 4.0 5.3
Net taxes … 1.3 0.8 2.0 0.5
Source: Authors with data from Ugandan Bureau of Statistics
Over 75 percent of the total agricultural outputs in the four countries are produced by
smallholder farmers with farm sizes of about 2.5ha on average, producing mainly for
home-consumption, and using traditional technologies. Limited commercial and semi-
commercial production also occurs. Besides, less than 4 percent of total land area is
irrigated. Major crops include cereals, root crops, banana tea, pyrethrum, sisal, cut
flowers, coffee, cotton and tobacco. Coffee, cotton, horticulture produce and tea are the
main export crops. Cattle and poultry dominated the livestock sub-sector. Other
important livestock produced are sheep, pigs and goat (see Figure 2.2 for a detailed list
of agricultural products produced by the four case study countries). Forestry,
horticulture and fishing are also important economic activities in most of the study
countries. In particular, horticulture is becoming the largest sector in the Kenyan
economy, generating annual revenue of about USD 2 billion, with 240 large scale
producers and over 150,000 smallholder farmers, and employs 1.5 million laborers.

Figure 2.2: Agricultural Commodities in Uganda, Kenya, Tanzania and Ethiopia
Source: Authors, 2009.
Moreover, food security in the studied countries remains a challenge, despite the
significant potential to boost agricultural production. Realizing this potential requires
policy re-orientation, particularly enhancing access to markets and credit, adoption of
technology, and increasing crop variety. Raising productivity, that is increasing the
persistently low agricultural yields, requires also improved access to agricultural inputs.
Thus, policies that enhance access to both input and output markets remain key. In
particular, improving small farmers’ access to traditional and emerging markets requires
attention.
2.2 Smallholder Agriculture and Poverty Reduction
By definition, agricultural growth is the primary source of poverty reduction in most
agriculture-based economies. The expansion of smallholder farming can lead to a faster
rate of poverty alleviation, by raising the incomes of rural cultivators and reducing food
expenditure, and thus reduces income inequality (Mellor 1966, 1976; Magingxa and
Kamara 2003; Diao and Hazell 2004; Resnick 2004; Bahram and Chitemi 2006;
Anríquez G. and K. Stamoulis, 2007; and World Bank, 2008). As observed by Ravallion
(2001), a rise in average household income by 2 percent leads to a fall in the poverty
rates by about 4 percent on average. The 2008 World Development Report also
observed that GDP growth originating in agriculture is about four times more effective in
reducing poverty than GDP growth of other sectors (World Bank, 2008).

Various estimates have indicated that there have been positive, though marginal,
changes in the poverty profiles of the four studied countries, but not to the level needed
to meet the MDG1- Eradicate extreme poverty and hunger. Most of the household
surveys conducted in the four countries in the last two decades showed that poverty is
more prevalent among rural dwellers. Also, changes in poverty levels by employment
across sectors indicate that change in poverty status among rural dwellers engaged in
agriculture was higher than among rural populations engaged in other vocations. In
addition, change in poverty among farmers and fishing folks in the rural sector was
higher than change in poverty level among those engaged in other occupations in urban
centers, except those engaged in paid employment and self employment.
Specifically, the share of poor people (poverty head count index) in Ethiopia is
estimated to have declined from 45.5 percent in 1995/1996 to 38.7 percent in 2007
(Table 2.3). In 2004/05, the proportion of the population below the poverty line stood at
about 39.3 percent in rural areas and 35.1 percent in urban areas. In Kenya, the
proportion of the poor declined from about 52.3 percent in 1997 to 45.9 percent in
2005/06. While the percentage of the poor declined marginally in rural areas from 46.4
percent in 1997 to 42 percent in 2005/06, urban poverty was reduced by 16.5
percentage points from 43.5 percent in 1997 to 27.4 percent in 2005/06. The declining
trend of poverty is also evident in Uganda, where about 56 percent of the population
lived below the poverty line in 1992/93, but 31 percent in 2005/2006. However, poverty
in Uganda is not evenly distributed, but rather concentrated in rural areas. For example
in 1995/96, about 50 percent of the population lived below the poverty line in rural
areas, compared to 20 percent in urban areas. In Tanzania, recent estimates show that
there has not been any significant change in poverty distribution by sector and region
over the past two decades, with the majority of the poor being concentrated in the rural
areas.
Table 2.3: Trends in Poverty Indices (% below the poverty
line)
National Year National Urban Rural
Ethiopia 1995/96 45.5 33.2 47.5
2004/2005 38.7 35.1 39.3
2007 38.0 NA NA
Kenya 1997 52.3 49.0 53.0
2005/2006 45.9 NA NA
Tanzania 1991 35.6 28.1 40.8
2007 33.6 NA 33.3
Uganda 1992/93 56 NA NA
2005/2006 38 NA 31.3
SSA 1993 45 NA NA
2004 40 NA NA
Sources: Authors, computed from various national data (2008).67
6
NA= not available.

Transition from agriculture to other sources of income (such as paid-work or self
employment and entrepreneurship) presents far higher potential for poverty reduction.
In this context, many suggest that increase in productivity in agriculture that would allow
movement of workers from agriculture to other sources of income and in particular
industrialization are necessary for growth and poverty reduction (Gollin; Parente; and
Rogerson, 2002). A substantial untapped potential exists also in the form of rural
entrepreneurship.
Against this background, it can be concluded that the modest reduction in poverty
witnessed in the four East African countries can be attributed to the contributions of the
agricultural sector, especially smallholder farming. The improvement in the poverty
status, however small, has implications for the nutrition of households and consequently
feeds back to agriculture.8
2.3 Agricultural Productivity
Agricultural productivity is one of the key determinants of high and sustained agricultural
growth, and in fact a key determinant of its growth over the longer term. Faster
agricultural growth has put countries on the path of a much broader transformation
process: rising farm incomes raising demand for industrial goods; lowering food prices,
curbing inflation and inducing non-farm growth, and creating an additional demand for
workers. Rising on-farm productivity also encourages broad entrepreneurial activities
through diversification into new products, the growth of rural service sectors, the birth of
agro-processing industries, and the exploration of new export market (Harvey, 2006;
World Bank, 2008).9
To sum up, as Gollin, Parente and Rogerson (2002) underscore,
rising agricultural productivity releases farmers for other activities, leading to structural
transformation needed for Africa’s income to catch up with more advanced economies.
Countries with abundant land or rapid expansion of off-farm work have expanded the
area cultivated per worker by adopting labor-saving technologies. Given the relative
abundance of land in the case study countries, a temporary sectoral growth strategy
reliant on expansion of area could be considered as consistent with their resource
endowments (Gordon, 2008). It would follow the historic path of other land-rich
countries, such as Argentina, Australia, Canada, the Russian Federation, and the
United States. In those countries, labor productivity rose sharply as additional land was
brought into cultivation. Growth was accompanied by marked structural change in
farming and by rapid technological adoption, largely in mechanical technology, that
7
Sources include: Tanzania’s National Bureau of Statistics, 2002, 2007; MoFED, 2006; Kenya National Bureau of
Statistics, 2007; and UNDP, 2007)
8
As more people rise above the poverty line of USD 2 a day, the demand for animal products such as milk, butter,
egg and meat increase. People earning above USD 2 a day consume more of the high value products with high
nutritional value, compared to those below poverty line who live solely on cereals.
9
Harvey (2006) emphasized the strong linkage between agricultural productivity, small-scale farmers and economic
growth. He noted the impact of agricultural productivity on transformation of poor countries to prosperous ones and
concluded that increasing agricultural productivity is a necessary condition for poverty alleviation.

reduced labor requirements in agriculture. Over the longer-term, technological
improvements and productivity gains would need to drive the agricultural growth in East
Africa as well.
The experience of the four countries and their strategies for agricultural growth can be
also viewed in the global context. The international experience shows that countries that
have achieved sustained agricultural growth have done so by adopting technology,
which led to increased joint productivity of land, labor and capital (that is total factor
productivity). Whether the pattern of technological change has been labor saving or land
saving has depended on which factor is relatively scarce. In East Africa, the access to
additional available land for agricultural purposes has been the major constraint
(Section 3).
These general findings are supported by a recent study on Ethiopia by Dercon and
Zeitlin (2009). The authors posit that technology adoption and expanding land holdings
of individual smallholders, that is changes in factor ratios, lead to productivity gains.
However, technology adoption and increased access to land influence the overall
productivity in different ways. While technology adoption improves productivity of all
factors of production, increased access to land raises labor productivity at the expense
of land productivity. The authors underscore the role of economic incentives and high
returns on technological adoption and agricultural innovation.
The cereal yield per hectare remained virtually unchanged in all four countries during
1980 – 2007 and it is also way below the world average (Figure 2.3). It is in this context
that Oxford Analytica (2009) concluded from its strategic analysis of East African
agriculture that the yields of staples such as rice and maize are only about one-half to
one-third of what they could be with the proper application of fertilisers, irrigation and
seeds. Similarly, the agricultural value added per worker in the four countries has
showed an upward trend in the last five years, although with the average level far below
that of the world average and short of the level needed to reduce rural poverty (Figure
2.4).

