Why value addition is critical to an economy

The global imagination of ‘rural’ is mainly a depiction of low-income communities relying primarily on agricultural activities for livelihood.

Agriculture and industry have long been tied in a symbiotic relationship that allows the former to provide raw material towards the creation of final products. Industry, on the other hand, incorporates many agribusinesses into the numerous value and supply chains that drive it, and this catalyses the growth and productivity of agriculture. Its additional generation of foreign earnings through exports provides an income to many.

According to the 2018 Kenya Economic Survey, our agricultural sector made the highest contribution to GDP, with 31.5 per cent in 2017.

Just to get a better scope of the contributors to this; the total value of marketed production increased by 8.2 per cent to Sh446.9 billion from Sh413.3 billion in 2016, with the highest marketed production being livestock and products at Sh135.6 billion, tea at Sh134.8 billion and horticulture at Sh114.3 billion.

We need to start thinking – agro-based manufacturing. We should renew our commitment to increased value-addition and our zeal to realising prolific backwards and forward linkages along value chains.

In the food security and manufacturing pillars of the Big Four agenda, the Government has put in place measures that seek to expand food production and supply, as well as a concerted effort towards the reduction of food prices to ensure affordability.

To promote

Under the two pillars, the Government has prioritised textiles and apparel, leather products, agro-processing and construction materials.

To promote agro-processing, the Government is focusing on tea, coffee, meat, sugar, dairy, fruits, and vegetables, in order to obtain more value and create an additional 200,000 jobs in the country.

A major contributor to food scarcity has been the massive post-harvest losses that occur due to low-value addition and inadequate cold chain facilities.

The Food Agriculture Organisation’s (FAO 2014) report on food loss assessments approximates that Kenya losses between 20-50 per cent of its agricultural production due to post-harvest losses.

However, if we recalibrate our thinking towards agro-based manufacturing, we can significantly minimise this wastage and increase the quality of products and their shelf life. For instance, at present, fresh milk can last 24 hours at most, depending on climatic conditions.

But, once it is processed into various products, it can last months on end. Hence we need to kick-start deliberate efforts by county governments and industry to, for instance, set up milk cooling plants along the supply chains towards this endeavour for value addition.

Made products

Value addition also promotes the growth of backward and forward linkages, and in the process creates the much-needed productive jobs for the youth, and equally, increases the purchasing power of citizens.

As demand for locally made products increases, so does the demand for agricultural products to cater for the new market and, ultimately, demand for farm inputs such as fertilisers, better machinery that will also lead to the expansion of the agricultural sector.

Moreover, value addition provides additional foreign exchange earnings through export of agro-processed products.

The world chocolate market, for instance, is worth $100 billion annually. However, the two largest cocoa growing countries, Cote d’Ivoire and Ghana, only earn $5 billion since all the value addition is done outside those countries.

The same applies to products such as tea, coffee, hides and skins. If we are to add value to these products, we would realise five times the earnings we currently have (at the very least), and in the process, create more direct and indirect jobs along the value chains.

Our tea, 97.3 per cent, is exported in bulk form, meaning that only 2.7 per cent is valued-added. If we are to add value to our tea, we would earn at least 500 per cent of the value of the raw exports.

Value addition of cotton from farm to fashion increases value by about 600 per cent.

To achieve the above, it is critical that we have policies that encourage the competitiveness and growth of local industries.

Additionally, it is important that we challenge land policies that are continually reducing the amount of land available for agriculture, and enforce cooperative society laws to curb rampant mismanagement of farmers’ resources to encourage farming in the counties

Mr Cuthbert is the chairman of the Kenya Association of Manufacturers North Rift chapter. info@kam.co.ke