The Ghana Commercial Agriculture Project (GCAP).

Background

The Government of Ghana (GoG) has engaged the World Bank and USAID in supporting agricultural development project – the Ghana Commercial Agriculture Project (GCAP), with the principal objective of improving the investment climate for agri-business and developing inclusive Private-Public Partnerships (PPPs) and smallholder linkages aimed at increasing on-farm productivity and value addition in selected value chains.

‘Modernizing agriculture’ remains the overarching theme of Ghana’s agricultural policy as well as the new private sector development strategy. It focuses on a stronger role for the private sector in transforming agriculture from a low-productivity subsistence-based sector to one characterized by high-productivity, integrated value chains, and extensive value addition. Government interventions are focused on the enabling environment and other targeted measures to facilitate such investment, alongside more direct interventions targeted at food insecure areas.

Ghana’s current agricultural policy framework and national development plan emphasizes the importance of graduating from a subsistence-based small-holder system to a sector characterized by a stronger market-based orientation based on a combination of productive small-holders alongside larger commercial enterprises engaged in agricultural production, agro-processing and other activities along the value chain.

To maximize the impacts of private investment in agriculture on development, a particular focus is to facilitate small-holder linkages with other commercial businesses through, for instance, contract farming and out-grower schemes. Recognizing some of the challenges of past efforts, the Government is adopting a new approach of public-private partnerships (PPPs) in which complementary and targeted public support serves to leverage of facilitate private investment in the agriculture sector.

A major thrust of the new approach centres on enhancing the role of commercial agriculture and strengthening agricultural value chains. Under the program the Government is seeking to broaden and deepen private sector investment in agriculture – noting that it is already occurring but can be augmented – in the following ways:

   1. Additional large-scale commercial farms in the cereals sector has the potential to utilize large tracts of unutilized land to meet domestic consumer demand (rice, white maize) and as lower-cost imports to the poultry industry (yellow maize) and, ultimately, for export to the region.

  2. There are additional opportunities for multinational investors to expand the horticulture sector, given Ghana’s established market presence in Europe and favorable geographical position, to raise export revenues.

   3. Additional agro-processing especially in the horticulture sector can provide alternative markets to local production that is unable to meet European requirements (tastes or standards) and create jobs.

    4 .More private input dealers can extend the availability of seeds and fertilizer to raise productivity across the sector.

   5.Additional private enterprises engaged in the marketing and processing of food staples for local consumption, for instance by aggregating output from small-holders for bulk distribution and processing to generate economies of scale in the value chain.

Innovative institutional arrangements between large(r) scale investors and small-holders can generate mutual benefits and provide effective mechanisms for bolstering small-holder productivity. For instance, out-grower schemes provide linkages between vertically integrated plantations and surrounding small-holders. Contract farming arrangements can provide benefits for input and output dealers and small-holder farmers. To this end, the Government is keen to develop the Accra Plains through Public Private Partnership (PPP) and provide support to encourage the development of nucleus investment arrangements for the benefit of local smallholder farmers.

The Proposed Project

The project development objective is increased access to land, private sector finance, input output  markets by smallholder farms from PPP in commercial agriculture in Accra Plains and SADA Region  and increasing on-farm productivity and value addition in selected value chains. The main outcome of the project would be an improved investment climate that delivers more – and more inclusive – private sector investment in agriculture. Accordingly, project success would be defined by the following results:

   1. Increased private investment in agriculture should increase across a range of related enterprises including large(r)-scale commercial farming, agricultural processing and marketing industries and small-scale entrepreneurial farmers.

   2. An expansion of marketing arrangements that link small-holders with larger commercial entities. (These commercial entities could be engaged in production, as in the traditional nucleus-out grower type model, or in downstream marketing or processing, in the case of contract framing.)

    3. Increased productivity of small-holder farmers brought about by a combination of (input and output) market access improvements, improved technology and behavioral shifts resulting from lower risks and/ or improved incentives generated from a stronger private-sector led agricultural sector.

Proposed Project Approach: 

The proposed project would be based on four main concepts:

  1. Support and strengthen the Government’s ability to promote a sound enabling environment for commercial agriculture investment (large and small; foreign and domestic) by improving the enabling environment and developing a more pro-active investment promotion orientation.  This could include the provision of critical infrastructure in key locations.

   2. Address the fragmented nature of existing policy and capacity by consolidating core functions into a streamlined institutional structure (perhaps a one-stop-shop).  Also to improve the oversight and monitoring capability to promote sustainable agro-industry.

  3. Adoption of a ‘transaction based approach’ by seeking to identify, package, negotiate and secure specific investments, with a PPP element where necessary.  It is envisaged that a set of viable discrete projects would be identified during project preparation such that these could be mobilized rapidly upon project effectiveness.