Figure 2.3 Cereal Yield (kg per hectare), 1980 - 2007
Source: National Statistical Offices.
0
500
1000
1500
2000
2500
3000
3500
4000
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Kenya
Uganda
Tanzania
Ethiopia
Africa
World

Figure 2.4: Agriculture Value Added Per Worker (Constant 2000USD), 1991 – 2005
Sources: AfDB (2009) and World Bank (2009).
According to World Bank (2007), the average farmer in sub-Saharan Africa produces
only one ton of cereal per hectare – less than half of what an Indian farmer produces,
less than a fourth of a Chinese farmer’s production, and less than a fifth of an American
farmer’s production. East African countries thus need to draw on the experiences of
land-scarce Asian countries (Box 2.1) where yield increases in crops were the defining
characteristic of the Green Revolution and transformation of the rural sectors between
the 1960s and the 1990s. The success of the Asian Green Revolution hinged on
smallholder-focused productivity transformation with crucial implications for poverty
reduction, food security and economic growth.
In general, land expansion using existing techniques carries environmental costs as
forests and wildlife areas are encroached on, and fish stocks depleted. Moreover, as
increasingly marginal land comes into cultivation, productivity declines. The agricultural
growth path thus needs to combine features of the land-intensive and labor-intensive
models that conserve the resource base and thus will differ from the past experiences.
Because of the diversity of East Africa’s endowments, growth paths deriving from better
cultivation of larger tracts will be optimal in more land-abundant parts of the countries,
whereas those associated with high yields and intensive cultivation will suit areas with
less abundant land. Where an increase in area per worker is possible (in relatively land-
0
100
200
300
400
500
600
700
800
900
1000
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Kenya Tanzania
Uganda Ethiopia
World

abundant areas), total factor productivity (yield) increases would be less crucial in the
near term. The converse applies to areas where land is scarce – in such cases yield
increases are necessary even in the short-term.10
The implications of improvements in agricultural productivity vary among four case
study countries based on their resource endowments, demographic characteristics,
marketing opportunities, business climate, and accumulated physical and human
capital. So far, the countries have achieved their agricultural growth more through
expansion of cultivated areas than through yield increases, pointing to limited
technology adoption and outdated agricultural practices. This is in marked contrast with
other parts of the world, where almost all agricultural growth is the result of yield
increases. In East Africa, as elsewhere in Africa, increases in the productivity of land on
the scale of the Asian Green Revolution have been elusive, although some progress
has been achieved in specific areas such as the uptake of improved varieties of maize,
beans, and cassava.
10
The change in labor productivity consists of the change in land productivity plus the change in area per worker.
Box 2.1: Lessons from Agricultural Success in Asia
The greatest success stories in agricultural growth and poverty reduction emerged from the “green revolution” in
east, south-east and parts of south Asia. This applies especially to China and India, which together account for 40
percent of the world’s population. Both countries have implemented a series of economic reforms in the past two
and half decades: China initiated this process at the end of the 1970s, while India began in the early 1990s. The
reforms have led to rapid economic growth, with a growth rate of 8–9 percent per annum in China and 6–7
percent per annum in India. The dramatic agricultural yield increases were associated with new high-yielding
crop varieties (of rice and wheat), irrigation, and use of inorganic fertilizers and pesticides. In parallel, the
countries undertook heavy investment in rural infrastructure, extension, agricultural research, credit systems for
input purchases, and interventions in input and grain markets (Dorward et al., 2004).
The Asian green revolution made a dramatic contribution to world food supply, through lower food prices as
well as high economic growth, resulting in poverty reduction. The determining factor in the Asian “green
revolution” was the increased productivity of land through enhanced crop varieties, extended application of
fertilizers and improvements in irrigation facilities. At the same time, concerns emerged regarding overuse of
chemicals, loss of biodiversity, soil degradation, pest problems, and nutritional and risk implications of
monoculture systems (Bhalla and Singh, 2001).
In India, food grain production increased by 3.5 percent a year throughout the 1980s, helping poverty reduction.
The incidence of poverty declined from over 50 percent in the early 1970s to 35 percent in the late 1990s. Public
expenditure on agricultural development (with subsidies on fertilizers and credit) and rural infrastructure were
key determinants of agricultural growth and poverty reduction (Fan et al., 2004). India’s small-holder farmers
(those owning less than 2.0 ha of farmland) comprise 80 percent of the country’s farmers, but own only 33
percent of the total cultivated land; they nonetheless produce 41 percent of the country’s food-grains. Their
productivity is somewhat higher than that of medium- and large-size farms. Moreover, their marketable
surpluses are increasing. In 1970, the small-size holdings in India were net buyers or produced meager surpluses.
However, in the 1990 and beyond they were generating a marketable surplus of 7.2 Mt / ann (million ton per
annum) of rice, 1.3 Mt / ann of wheat, 2.1 Mt / ann of coarse cereals, and 1.7 Mt / ann of oilseeds.
In China, national interests were important in generating the agricultural reforms that commenced in 1978. This
followed two decades of policy failures during the Great Leap Forward and the Cultural Revolution had
weakened the economy and damaged the credibility of the political leadership. Economic reform was initiated in
1978 in the agricultural sector because of a “perception at the top that stagnation of agricultural productivity was
a bottleneck hindering further development of the overall economy”. The key elements of the reform package
were: (i) abolition of the communal property rights; (ii) the introduction of the household Contract farming; (iii)
price and market liberalization; and (iv) legal reforms (Guo et al., 2007). In both China and India, commercially-
oriented small farms were major beneficiaries of the public interventions, particularly land policies, grain
marketing, upport services, and agricultural R&D. These issues are important in the more fragile and diverse
African agro-ecosystems as well.
Sources : (Peacock et al , 2004; Gulati, Fan, and Dalafi, 2005; Hazell et al , 2007; and Singh, Kumar and
Woodhead, 2002)

3. CONSTRAINTS TO SMALLHOLDER AGRICULTURE IN EAST
AFRICA
Smallholder agriculture in the four East African countries studied has been facing
numerous constraints. While some are unique to each of the countries, most are of a
similar nature, implying that common solutions would address them across countries.
The constraints discussed below are not new, but rather long-standing and perhaps
even chronic. In addition to smallholder farmers, the constraints to some extent also
impact large-scale or plantation farmers.
3.1 Long-standing Constraints to Smallholder Agriculture
3.1.1 Land Tenure, Access Rights and Land Management
The uncertainties regarding land tenure and the inadequate access to land have been a
critical challenge to smallholder farming in East Africa. These problems can be
examined from different perspectives. The constraints related to the tenure system,
such as insecurity of land tenure, unequal access to land, lack of a mechanism to
transfer rights and consolidate plots, have resulted in under-developed agriculture, high
landlessness, food insecurity, and degraded natural resource. Furthermore, the
available land in East Africa is overly subdivided into small and uneconomic units,
resulting generally in fragmented production systems and low productivity. In fact, the
farm sizes range from as low as about 1ha per household in Ethiopia and 2.0 ha in
Tanzania and 2.5ha in Uganda and Kenya.
Despite their small sizes, the landholdings in the study countries exceed the African
average of 1.6 ha, but remain well below those of North America (121 ha), Latin
America (67 ha) and Europe (27 ha). In addition to this very low absolute level of
landholding, the distribution of available land is highly inequitable. Specifically,
households in the highest per capita land quartile in East and Southern Africa control 5
to 15 times more lands than households in the lowest quartile. In Kenya, for example,
mean farm sizes for the top and bottom land quartiles were 6.69 and 0.58 hectares,
respectively, including rented land (Jayne et al., 2006).
The land ownership issues go well beyond small sizes of plots. For example, in
Ethiopia, all land is state-owned, according to the country’s 1994 constitution. In
practice, traditional land tenure arrangements prevail as an outcome of subsistence
agriculture, with peasant associations responsible for allocating land to residents
(Kamara, et al 2004). According to Kebede (2002), privatization of land would seem to
be the most effective way to reduce insecurity associated with the tenure schemes and
uncertainties created by state ownership.

