When I began working in Ghana in 2006, the local newspapers reported frequently of farmers demanding the government to reopen a Nkrumah era tomato processing plant in northern Ghana, which had been closed for decades. The government operated it for short periods over several years before shuttering it for good. The factory was one of two Ghana had invested in following independence as part of the strategy to produce what it imported. The other factory, in private hands now, also remains unutilized. Although Ghana recently helped a private processing plant come up under its ‘one district one industry’ strategy, its desire to significantly reduce the imports of processed tomato products remains unfulfilled.
What the government did when it reopened the plant was to “mop up surpluses,” an intervention farmers and policy makers usually call for when faced with gluts. The mental model behind it suggests that processing adds to the demand for raw material, thus preventing gluts from pushing down prices. However, it neglects to recognize that depending on surpluses – what the consumer market cannot absorb – for raw material would not make the processing viable. For example, nearly all the tomatoes produced in Ghana would not have been adequate to keep that one factory occupied.
Unlike the tomato producers, tomato processors in Ghana must compete with imported tomato paste from China and Italy – tomato producers too in northeastern Ghana compete with fresh tomatoes from Burkina Faso. Adequacy of raw material supplies is often more critical to processors than other factors associated with operating an industrial plant. Quantity, quality, and costs matter. The tomatoes that came to Ghanaian consumer market were unsuitable for processing because they contained too much water. Importantly, their cost was too high for processors. In one year, their prices fell below the costs would make processing viable only during one month.
Cassava processing too has faced similar problems in Ghana. But old processing factories continue to attract the Government’s attention because of pressures not to abandon the old, failed strategy to industrialize. Ghana is now preparing a sugar factory for reopening. Adding value and industrializing are compelling. But the government has failed to give as much attention to improving raw material supply as it does to adding value.
The processors in the country have had no choice but to work with producers to build their supply chains. This is not unusual because processors often need raw material that may not be available in the market – a particular type of cassava or a potato – but if the production base is weak, they have to put so much more into developing them. The larger fruit processing firms in Ghana employ agronomists and extension agents to work with farmers to help them increase productivity, produce fruits and vegetables of desired quality, and under certification where required.
They need to get into contracts with farmers, which is not risk free because more often than not – unless the contract terms are always superior to what they can get elsewhere – they will be tempted to side sell. The manager of a large fruit processing plant told us that they like to build relationships rather than get into contracts with farmers. They could because they had the capacity to work with a large numbers of farmers. Smaller firms face problems, although it might seem easier for them to maintain relations with fewer outgrowers. Even smaller processors like those who supply fresh fruit juices to small events buy directly from farmers.
Many processors help farmers increase yields, apart from producing the quality they require. Why? One reason is to have fewer suppliers meeting all their needs. A wise businessman, who was buying yellow maize for producing fish feed, told us that he would like to help farmers improve the yields before talking to them about prices. His reasoning was that farmers needed to realize equal or higher revenues by selling to him even at competitive prices. Small processors would be at a disadvantage to help farmers upgrade the technologies to be able to bargain for competitive prices. A Ghanaian tomato producer harvests around 10 tons per ha while producers in China harvest from 40 to 70 tons per ha.
Ministries and agricultural projects can help – many projects have tried. The Ghanaian agriculture ministry now presumably wants to orient its staff to develop value chains – rather than supply subsidized seeds and fertilizers. They have a simple way. They can strategically work with farmers to produce the requirements of processors. The ministry has in the past demanded that the private enterprises that benefit from such efforts should compensate them or meet some of the costs. But providing such services can help processing firms thrive, creating even more demand for what farmers produce. Some processors, who benefited from tax rebates in the savanna area, told us that they would have benefited more from better raw material supplies and good roads.
Working with private enterprises can be complex, requiring rules of engagement. Should the ministry guarantee supplies, get involved in price negotiations, or how should it prioritize who it works with? If it can develop satisfactory ways of working, it can target its limited resources to benefit from both low hanging opportunities while not ignoring neglected crops and areas.