   4. Social and environmental issues to be at the core of the project, with all commercial agriculture investments to adhere to national and World Bank standards.

The project would adopt a ‘proof of concept’ approach and would aim to adapt to experience on two fronts.  First, the limited application of PPPs in Ghana means the details of successful partnerships would be learned through application.

Second, the fragmented institutional architecture would need to be resolved early through an interim arrangement constructed around a project implementation unit while a longer term solution is identified (as part of project activities).  Consequently, the project would need to be flexible to adapt to experience.  A transaction-based approach would help retain a sharp focus on results while allowing for a pragmatic implementation modality.  This flexibility is reflected in the project scope outlined below.

Project Scope

The proposed project would have three components, with the first being focused on improving the overall investment climate for agricultural development in Ghana, and the second and third directly targeting private sector led agricultural investment involving smallholder farmers through PPP arrangements.  The second and third components would initially be focused in the SADA Region and Accra Plains regions.

Proposed Project Components

Component One:  Strengthening investment promotion infrastructure, facilitating secure access to land and project management. This component would ensure that Ghana attracts investors willing and able to invest in strategic subsectors that contribute most positively to national development gains. It would promote a secure investment climate – particularly with respect to access to land – that reflects rights and obligations of investors, government and affected communities.

This component would establish a ‘one-stop shop’ for investment promotion, drawing on the competences from existing Ministries, Department and Agencies in a streamlined institutional architecture. This would transform the current fragmented and ineffective regime to one in which agriculture-related investment promotion efforts are focused on securing domestic and foreign investments in activities/ locations/ business models that most contribute to Ghana’s national development goals. It would also strengthen the oversight capacity of Government to ensure investors’ development plans are being fulfilled and to develop more orderly exit of failing investors and the reallocation of land to new entrants.

This component would also support an improved mechanism for facilitating access to land by reducing the search costs to potential investors through an expansion of a database of land suitable for investors and by actively matching potential investors with suitable land owners. In the case of land under traditional ownership, due diligence and sensitization of surrounding communities would promote an understanding of the rights and obligations from subsequent lease agreements. A ‘model’ lease agreement would be developed to form the basis of all subsequent investor agreements, and which includes indicative arrangements for managing leasehold payments and other community development-type funds.

Component Two:  Securing PPPs and small-holder linkages in the Accra Plains This component will conclude a transaction for a PPP in an irrigation investment in the Accra Plains. The entire Accra Plains Plains area extends to around 150,000ha and the ultimate objective of the Government is to fully develop the entire area.

It would also assist with land acquisition under the one-stop-shop proposed above.  It would also include additional support to extend nucleus investments for the benefit of small-holders through various means including assistance to expand necessary infrastructure into out-grower lands as well as direct support to the smallholders to ensure they are capable out-growers.

This component would focus on the Accra Plains, where an area  has been proposed (in general terms) for a substantial irrigation investment to be managed under a PPP and which would supply water to both large commercial farms and an out-grower scheme.

Component three:  Securing PPPs and small-holder linkages SADA Regions

This component would involve the identification and realization of private investments in the value chain through PPPs.  Investors could be local or international.  Investments could be in production or processing and ancillary businesses.

This would provide assistance for the establishment of large commercial farms as nucleus farms with appropriate linkages under out-grower schemes.  Support to the nucleus would include critical access infrastructure including roads, power connections and primary irrigation facilities.  This would include support to warehousing and storage through the rehabilitation and concessioning of publically owned marketing infrastructure (including the development of warehouse receipts system).  It would also include support for agri-business centers that provide essential services and inputs to small-holder farmers.

This would initially focus on the Northern Region, but would be responsive to opportunities in other regions if these were of sufficient scale.  (It would be important to avoid supervisory activities being spread too thinly across a wide area in order to keep management costs down.)

For all investments so assisted, the project would seek to leverage small-holder participation.  Project activities would include developing a framework for out-grower schemes and contract farming arrangements that would sensitize potential small-holder participants in order to align expectations of both small-holders and the ‘nucleus’.

This project would support start-up costs resulting from institutional demands of sustainable small-holder linkages as well as any investment costs from new agronomic practices etc. that maximize the impacts of marketing linkages.  Activities could include:  organizing small-holder participants into groups and building their capacity to become capable partners, recognizing the greater demand for business acumen in negotiating beneficial arrangements with investors; grants to meet the establishment costs of small-holder farmers (land preparation, planting material, etc.); and/or working capital for out growers to procure necessary farm inputs (improved seed, fertilizer).

To encourage investors themselves to finance small-holder linkages as part of their integrated business model (and thereby maximizing the use of IDA resources), while recognizing the increased financial risks from doing so, this would include a risk sharing mechanism (eg. first loss cover).