Equally important, in terms of access to additional land, is proper management of the
existing one. According to Kimaru and Jama (2005), in East Africa sustained gains to
agricultural productivity are threatened by land degradation, especially land erosion and
loss of fertility. A number of programs during the past several decades were
implemented by the Swedish International Development Agency and other development
partners with a view to preserve the agricultural land in the region.11
The study found
that clear land-use and agricultural policies need to be developed to provide a
framework for researchers, extension workers and smallholder farmers on
environmentally-sensitive practices. Nevertheless, the lack of clarity of property rights
and un-equitable access to land exacerbate the land degradation problem.
3.1.2 Financing Agriculture and Access to Credit
For investment, smallholder farmers in all four countries depend on savings from their
low incomes, which limits opportunities for expansion.12
For example, a survey of a
sample of 344 rural households in Tanzania between May and August 2001 showed
that half of total rural household income came from farming, 46.6 per cent from non-
farm employment (wages and self-employment) and less than 4 percent from
remittances. Because of the lack of collateral and/or credit history, most farmers are
bypassed not only by commercial and national development banks, but also by formal
micro-credit institutions. In addition to own sources, farmers thus rely on incomes of
friends and relatives, remittances, and informal money lenders.
In all countries studied, the share of commercial banks’ loans to agriculture has been
very low compared to manufacturing, trade, and other services sectors, hampering
expansion and technology adoption. For example, in Kenya, the lack of capital and
access to affordable credit is cited by smallholders as the main factor behind the low
productivity in agriculture. Access to formal credit in Tanzania and Ethiopia is mainly
confined to large urban centers, where collateral requirements are high. In Uganda, high
interest rates inhibit agricultural investments. While more recently micro-finance
institutions have taken financial services to millions of previously un-bankable clients
due to innovative instruments, they have so far largely failed to reach poorer rural areas
and/or smallholder agricultural producers whose livelihoods are characterized by highly
seasonal investments, risks, and returns (Peacock et. al., 2004). The success of the
new financing initiatives as exemplified by Equity Bank of Kenya (Box 3.1) and Standard
Bank Model (Box 3.2), along the lines of the Grameen Bank in Bangladesh, in providing
banking services to the poor including the smallholders needs to be highlighted.
11
In Uganda, for example, land degradation was estimated to lead to annual losses of up to 12% of GDP. While
such losses are not reflected in GDP, they reduce living standards and slow development (Kimaru and Jama, 2005).
12
A study on the rural livelihood in Kenya, Malawi, Tanzania and Uganda by Ellis and Freeman (2002) revealed
that farm (i.e., crop and livestock) production accounted for more than 50 per cent of the total household income.

Box 3.1: Mobile Banking and Farmers Access: The Case of Equity Bank, Kenya
Having commenced business in 1984, Equity Bank has evolved from a Microfinance Institution to a
publicly listed commercial bank. Several partnerships have contributed to the success of this bank: the
Financial Deepening Challenge Fund (FDCF)13
in particular partnered with the Equity Bank to set up a
fund of £450,150 (USD 654,000) for a mobile bank’s project. Equity Bank is bringing mobile banks to
some of the most isolated parts of rural Kenya that have no access to commercial financial institutions.
The mobile banks offer banking goods and services to many small businesses and smallholder farmer,
providing their customers with the same financial services as in regular branches, including deposits and
savings, money transfers, and remittance processing and loans. Such service reduces congestion in the
Equity’s existing branches and increases the bank’s customer reach. Mobile customers pay only an
additional small fee for their mobile services relative to the rates for the same transactions at branches.
As Equity's mobile banking scheme extended its reach, five more villages and over 100 smallholders and
farmers in Kenya's remote Siaya district now have access to banking facilities. The United Nations
Development Programme has provided USD 81 million in loans in partnership with the Equity Bank to set
up a fund serving women. Equity’s loans are based on an evaluation of a business’s cash flow, rather
than on collateral. Clients can borrow as little as USD 25 and as much as USD 160,000 or more,
depending on their past repayment record.
A major new partnership was launched with Equity Bank to provide smallholder farmers and small
agricultural enterprises with the needed financing to break out of poverty and build viable businesses. The
Alliance for a Green Revolution in Africa (AGRA), the Equity Bank, the International Fund for Agricultural
Development (IFAD) and the Kenya Ministry of Agriculture established a loan facility of USD 50 million (3
billion Kenyan shillings) to accelerate access to affordable financing for 2.5 million farmers and 15,000
agricultural value chain members such as rural input shops, fertilizers and seed wholesalers and
importers, grain traders, and food processors. This loan facility will operate parallel to a USD 5 million
"cash guarantee fund" from AGRA and the International Fund for Agricultural Development, which will
reduce part of the risk of lending by the Equity Bank.
Sources : AGRA and FDCF’s website, Africa Renewal (2009) and
www.enterprisechallengefund.org /ecfund/ Uploadfile/EquityBank_CaseStudy(1).pdf
Furthermore, spending on agriculture by most African governments is also very low at
an average of 6 percent of total expenditures since 1980. Some spend as low as 1
percent of their budget on agriculture. In the four case study countries, the share of
agriculture in government budgets between 2002 and 2008 averaged between 3.5
percent and 17 percent (see Table 3.1). Apart from Ethiopia which recorded 14, 13, 17
and 12 percent in 2004, 2005, 2006 and 2008 respectively, the three other countries
had far below 10 percent of their national budgets, pledged at the Maputo (in
Mozambique) meeting by African Union (AU) Heads of State and Government in July
2003. The low public spending is a serious concern given the shortage of adequate
13
The FDCF funds and supports twenty-eight projects in Africa and Asia that help improve access to financial
products and services by low-income customers. The FDCF is managed by Enterplan and funded by the UK
government through the Department for International Development.

rural infrastructure (power, roads and water supply) and the need to develop efficient
input and output markets, and functional extension services.
Table 3.1: Public Expenditure on Agriculture (As Percent of
Total Expenditure)
2002 2003 2004 2005 2006 2007 2008
Ethiopia 6.6 9.5 14.3 13.7 17 -- 11.7
Kenya 5 4.6 5.1 6.6 5.9 4.4 4.8
Tanzania 4.5 6.8 5.5 5.5 -- -- --
Uganda 4.2 4.2 7 9.7 5.2 3.5 5.4
Africa 4.5 5.6 6.5 6.5 8.2 7.3 8.0
Source: AfDB (2002); IMF (2007)14
, ReSAKSS (2009)15
Though the total amount of Official Development Assistance (ODA) to agriculture and
rural development in East Africa has been increasing in absolute terms, the share of
development aid to agriculture and rural development has followed a declining trend.
For example, in 1999, ODA to agriculture and rural development reached only about
USD 221 million, but it had more than doubled (to USD 634 million) by 2007 (See
Figure 3.1).
Figure 3.1. ODA to agriculture and rural development (commitments)
Note: Agriculture and rural development (ARD) includes agriculture, forestry and fishing.
Source: Authors using data from OECD-DAC CRS online database
14
Government Finance Statistics ( IMF, 2007)
15
Assessed on 05/10/2010 at Regional Strategic Analysis and Knowledge Support System (ReSAKSS) website at
http://www.resakss.org/
0
2
4
6
8
10
12
0
500
1000
1500
2000
2500
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
%oftotalODA
ODAtoagricandruraldev(USDmillion)
Total ODA to agric & rural dev in East Africa Total ODA to agric & rural dev in Africa
% of total ODA in East Africa % of total ODA in Africa

Box 3.2: Small-scale financing South Africa’s Standard Bank Financing Model
In spite of the agricultural sector’s enormous share of continental employment and GDP, less than 1 per cent of
commercial lending in Africa goes to agriculture. Moreover, most of the loans to the sector go to large scale
farmers, leaving smallholder farmers underserved. The main reason for the lack of interest of commercial banks to
lend to agriculture is the risky nature of this activity, due to the constraints discussed in this paper and amplified by
fluctuating commodity prices and government inefficiencies. At the same time, microfinance institutions charge
high interest rate – at times up to 100per cent interest on trading activities and urban areas, resulting in insignificant
allocation of credit to smallholder farmers.
In search for innovative ways to address this long-standing problem, South Africa’s Standard Bank, Africa’s
biggest bank (with experience of over 100 years of large-scale farming financing), signed a USD 100mln deal with
Alliance for a Green Revolution in Africa (AGRA) in March 2009. The objective of the deal is to provide financing
to small-scale farmers and agricultural businesses in East and South Africa. Specifically, AGRA and the
Millennium Challenge Account (MCA) Mozambique will provide a 20 percent default guarantee on the loans to be
dispensed in Tanzania, Uganda, Ghana and Mozambique over the next three years.
The new Standard Bank facility is meant to lend USD25m to each of the four countries over three years at prime
plus 3-5 per cent to reach 750,000 farmers. Standard Bank also plans to lower the amount of loan guarantee it
receives from AGRA and MCA, from 20 percent in year-one to 10 per cent in year-two, 5 per cent in year-three,
and finally 0 per cent in years beyond. In conjunction with AGRA and governments of the countries covered,
Standard Bank has factored in most risks and problems that make commercial bank lending to the sector , and
particularly to smallholder farmers, a “no go” area, aiming to turn lending to agriculture into a profitable activity.
Specifically:
o To reduce risks related to fertilizers and seeds, AGRA plans to invest USD150m in seed companies to
located in the four countries. Simultaneously, AGRA is training the farmers so that they are better able to
use fertilizers correctly and rotate crops, to reduce land depletion prevalent in East Africa.
o To mitigate drought-related losses, AGRA will introduce weather insurance thought utilizing weather-
indexed insurance products, building on its experience with this type of insurance in South Africa.
o To reduce the enormous transaction costs related to working with smallholder farmers, AGRA has been
training agro-dealers, who act as intermediaries between small-scale farmers and markets. It also
organized small-scale farmers into co-op groups of 500 to 1000 farmers to ease farm operations and loan
administration.
o To get around the collateral constraint, the Standard Bank has abolished the collateral requirement
altogether in its lending and has instead been mobilizing large corporations to commit to buy the
upcoming crops.
o In the future, Standard Bank intends to utilize futures markets to set stable commodity prices in advance..
AGRA is improving on-site storage technologies.
Standard Bank is confident of that its public-private partnership approach will deliver the desired result base on the
past successful experiences of such scheme in other countries like the Rockefeller Foundation’s supported
Centenary Rural Development Bank (CERUDEB) in Uganda; the AGRA and Tanzania’s National Microfinance
Bank (NMB) in Tanzania; the Equity Bank in Kenya and AGRA partnership. However, the new USD100m
Standard-AGRA deal collectively is said to be unprecedented in scope. Standard Bank is taking on a risk, hoping to
start a way of profitable commercial lending to agriculture, which constitutes a large growth field.
Source: Adapted from Keeler (2009).

These figures are small when compared with an annual estimate on average of USD18
billion per year by the NEPAD Comprehensive Africa Agriculture Development Program
(CAADP) to achieve the World Food Summit objective of reducing hunger by half in the
whole of Africa (NEPAD, 2002). Moreover, this aid has been mainly concentrated on
rural development and infrastructure and to a lesser extent on agricultural research and
extension. On the other hand, the share of aid going to agriculture and rural
development in the region declined from 11.8 percent to 3.5 per cent between 1995 and
2005, only recovering somewhat to 5.4 percent in 2007. Again, this is still an
exceptionally low percentage compared with the percent of ODA going to agriculture
and rural development in the region previously (i.e. 11.8 percent in 1995).
From the foregoing, it is clear that there is inadequate funding for agricultural operations
in Africa and the case study countries in particular, which negatively affects the farming
operations of smallholder farmers. In addition to the countries committing 10 percent of
their budget to agriculture, an IFPRI study conducted by Fan and Rosegrant, (2008)
revealed that incremental annual investment required in order to achieve MDG1 in East
Africa and SSA by 2015 are about USD 2.0 and USD 4.8 billion. This will increase total
government agricultural spending to USD 3.8 and USD 13.7 billion per year in East
Africa and Africa respectively (Table 3.2).
Table 3.2: Annual Total Agricultural Spending (USD billion in 2008 USD)
Required to Meet MDG 1 in Africa by 2015
Sub-
Saharan
Africa
West
Africa
East
Africa
Southern
Africa
Total 13.7 9.1 3.8 0.8
Additional/Incremental 4.8 2.8 2.0 0.04
Source: IFPRI Study conducted by Fan S. and M. W. Rosegrant, (2008)
3.1.3 Access to Input and Output Markets
Improved access to input and output markets is a key precondition for the
transformation of the agricultural sector from subsistence to commercial production.
Smallholder farmers must be able to benefit more from efficient markets and local-level
value-addition, and be more exposed to competition. The studied East African countries
are still grappling with marketing of both agricultural inputs and outputs, with markets
not adequately equipped to serve the needs of the poor. According to the 2005/2006
household survey conducted in Uganda, 30 percent of communities surveyed did not
have access to roads that were passable even in the dry season and two-thirds of
communities lacked any bus or taxi connections. In most East African countries, more
than half the population lives five hours or more from a market center.
On the input side, the average application rates of fertilizer for arable crops in four
countries are estimated to be 30 kg/ha/year in Kenya, 14 kg/ha/year in Ethiopia,

5kg/ha/year in Tanzania and1 kg/ha/year in Uganda – far less than the world average of
100kg/ha/year ( Smaling et al , 2006 and Ariga et al, 2006) . There is also the problem
of high cost and waste of key inputs such as seed and fertilizers. For this reason,
farmers have substantially reduced use of quality inputs such as seed, fertilizer, and
pesticides. For example, in 2006, it was reported in UNDP (2007) that the respective
use of improved seeds, fertilizers, agro-chemicals and manure were only 6.3 per cent,
1.0 per cent, 3.4 per cent and 6.8 per cent of the parcel of agricultural land in Uganda.
Also, the 2007 Tanzania’s Poverty and Human Development Report revealed that 87
percent of Tanzanian farmers were not using chemical fertilizers; 77 percent were not
using improved seeds; 72 percent were not using pesticides, herbicides or insecticides
(agrochemicals), as a result of high costs of agricultural inputs and services ( R&AWG,
2007).
On the output side, since the majority of smallholder farmers in the four countries are in
subsistence production, marketing is underdeveloped and inefficient. Adequate storage
facilities constitute another constraint to both marketing and food security: In Africa,
large quantities of agricultural commodities produced by farmers tend to rot away un-
marketed, while the smallholder farmers do not have the technology for timely
consumption (Kamara, et al, 2002).
An additional key constraint on the output side to raising productivity of smallholder
farmers in East Africa has been the inability of most them to get linked into the
supermarket chains. The main barrier is that they cannot meet the high quality and
safety demands as well as delivery schedules that international value chains require,
preventing them to compete in such markets.16
3.1.4 Infrastructure
Poor infrastructure continues to impede agricultural activities in Africa, including in the
four case study countries. The key challenges are inadequate and poor conditions of
the market facilities and transportation systems, including road and rail. Previous
infrastructural investments were often ineffective as a result of poor design and poor
maintenance, sometime due to stop-go practices of donors funding these investments.
The road system, which is the most important for market development in terms of
distribution of inputs and output to and from farms, is the most serious infrastructural
bottleneck facing agricultural development.
As a result of poor road network, smallholder farmers depend on inefficient forms of
transportation including use of animals. In addition, irrigation facilities are poor as less
than 4 percent of all agricultural output is produced under irrigation in East Africa,
16
For example, Neven at al. (2009) examined whether smallholder farmers in Kenya’s horticulture sector have been
excluded from supermarket channels. They found that a threshold capital is needed to enter the supermarket chain,
leaving small farms out. Most of the direct suppliers to the supermarket chains were medium-sized commercial
farms, run by well-educated farmers. Small farmers benefited only indirectly, through increased demand for labor.

compared with about 33 percent in Asia (AfDB/IFAD, 2009). In sub-Saharan Africa,
including East African countries, average post-harvest losses are estimated to amount
to over 40 percent, and even up to 70 percent in some fruits and vegetables) – (UNIDO,
2007).
In Kenya underdeveloped rural roads and other key physical infrastructure have led to
high transport costs for agricultural products to the market as well as of farm inputs,
reducing farmers’ competitiveness. In addition, electricity in rural areas is expensive and
often not available; which has reduced investment including in cold storage facilities,
irrigation, and processing of farm produce. Lack of storage and processing facilities
constrains marketability of perishable goods such as fish, dairy products, and
vegetables. The infrastructural and logistic constraints are also impediments to trading.
Uganda's links to coastal ports are reliant on a single rail-line through Kenya. For
example, the Ugandan government announced in January 2009 that its coffee exports
dropped both in volume (8 per cent) and value (23 per cent or USD 10 million) due to
logistical problems and limited supply of containers compared with the same month in
2008.17
3.1.5 Agricultural Extension and Innovation
Research and extension services have been disintegrated and ineffective for any
technological transformation to take effect. On average, the case study countries and
indeed most African countries spend less than 0.7 percent of agricultural GDP on
research. On the other hand some countries, especially the developed ones, spend up
to 3 percent (Karugia et al. 2009). In Ethiopia the focus has been on smallholder
intensification through improved access to modern inputs like improved seeds and
fertilizer. However, delivery systems have not performed as expected, which has
caused delays in procurement and distribution of inputs. In Kenya the effectiveness of
extension services declined throughout the 1990s due to inappropriateness of the
training and visit extension model pursued, delayed adoption of alternative models and
sharp reduction in the operational budgets of the sector ministries. In Tanzania, services
generally focused on increasing production through short-term technical packages,
without paying attention to farmers’ circumstances, markets, and sustainability. Despite
various attempts to strengthen them, the linkages between research, extension and
training were weak, and collaboration between public and private partners limited. The
weak technology diffusion and innovation in both Tanzania and Kenya was confirmed
by the UNDP Technology Achievement Index (TAI) where they were both listed as
marginalized with 0.080 and 0.129 scored respectively (UNDP, 2001).
In Uganda smallholder farming is challenged with new institutional forms of private
sector governance, like buyer-driven food chains and supermarkets with high quality
and sanitary standards. Removal of implicit and explicit taxes, plus liberalization of the
17
Utilizing a static model, Gollin and Rogerson (2009) show that a reduction in the share of subsistence agriculture
in Africa requires an increase in agricultural productivity and reduction in transport costs.

marketing system, dramatically raised the producer’s share in the price of export crops
from 9 percent up to 70 percent in some cases, especially coffee. While these
measures are positive in the sense that they remove distortions, smallholder farmers
have difficulties competing in these liberalized markets (see example of Kenya above).
3.1.6 Policy-Related and Institutional Constraints
As noted earlier all the four case study countries have over time implemented a series
of economic reforms and instituted agricultural policy as well as strategic frameworks.
So far, however, hopes that policies would bring about positive and durable results
remain unmet. The remaining main policy bottlenecks include those that pertain to land
tenure and land distribution to different segments of the population, marketing of
agricultural commodities and inputs, and price regulatory frameworks. In Ethiopia, for
example, the inappropriate agricultural policies related to land distribution,
collectivization and rigid price regulation have been identified as one of the constraints
to investment in agriculture and hence a handicap to productivity
In Kenya persistently large public borrowing and high lending rates have discouraged
investment in agriculture. Even though Tanzania has instituted several agricultural
reforms and strategies including the agricultural development framework in the early
1970s and Agricultural Sector Development Strategy (ASDS), most of the policies had no
significant impact on the majority smallholder farmers. In Uganda, despite the adoption
of the Plan for Modernization of Agriculture in 2002 the smallholder farmers still receive
a disproportionately small amount of developmental resources.
No doubt, some of the inability of government to implement these programs stems from
weak administrative and technical capacity particularly in ministries of agriculture.
Institutional support to agricultural development in the four countries studied has been
inconsistent and largely inadequate. As elsewhere in Africa, institutions responsible for
agricultural development need to be strengthened, with an emphasis on well-functioning
markets and risk management (FAO, 2009).
As the experience of successful agricultural reformers shows, the importance of market
oriented reforms for sustained productivity improvements in agriculture cannot be
overstated. For example, the increase in rice output and productivity in Vietnam during
1981-1994 can be ascribed mainly to market reforms and in spite of modest growth of
most inputs and with limited technological change. The key factor among the
Vietnamese market reforms was an institutional change – reform of land property rights,
which markedly improved the economic incentives of farmers to use the land efficiently
(Che et al., 2006).
At the same time, the experience of Tanzania illustrates that market reforms are
necessary but not sufficient for raising agricultural productivity. Even though the country
undertook substantial market-oriented reforms during the 1990s, agricultural
performance remained disappointing. The main bottlenecks to farmers’ more effective
supply responses to improved incentives were structural – limited access to markets,
credit and inadequate infrastructure (Danielson, 2002). Hence the combined

experiences of Vietnam and Tanzania show the importance of reforming the institutional
framework underpinning agriculture as well as the complementarities of reforms in the
area of infrastructure, access to markets and to credit.18
3.1.7 Climate Change and Related Food Security Challenges
Climate change, resulting mostly from global warming, has been among the major
causes of reduced agricultural production and productivity in many parts of Africa,
including East Africa. In all the four countries, most crop and livestock farming is rain-
fed, and therefore, susceptible to weather fluctuations. Over the last three decades the
frequency of droughts and floods in East Africa has increased, resulting in crop failures
and loss of livestock. Ethiopia has been hit hardest by persistent drought, making food
security the key issue for poverty reduction (Box 3.2).
Furthermore, with increasing land degradation, land resilience has been reduced and
the effects of drought and floods exacerbated. In 2008, Kenya’s tea production fell by
about 6 percent as a result of early-season drought. In early 2009, the Kenyan
government reported that 10 million citizens were at risk of food shortages, and
consequently declared a national emergency and appealed for USD 400 million in aid.
The emergency has been caused by a combination of drought; high food prices, and the
effects of post-election violence in early 2008 that disrupted farming in the Rift Valley,
the country’s breadbasket. Unfortunately, early-warning systems are inadequate.
Ground-and-satellite-based systems for forecasting medium-term weather and seasonal
agricultural output as practiced in countries like India are rare in East Africa.
.
18
At the same time, as experience of Tanzania illustrates, market reforms are not sufficient for achieving rise in
agricultural productivity. For example, structural
Box 3.3 : Food Security in East Africa: The Case of Ethiopia
Since 1957 Ethiopia has experienced serious droughts culminating in the international reaction
following extensive media coverage in 1984. With 75 percent of people dependent on agriculture
activities and another 10 percent living entirely on livestock, the country remains vulnerable to
weather changes Famine is also a consequence of policy failures and the ongoing civil war in the
north of the country. Ethiopia considered the water tower of East Africa because its highlands are
the primary source of the Nile, suffers chronic drought. Currently, the country is faced with the
problem of drought as well as volatility in global food crisis that has pushed prices sky high. Over
4 million Ethiopians are affected by food insecurity and require over 800.000 metric tones of food
aid.

Institutions
The principal institution created to
manage food insecurity is now named
the Disaster Prevention, Preparedness
Agency (DPPA) marking a shift in
strategy from pure relief provision to
limiting the impact of drought. The
Agency has developed an Early
Warning System that gathers data from
multiples sources, including climate
data and provides information to a
large number of users. For example,
the national Meteorological Agency collects, analyzes and produces forecasts and disseminates
information in the form of regular Bulletins. The main objective is to ensure timely response and
satisfying food security.
Actions Taken
To enhance the preparedness of the DPPA it is now a requirement that 10 day weather forecasts,
monthly weather summaries and three seasonal forecasts are provided. Websites of the
meteorological office and international organizations and NGOs and other media are used in
disseminating such information.
The government actions include safety net, a welfare-for-work program in which more than 7
million chronically needy farmers receive cash or food in exchange for labor on work done on new
roads, and other public infrastructure. Regular assessments of various food security indicators
are carried out. Two emergency needs assessments are produced twice a year in November and
June and are also used in planning appeals for aid. Furthermore, rapid assessments are
conducted whenever needed to identify the number of people affected and the need for and type
of assistance. The UN World Food Program (WFP), The World Bank Food Security Project and
other global institutions play an important role in this process.
Weaknesses
Much remains to be done to improve the early warning system in terms of data quality, personnel,
coverage of assessments, and communication of findings.
Conclusion
The food security situation has improved since 1984. Institutions have been established to reduce
vulnerability to food insecurity. The problem of climate change and drought is likely to continue.
These problems, in addition to external global economic vulnerability are likely adding further
pressure on smallholder farmer’s output and food security in Ethiopia. However, greater efforts
must be directed to increase investment in agriculture and sustainability measures taken to
reduce vulnerability.
Source: Compiled from International Research Institute for Climate and Society publication,
edited by Hellmuth et al (2007).
Population affected by food insecurity and
amount of food aid in Ethiopia
0
2
4
6
8
10
12
14
2004 2005 2006 2007 2008
population(inmillons)
FoodAid(100,000tonnes)
affected population (beneficiary in million) Food Aid requirements MT

3.2 Constraints related to the Food and Financial Crises
3.2.1 Smallholder Farmers in the Context of the Food Crisis
In 2007 and the first half of 2008, the world experienced a dramatic increase in food
prices to crisis levels but these have recently started to fall. Nominal, as well as real,
international prices of all major food commodities reached their peak, in nearly 30 years,
during the first half of 2008 (Figure 3.2). Although the food market situation differs from
country to country the future evolution of food prices remains uncertain with some
projections suggesting a permanent shift to higher levels yet for others, it is just a
temporary market disturbance that will soon revert to the long-term trends in food prices
(Kamara et al 2009). On the whole the global food prices have fallen, but not as low as
the previous levels before the recent spike and may rise sharply again in the future.
Figure 3.2: Monthly Price of Maize, January 2006- December 2009
Source: Authors using EGTE (2010) 19
RATIN (2010)20
, FAO (2010)21
19
Data accessed on 05/01/2010 Ethiopian Grain Trade Enterprise (EGTE) at
http://www.egtemis.com/marketstat.asp
20
Data accessed on 05/01/2010 from Regional Agricultural Trade Intelligence Network (RATIN) at
http://www.ratin.net/
21
Data accessed on 05/01/2010 from FAO website at http://www.fao.org/giews/pricetool/
0
100
200
300
400
500
600
700
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
PriceofmaizeUSDpertonne
Kenya Uganda Ethiopia Tanzania International

The food crisis led to macroeconomic instability and increasing poverty and hunger
levels in many African countries. A vulnerability index22
constructed by the African
Development Bank using 2007 data ranks Kenya as the most vulnerable country among
the four countries considered in this study, followed by Uganda that is rated as being
moderately vulnerable. Vulnerability of Ethiopia and Tanzania are rated as low (Kamara
et al, 2009).
In 2008, high global food prices contributed to high inflation in many countries, including
the four East African countries studied especially in Kenya and Ethiopia where inflation
jumped from 9.8 percent and 17.8 percent in 2007 to 25.8 percent and 25.0 percent in
2008, respectively. Inflation also increased in Uganda and Tanzania in 2008 to 12
percent and 10.3 percent from 6.1 percent and 7.0 percent in 2007, respectively.23
As a
consequence of rising production cost, smallholder farmers in most of East Africa cut
back on the area planted. Some medium and large scale farmers were able to take
advantage of the emerging market opportunities and raise production. Some producers
even changed from subsistence farming to more production, which has higher returns
per unit area of land. For example, some producers in Uganda have started to sell high
value food staples (matoke) and buy cheaper foods-maize or cassava flour (IFAD,
2010). By mid-2009 most commodity prices had fallen but are still higher than they were
before 2007.
In East Africa, the causes of the food crisis vary from one country to another. Feedback
from Food and Crop Assessments as well as relief agencies in those countries suggests
that increasing fuel prices contributed to rising food prices in all the countries covered in
this study. Rising transport costs affected both output and input prices. In Kenya for
example, the cost of fertilizer has more than doubled, with prices reaching USD
1212/MT in the 2008/2009 production season, up from the preceding year’s USD
550/MT. Another important factor has been civil unrest in Kenya and northern parts of
Uganda. Also important is that food prices continue to be influenced by production
levels. In a number of countries, unfavorable agro-climatic conditions like drought are a
key factor behind price rises in Ethiopia, Kenya and Tanzania.
Food trends in East Africa do not seem to follow global trends. For example, in 2008
maize prices in Ethiopia continued to rise to more than USD 550 per ton from USD 535
per ton and in Kenya prices initially fell between May and June to USD 320 per ton
before rising to about USD 340 in July. Only Tanzania has experienced a continuous fall
in maize prices from about USD 330 per ton in January to about USD 240 in July 2008.
In Sudan, Eritrea and Ethiopia, wheat prices have been increasing contrary to what has
happened on the international market. As with the other cereals, wheat prices vary
considerably between these countries. In Ethiopia wheat prices stood at about USD 700
per ton, but were as high as USD 1800 in Eritrea by the end of July 2008. The huge
22
Vulnerability index measures a country’s vulnerability to high food prices in terms of the country’s: Cereal
balance, Ability to pay for food imports, Degree of urbanization and, Import dependency.
23
On the positive side, a weakening dollar and domestic monetary policies have contained the pass-through of rising
global prices into an immediate and proportionate rise in domestic price levels.

price differences in cereals between East African countries reflect the fragmentation of
their markets, arising mainly from government controls and poor transport infrastructure.
On the positive side, high food prices may stimulate a supply-side response from food
producers with the capacity to increase production. Such farmers will need to be
supported with adequate infrastructure and institutional systems. Thus rising food prices
may represent an important opportunity for promoting agricultural and rural
development in many food deficit countries, provided an enabling policy environment
and supportive measures are already in place or established quickly. In the longer term,
however, climate change and water scarcity are expected to negatively affect food
production. Without coordinated actions and adequate policy measures, these new
developments will make achieving the Millennium Development Goals, in particular
MDG1, even more challenging. Over the medium term, failure to act expeditiously may
lead to a significant increase in the number of people in need of emergency as well as
long-term assistance. Policy and investment responses by Governments and
development partners need to be country and context specific and should address both
immediate and long term challenges in a coherent and mutually reinforcing manner.
3.2.2 Implications of Volatility in International Fuel Prices
In the last two years international oil prices have been very volatile. They rose to an
unprecedented level of USD 147 a barrel in mid-2008. Since July 2008, but fell to as low
as USD 40 a barrel in the wake of the financial crisis. Fuel prices have since recovered
and are expected to remain in the USD 70 – 80 range in the medium term. This volatility
in oil prices is not favorable to smallholder farmers and those below the poverty line in
Africa and other developing nations.
All the four case study countries are net oil importers, which makes them vulnerable to
the volatility in oil prices. The high fuel prices increase the import bill, leading to
deterioration in the trade balance, depreciation of the currencies and the balance of
payment situation. Balance of payment deficits result in the loss of official foreign
exchange reserves. In Kenya, foreign exchange reserves fell from USD 3.4 billion at the
end of December 2007 (equivalent to 3.1 months of 2008 import cover) to USD 2.9
billion at the end of December 2008 (equivalent to 2.8 months of 2009 import cover).
Other countries in the region experienced the same macroeconomic conditions that are
not conducive to agricultural development.
The increase in the oil prices in recent times made some governments and investors to
divert attention and limited resources to the production of crops for bio-fuel. This policy
of promoting the production of crops for bio-fuels as against crop production needs to
be re-examined in order not to displace food crops and push food prices higher (ODI,
2008a). However, as fuel prices have fallen sharply, the production of bio-fuel is less
attractive and may reverse the growth in the production of crops for bio-fuel.
As stated above, the price of oil has fallen, but the supply challenges continue to deny
consumers the benefits of low crude oil prices as local oil marketers pass on the high
transport and operational costs to consumers. High oil prices lead to high energy,

transport and production costs, which farmers are not able to fully pass on to buyers,
resulting in reduced profits to farmers. In addition, high fuel prices negatively impacted
budget positions, which affected governments’ capacity to cope with the financial
requirements in economic and social sectors.
3.2.3 Implications of the Global Financial and Economic Crisis
Since the middle of 2008, the world has experienced the most challenging economic
situation since the great depression in the 1930s. Africa has not been spared from the
global financial and economic crisis. The continent’s GDP growth declined from 6.1
percent in 2007 to 2 percent in 2009 (Kasenkende, et al, 2009). East Africa seems to
have suffered less compared to other regions, with growth at about 5 percent in 2009.
In the context of the agriculture sector, both small and large-scale farmers have been
affected by the global financial and economic crisis. However, smallholder farmers are
less directly affected because they are less integrated into the world financial markets,
and thus less exposed to the losses in the equity and financial markets as large scale
farmers. At the same time, the large-scale farmers have a greater capacity to absorb
the shocks, because their asset holdings are more diversified. In fact only a few large-
scale farmers listed in some of Africa’s stock exchanges had their share value dipped
as the stock exchange markets lost value, especially in the second half of 2008. 24
But lack of exposure and access to international financial markets and emerging market
chains (supermarkets, for example) prevented East African smallholders from realizing
high income and achieving high productivity growth during booms. On the contrary, lack
of exposure rescue them from the direct effect of the financial and economic challenges.
The real question that emerges is whether smallholder farmers should not seek greater
integration with the markets. The answer lies in the relative costs that smallholder
farmers face in taking either decision. What has become clear, however, is that the
global economic crisis may delay and even slowdown the escape of East African
smallholder farmers from poverty. The crisis, with its resulting credit crunch especially
for micro, small and medium-sized businesses, could lead to drying up of credit for
smallholders, and thus limit their means to purchase inputs such as fertilizers,
chemicals and seeds resulting into greater food shortages. The smallholder farmers
thus suffer from second-round effect of the crisis, even in countries without direct
exposure to global markets.25
On a more positive note, the global financial and economic crisis as well as the food
and fuel crisis have provided new opportunities for East Africa’s agricultural
24
All the agricultural companies listed on the Nairobi Stock Exchange (NSE), Kenya, including Kakuzi Limited
(Tea growing, livestock farming, horticulture, and forestry development); Rea Vipingo Limited (sisal production);
Sasini Tea and Coffee Limited (Tea and Coffee); Williamson Tea Kenya Ltd ( Tea); Kenya Orchards Ltd ( fruits
and vegetable); and Limuru Tea Company Limited (Tea) lost more than 30 percent value in 2008.
25
As the export proceeds decline, the deposit base of the banks decreases, lowering the growth of credits. Lower
inflows of remittances would have similar effect in the case of microfinance institutions.

development and poverty alleviation. On balance, the food, fuel and financial crises
have triggered towards more coordinated responses of the governments, development
partners, private sector and other stakeholders, focusing on rural development. The
world has been forced to rethink its agriculture development approaches, including the
role of subsidies to smallholder farmers. This recent development could revitalize
agriculture in general and smallholder farming in particular.
4. OPPORTUNITIES IN EAST AFRICAN SMALLHOLDER
AGRICULTURE
4.1 Investment Opportunities
The potential of agriculture and smallholder farming can be illustrated by the enhanced
income generation in several East African agricultural export sub-sectors. In this
context, Kenyan horticulture exports often serve as an example of agricultural export
success in Africa. Horticulture constitutes one of the largest earners of foreign
exchange in agriculture, with over 50 percent of proceeds being generated by
smallholders.26
According to Minot and Ngigi (2009), the key factors behind the Kenyan
horticultural success were: (i) a real exchange rate aligned with its equilibrium value; (ii)
macroeconomic stability; (iii) an enabling investment climate; (iv) solid infrastructure; (v)
links with European markets, and (vi) deliberate efforts to facilitate cooperation between
farmers and exporters. These factors were complemented by training and support for
small-scale irrigation.
The lessons of the Kenyan success can be applied to other countries with similar agro-
ecologies and production potential. Indeed, Ethiopia’s exports of fruit and vegetables
have also been increasing, with average annual growth during 2002 – 08 amounting to
24 percent. An example of the JJ Kothair Farm in Upper Awash area illustrates the
ongoing transformation. For years the Farm has been producing vegetables for local
markets, but it switched to exports in 2008 after being paired with Aurora Fresh, an
international marketing company carrying out exports to the UK. The transition to
exports was not costless, however. Among other investments and retraining, it required
new packaging equipment and irrigation systems, to meet the quality standards of the
overseas markets (USAID, 2009).
Successes in specific agricultural sub-sectors notwithstanding, overall agricultural
productivity has remained low due to poor access of smallholder farmers to modern
inputs, sub-standard infrastructure and, in some cases as in Ethiopia, government over-
regulation of the sector. The lasting improvements thus require improved private sector
participation, especially in agro-processing of export commodities such as tea and
26
However, while smallholders involved in horticulture benefit from their niche, their number is too small to impact
the overall agricultural sector (Minot and Ngigi, 2004).

coffee. Diversification into other non-traditional export crops is also needed. Investment
opportunities exist in tea plantation and processing as well as packaging of tea for
export. Similar opportunities exist in coffee processing and packaging for final products
like instant coffee, growing of robusta coffee used in blending Arabica coffee, and
manufacture of coal from coffee husk. The pyrethrum sub-sector portrays opportunities
in seed production/plant propagation and investments in plantation.
African agricultural potential has not escaped the attention of foreign investors. The
recent large scale land investments in Africa (including East Africa) are a case in point.
These investments present opportunities for the transformation of farming in Africa
through better irrigation infrastructure, jobs, and technology transfer and food security.
In addition, these investments may benefit smallholder farmers through contract
farming. However, the environmental impact factor of these new investments needs to
be reviewed and factored into the of the agreements for such investments. The land
investments also come with other risks and opportunities (Box 4.1).
Investment potentials exist for smallholder farmers in various areas of agricultural
production and agribusiness, ranging from primary production and food processing to
providing professional services. Furthermore, investment opportunities abound in
support services such as establishing farm machinery and equipment plants; operating
tractor hire centers; establishing training institutes and research centers; developing
human and animal power technologies; operating agriculture mechanization centers;
training of extension experts and agricultural researchers; establishing agricultural
information centers and seed multiplication farms.

4.2. Other Opportunities for Revitalizing Smallholder Agriculture
Despite the constraints listed above, over the longer term smallholder agriculture
presents numerous opportunities, which are highlighted below.
4.2.1 Rising Global demand
The increasing trend in global demand in developed as well as emerging countries,
driven in part by population growth, has created opportunities for the expansion of
smallholder agriculture. In particular, the demand in emerging countries, especially India
and China where the population has doubled to an estimated 1.2 billion and 1.33 billion
in 2009 from their respective numbers fifty years earlier, will provide opportunities for
smallholder farmers to expand their production. Though India and China have been self-
sufficient in food production until recently, inadequate cultivable land will make future
imports of agricultural commodities inevitable.
Box 4.1: Food Crisis and Foreign Direct Investment in Africa’s Agriculture
Africa countries experience a decline in foreign direct investment in the last five years before the global spike in
food prices. Following the surge in global food prices, some countries like United Arab Emirate, South Korea,
United States of America, Japan, Saudi Arabia, China and United Kingdom etc. shopped for African countries with
vast arable land to invest in agricultural production for export and to meet the domestic needs. A few examples of
such investments in the case study countries are; In Ethiopia, British Sun Biofuels, a UK company recently
acquires over 3,000 hectares to grow Jatropha, used for production of bio-diesel; Sekab, a Swedish company,
planning to invest up to 400 million dollars in producing bio-fuels in Tanzania, using up to 2 million acres (about
809,400 ha); Egypt plans to grow wheat and corn on 840,000 hectares in Uganda; In 2008, the government of Qatar
began negotiations with Kenya for a long-lease on 100,000 acres (about 40,500 ha). In the same vein, five
multinational firms from the United States, Japan, and Britain applied in Kenya for land to cultivate crops such as
jatropha, croton, sweet sorghum and sugar.
As noted by Castel and Kamara (2009), the investments are largely export-oriented and do not necessarily
contribute to national food security objectives. This is especially true for biofuel projects in Tanzania or in cases
where agreements are signed for the production solely for export to Saudi Arabia in Ethiopia. These large-scale
land investments in Africa (including East Africa) have huge opportunity to inject funds into the region’s highly
staffed agricultural sector. These extensive acquisitions of land for agricultural purposes not only facilitate access
to capital for smallholder as well as large scale farmers, but also attract technology, knowhow and markets. It also
has potentials to bring macroeconomic benefits, such as GDP growth, employment creation, infrastructure
development, improved government revenues and livelihood improvement in rural areas.
Though, these deals create opportunities, they also have some social and economic challenges that need to be
handled with utmost care in order not to erode the benefits. The case of the large scale sugarcane production deal in
the Wami River basin in Bagamoyo District by a Swedish company which will displaced about 1000 small-scale
rice farmers on their lands without compensation as they have no title on the land is a good example. Another
example is the pastoral land areas in Tanzania and Kenya, where seasonal grazing areas of pastoral populations is
likely to be lost to foreign investors, putting their livestock and crop activities at risk.
Sources : (Castel and Kamara 2009; Collier and Dercon, 2009; Cotula, 2009; Cotsula et al ,2009; Morgan,
2009b; Oxford Analytical, 2009a; Oxford Analytical, 2009b and Sulle, 2009)

Furthermore, smallholder agriculture is projected to be economically sustainable in the
future because of expanding urban centers, rapid economic growth in most of the case
study countries and the accompanying demand for more diversified products, mainly
fruits and vegetables. As discussed above, markets for nontraditional exports such as
horticulture have expanded recently. In addition, urbanization and rapid economic
growth in Africa and many developing countries before the global financial crisis has
pushed up consumers’ purchasing power, generated rising demand for food, and shifted
food demand away from traditional staples toward higher-value foods like meat and
milk. This dietary shift is leading to increased demand for grains used to feed livestock
(Von Braun, 2008). There is also rising demand for fruits, vegetables and more
processed and precooked foods. However, with the increasing amounts of land being
shifted out of agriculture, urbanization also poses a challenge in the studied countries.
4.2.2 Discovery of Mineral Resources
The recent discovery of mineral resources in some East African countries constitutes
another opportunity for future expansion of production and productivity rise of
smallholder farming. Specifically, in Tanzania, gas production started at the offshore Songo Songo
natural gas fields in July 2004. In Uganda, oil has been found, while exploration has been in
progress in Kenya. The export of oil and gas by East African countries is expected to
raise income levels and thus also demand for food and other commodities.
4.2.3 Success Stories from other Developing Countries
The success stories in India, China, South Korea, and Vietnam (discussed above)
where smallholder farming was the bedrock of the highly successful agricultural
revolution give hope for a brighter future and a greater role for smallholder farming in
East Africa in achieving the full potential for agricultural growth. Surprisingly, within less
than three decades the story of Vietnam changed from a net importer of rice to the
second largest exporter largely by Vietnamese smallholder farmers who constituted
about 70 per cent of the rice farmers in the country. With these examples, there is a
reason to believe that East African and indeed African smallholder farmers would be
able to do the same given the similarity of agro-ecologies and existing opportunities.
4.2.4. Climate Change and Environmental Implications
Climate change and its environmental implications for large scale farming make it
imperative to achieve optimal combinations of smallholder and large-scale farming.
Since smallholder crop and livestock farms have less negative impact on the
environment than large farms, raising their productivity on existing land would be
environmentally friendlier than relying on large-scale production alone, which is often
associated with environmental hazards, such as cutting down large trees. On the basis
of environmental considerations, smallholder farming in environmentally sensitive areas
should be encouraged, along with large farms elsewhere.

4.2.5. Market Information and Partnerships
During the past 20 years, there have been advances in cooperation between countries
in Africa, both regionally and at the level of the African Union (AU), which have
supported regional trade. Regional Economic Communities are committed to creating
customs unions and common markets. As progress is made in this area, trade within
East Africa and Africa generally has been increasing, although it is still well short of
potential. In the immediate future, the main markets for African farmers are within Africa:
they are large and growing faster than international markets for most agricultural
commodities.
Moreover, the use of local radio, mobile phones and the internet, has increased the
avenues for timely and wider delivery of useful market information (AfDB, UNECA, and
OECD, 2009). Recently, Nokia in partnership with Kenya Meteorological Department
launched a new service called “Nokia Life Tools” that will enable rural-based
communities and persons living in small towns to receive regular updates on climatic
changes; farm input and farm produce prices on their mobile phones. Estimated retail
prices of the new devices range from 25 to 90 EUR (Ksh. 2,500 to Ksh. 9,000).
In addition to Nokia Life Tool, other major ICT-based initiatives in East Africa to provide
fast and readily available flow of information are the SMS Sokoni, provided by Kenya
Agricultural Commodity Exchange (KACE) and mobile operator Safaricom in Kenya and
Busoga Rural Open Source Development Initiative (BROSDI) by the Women of Uganda
Network (WOUGNET), (AfDB, UNECA, and OECD, 2009). All these new initiatives
help empower smallholder farmers to make quick and informed decisions that will
enhance their productivity.
4.2.6 Food Insecurity in East Africa
The food supply and demand gap and even chronic food insecurity persist in East
Africa. Ethiopia, for example, suffers from structural food insecurity largely due to poor
exchange of food across regions and may remain so for the foreseeable future. The
government and international community intervene in Ethiopia through provision of food
aid. However, the use of food aid should be reserved for only extreme humanitarian
emergencies and should not be allowed to degenerate to an “aid dependency
syndrome”, depressing local food prices and discouraging local production. Food aid
therefore should be cut-off as soon as the immediate crisis is over. The best option in
this context is to support local production of staples. This is yet another opportunity to
be filled by smallholder agriculture. Nevertheless, given the various constraints and
market failures that the sub-sector faces, well-targeted (and time-bound) government
interventions may be needed, as was done in some other countries (Box 4.2).

Box 4.2: The case of Malawi Subsidy Program
In 2005, Malawi imported more than 300,000 tons of food to feed nearly 5 million people. Some of the
causes of the food shortage has been drought and the poor crop harvests that the country has suffered
for many years. However, in 2006 and 2007, the country produced a quantity of maize that exceeded the
country’s needs. Behind these record results is the Government of Malawi’s fertilizer and seed subsidy
program, introduced in 2005 and co-funded by the Department for International Development (DFID).
Through the program, around 2 million households comprising of mainly smallholder farmers were able
to buy fertilizer at the subsidized price of USD 6.5 per 50 kg bag (less than a third of the USD 27 per kg
retail price), and make a saving of USD 2.80 on seed. For distribution, the Government used private
sector agricultural dealers as well as state-owned outlets, enabling customers to choose, for the first time,
where they bought from. This important step forward was made possible by DFID funding.
Although it is difficult to show the impact of individual factors on maize production, results from an
independent evaluation suggest that the subsidy led to an additional 300-400,000 tonnes of maize being
produced in 2006 and 600-700,000 tonnes in 2007. In 2008, Malawi had a maize surplus of 500,000
metric tones. These figures remove the impact that better than average rainfall may have had on the
maize yield. The value of this extra production has, in 2007, been between USD 100 million and USD 160
million, which far exceeds the USD 70 million cost of the seed and fertilizer subsidy. In spite of the huge
success already recorded, the government plan to further increase the country’s food production through
an ambitious irrigation project known as the “green belt” along lakes and major rivers that will help
farmers harvest crop all year round instead of a single growing season. Donor support towards the
program is increasing and its implementation is being refined to make it more targeted and effective.
Sources: ( http://www.dfid.gov.uk/casestudies/files/africa%5Cmalawi-harvest.asp; Dugger, 2007; FAO
and UNDP, 2008; and Masina, 2009).
4.2.7 Supermarkets, Contract Farming and Collective Action
Supermarket operators, which vertically integrate collection, distribution, and retail sale
of food, are becoming increasingly important in East Africa. Most notably, supermarkets
have a share of 20-30 percent of food sales in Kenya. The other three case study
countries have supermarkets but with less share of food sale. In principle, the growing
importance of supermarkets would make farmers more responsive to changes in prices
and consumer tastes by linking customers and farmers more effectively. However, in
practice supermarkets require uniform quality, minimum large quantities, consistency,
and high standard of hygiene and timeliness of supply that can be difficult to meet for
smallholder farmers. They may also require the ability to trace consignments back to the
source to confirm how they have been produced (Hazell, 2005). Smallholder farmers,
who are often undercapitalized and often undereducated, struggle to meet these
requirements. These challenges are easily surmountable with good extension services,
contract farming and collective action, as exemplified by the Eagle project in Uganda
(Box 3.2). Training programs for farmers could also help.
Contract farming and collective action can help incorporate smallholders in high-value
supply chains that require specialized inputs and sell to markets for specialized

outputs.27
However, of critical importance is awareness of and compliance with
standards for high-value products. If well-utilized, stronger linkages of smallholders with
supermarket chains are likely to improve marketability and profitability of their products.
In this regard, East African countries can draw on experiences of other countries. For
example, evidence from Madagascar suggests lessons on how smallholder farmers can
benefit from the emerging retail networks. In Madagascar, one of the poorest countries
in the world, small-scale farmers that produce vegetables for supermarkets in Europe
receive assistance and supervision through contract mechanisms, which help them
meet the complex quality standards of the European markets. As documented in Minten
et al. (2009) “…the number of farmers of vegetables for exports has grown in
Madagascar, despite major disadvantages of geography, bad local infrastructure, low
rural education levels, and high compliance and transaction costs…” Authors conclude
that given the right incentives and contracts, small farmers in Africa can benefit from the
emerging supermarket chains.
Madagascar’s experience seems to illustrate contract farming at its best. As Gou, et al.
(2007) claim:
… contract farming provides a means to manage complex production
processes with greater precision …This can result in higher quality, safer
food with lower production and marketing costs….contracting can
overcome imperfections in input and output markets or institutional
deficiencies by providing credit, seeds, machinery services, human capital
and market access to farmers.
Competition among contractors is a key precondition for the system to work. In the
context of East Africa, Uganda’s Nile Breweries Eagle Project is an example of an
effective use of contract farming (Box 3.2).
27
Contract farming is an arrangement where the farmer produces and supplies a specific agricultural product and
the entrepreneur buys it at an agreed price. Well-aligned incentives and monitoring system are preconditions for the
arrangement to work (SIDA, 2006).

Box 3.2: Contract Farming: Nile Breweries Eagle Project, Uganda
The Eagle Project launched by Nile Breweries in 2002 involves the cultivation and harvesting of Epuripur
sorghum by local farmers for production of low cost, high quality beer by Nile Breweries, which will ensure
a cycle of sustainability for all partners involved. The main partners involved are Nile Breweries Ltd, Afro-
Kai Ltd. – seed commodity broker and Ugandan farmers and their families.
Nile Breweries is the manufacturer of Malt and Beer Afro-Kai Limited is a private limited company
incorporated in 1984, in agriculture commodity trade business. The mission of this company is to ensure
processing and supply of production in order to satisfy expectations and needs of customers. Afro-Kai
Limited provides variety and quality of grains produced through partnership with smallholder farmers
through application of modern technologies. Afro-Kai is in charge of coordinating production which
requires identification of areas that are suitable for production and provides easy access for transport.
Other intervention like selection of farmer, arrangements for the ordering and supply of inputs and
provision for farmer credit seems important challenges for the company.
Nile Breweries through Afro-Kai, their sorghum agent, distributes Epuripur Sorghum seeds, a local
species of sorghum to farmers in Apac, Lira, Masindi, Oyam and Soroti districts. The farmers after harvest
supplies Nile Breweries Limited the Epuripur Sorghum for the production of low cost, high quality Eagle
Extra and Eagle Larger beer by Nile Breweries Limited which will ensure a cycle of sustainability for all
partners involved.
Through establishment of an out-growers’ scheme, Nile Breweries and Afro-Kai played a key role in
grains marketing, where smallholders were effectively linked to the market. The project enhances more
confidence of the financial institutions to support Uganda’s farmers. The farmers also benefits from the
extension services through farmer training programs and provision of technical advice on all aspects of
crop management. The farmers involved in the scheme were guaranteed stable prices and were sure of
regular and predictable income. This has enabled them to send their children to school and buy medical
care and food. More than 8,000 farmers from 26 districts are involved in the growing of Epuripur sorghum
with harvest in excess of 6,000 metric tones per annum, which injects of over USD 2 million each year
into the rural economy in Uganda and creates jobs and wealth for Uganda farmers.
Sources: (Balya, 2007; Nile Breweries, 2009; and Odomel, 2009)
5. CONCLUSIONS
Revitalizing the agricultural sector, and in particular smallholder agriculture, is a
precondition for achieving high and sustainable growth, poverty reduction and food
security in East Africa. Despite its enormous potential, however, the performance of
agriculture (including smallholders) has so far been disappointing. Recent growth
acceleration in Ethiopia and a few successful sub-sectors in other studied countries
notwithstanding, contributions of smallholder farming, and agriculture in general, to the
region’s recent rapid growth during 2005 - 08 have remained limited. The sector has so
far failed to provide the basis for development, including through industrialization, in
spite of a series of reform attempts undertaken in these countries.
This study concludes that concerted efforts of all stakeholders, including governments,
NGOs, and development practitioners are needed to remove the existing bottlenecks to
productivity growth in smallholder agriculture and progress with the region’s

development agenda. Research reviewed in this study suggests that given the
interdependent constraints that amplify each other, several measures need to be
implemented jointly for the reforms targeted at the smallholder sub-sector to succeed
this time around. In particular, improving land property rights and access to land,
increasing access of farmers to credit, providing appropriate incentives for the market
mechanism to work, and encouraging farmers’ training so they are more inclined to use
modern methods of production are key. Other ongoing efforts, in particular improving
infrastructure, also play an important role, as the recent increase in agricultural
productivity in Ethiopia illustrates. Reforms to the smallholder sector need to be
complemented by the development of commercial farming to achieve high and
sustainable increase in agricultural productivity.
One of the critical lessons from the Asian “Green Revolution” is that sustained
agricultural growth cannot be achieved by markets alone. The East African
governments have a key role to play in revitalizing smallholder farming and transforming
smallholder farmers from subsistence to commercial agriculture. They must create an
enabling environment conducive for agriculture in general, and smallholders specifically,
which requires stepping up the budgetary allocations to agriculture in line with the
Maputo declaration. This would ease implementation of policy and regulatory
improvements, development of infrastructure, environmental protection, and secure
property rights. Governments also need to ensure that the ministries of agriculture are
performance driven. Moreover, productivity gains through innovation and technology
adoption can be facilitated through farmers’ training. This ensures that the farmers have
the required skills for production of commodities that meet the quality standards that will
allow them to compete on domestic and international markets. The input and output
markets also cannot be completely left to the private sector. Given the poor
infrastructure and imperfect information, governments may need to intervene to ensure
that farmers have access to input and output markets through provision of market
information and innovative adoption of technology, such as mobile banking in Kenya.
The African Development Bank and other development partners also play valuable roles
in helping develop the agricultural sector, including smallholder farming, in East Africa.
In addition to funding, the Bank encourages East African countries to adopt preventive
measures against food crisis, including through mobilizing resources. In the broader
development context, the Bank promotes regional integration for enhanced trade and
investment flows, supports mechanisms that prevent conflicts, and facilitates their early
resolution. Finally, through policy discussion with its RMCs, the Bank identifies the best
practices for adoption by individual countries, tailored to their specific circumstances.
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