Job and Wealth Creation: Seed Business Incubation in Africa

Trend analysis of the seed sector indicates that within the last decade, Africa has seen a four to five fold increase in the number of seed companies producing and marketing seeds for field crops. However, study conducted by (Tahirou, Sanogo, Langyintuo, Bamire, & Olanrewaju, 2009) showed that seed demand and needs in sub-Saharan Africa far outweighed the supply. Certified seed supply accounts for only about 33% of the total seed demand in Sub Saharan Africa, with only 20% of farmers using seeds of improved varieties. Currently, the market value of seed business in Africa is only 2% of the global estimate of $53.8 billion. Meanwhile, the global seed market is projected to grow to about $204.5 billion by 2025.
The factors behind the slow transformation of the African seed sector can be attributed to unfavorable regulatory policies, lack of access to production credit, poor infrastructural investment and low levels business and managerial competencies. However, the case of the seed sector in Ghana offers insight on how the sector can be supported to grow and meet the market demand. The paper presents a case study of Ghana showcasing how new seed companies have been established through incubation and the results they have achieved. Seed business development using incubation possess unique strength through the ecosystem that leverages on the competencies of several partners to offer solutions to the constraints facing the seed sector. The seed starts-ups incubated and accelerated have shown a Return On Investment of between 11 % and 73%. This supports the assertion by (Smith, 2010) that business startups nurtured by business incubators have had a success rate of 87% compared to the 44% without incubation support.
A strong and vibrant seed system in Africa will contribute to increased access to high-quality seed at affordable prices; the growth in revenues of seed SMEs; more employment for the youth; improved income for smallholder farmers and food security.
Keywords: Agribusiness incubation, Jobs, wealth creation, Africa, Ghana, seed business

Agriculture employs about 70% of the African populace, of which 80% are smallholder farmers (AGRA, 2016). However over the years, incomes of these smallholders have been dwindling due to lack of access to high yielding and climate smart seeds (Besong, 2013). Governments, Development Partners and the private sector entities have developed interventions to increase the production and supply of certified seeds but results of these programs have not met the set targets. Seed SMEs that emerge from these interventions eventually collapse or fail to achieve sustainability, as they are run as projects and not as businesses.

In the face of the above state of affairs, the market for improved seeds in the world continues to boom while African seed businesses are unable to benefit, as they are not strategically placed to compete and create their own niche markets based on the market structure and demands. This explains why Africa accounted for only 2% of the global seed market value of $53.8 billion in 2014. According to the IFS, this total global market demand for seed will grow to about $204.5 billion in value by 2025 (Research and Markets, 2016), indicating a potential economic gain for Africa.

Aside the increase in global demand for seeds, the demand in sub-Saharan Africa far outweighs supply, with quality seed supply accounting for only about 33% of the total seed required. This case is not different for Ghana, where supply is only 11% of the total market demand for improved seeds (Tahirou, Sanogo, Langyintuo, Bamire, & Olanrewaju, 2009).

This paper presents a case study from Ghana showcasing how new seed companies have been established through incubation and the results they have achieved.

Incubation, mentorship and coaching have aided the new seed businesses to position themselves strategically to profit from their niche markets. The growth of these businesses have become a motivator for other youths to engage in the sector as a source of gainful employment.

Methodology

The study leveraged on both primary and secondary data sources for the results and findings presented herein. The primary data used in this paper were derived from interviews conducted during field visits, consultative meetings and interviews conducted on telephone. Leveraging purposeful sampling, the interviews were conducted on clusters of seed SMEs (Incubatees), certified seed out-growers, business incubator managers and staff, national research institutes and seed policy makers. A total of 30 incubator business models were reviewed and 510 mentors were consulted across Africa.
The secondary data for the study was acquired from a variety of online journals, conference papers and published workshop reports. Both qualitative and quantitative approaches were used to analyze the seed systems of Africa and the existing models of incubation to reveal how their successes could be replicated in the seed sector for growth.

Overview of the seed system in Africa

Africa’s seed systems are generally classified as formal and informal (Niangado, 2010). The informal system is the predominant form of seed systems in Africa. It constitutes 60–80% of total seeds used by smallholder farmers for indigenous vegetables, pulses, vegetative propagated crops and cereals such as maize, millet and sorghum. This system is semi-structured and operates mainly at the individual or community level. Seeds within this system are generally easily accessible and cheaper as the major source is from farmer saved seed, but are of inconsistent quality (African Center for Biodiversity, 2015).

Unlike the informal system, the formal seed system is deliberately constructed with formal regulations to maintain varietal identity, purity as well as physical and sanitary quality. However, seeds produced in this system are marketed through officially recognized outlets, which are not easily accessible by smallholder farmers (Setimela, Monyo, & Banziger, 2004). Meanwhile, smallholder farmers are a core part of Africa’s agricultural sector accounting for about 70% of the population, who produce approximately 80% of our food. In addition to this challenge, the formal system is dominated by small local seed companies who are constrained by the following challenges as captured below during an AGRA organized workshop on early Generation Seed;

  • Unfavorable and inconsistent regulatory policies: Unfavorable seed policies generally hamper the availability of improved. In Ghana, only certified seeds are allowed to be sold on the market. However, the process surrounding seed certification is cumbersome and complex. This often times discourages private individuals to engage in seed business.
  • Technical constraints to production: Seed SMEs in Africa lack access to scientifically validated seed stock, lack the business acumen, production competence, and strategy to enhance distribution of superior quality seed.
    Lack of access to finance: Seed production suffers from a lack of innovative credit facilities, high cost of borrowing and high production cost.
  • Poor infrastructure: Infrastructure deficit was identified as one of the major limiting factors hindering the development of the seed sector. Prominent among them was lack of facilities for seed processing and storage.
  • Lack of mentorship support: Most seed business present at the workshop mentioned lack of access to business support services and mentorship in business strategy and planning, as one major problem inhibiting their competiveness in the sector.

The diverse and complex nature of the challenges in the sector requires critical support and strategic interventions that can address the core problems to ensure growth.

This paper proposes agribusiness incubation as a tool that is able to address the complex set of problems, by instituting effective and responsive interventions to mobilize the right skills and resources to create the ecosystem needed to stimulate vibrant and profitable seed business. It was proven by research that small businesses nurtured by business incubators have a success rate of 87% compared to 44% for businesses without incubation support, a theory tested by ECoSIB seed incubatees as discussed in this paper (Smith, 2010).

What is business incubation?

There are many definitions for business incubation. However, experts unanimously agree to define business incubation as a program aimed at supporting the development and scaling of growth oriented early-stage enterprises (Khalil & Olafsen). The main goal of most incubation programs is to establish successful start-up companies which graduate to become financially independent. The graduate companies are in turn expected to create jobs as well as transfer and commercialize new technologies (Mubaiwa, 2015).

Fig.2: Summary achievements of the 7 FARA, AAIN-UniBRAIN incubators in 4 years.

The case for agribusiness incubation

Various sources of literature have sited incubation as one of the driving mechanisms that have been used worldwide to spur economic development. Numerous success stories can be drawn from China, where (Chandra & Fealey, 2009) observed that the extensive business incubator program developed in the early 1990s played a key role in facilitating the country’s transition from a socialist to a market economy, as it enabled the promotion of a culture of innovation, which is believed to have kick-started China’s journey as a world super power.

Similarly in the United Kingdom, (Dee, Livesey, Gill, & Minshall, 2011) report that the popular Automated Teller Machine (ATM), which revolutionized consumer banking and the banking sector as a whole evolved out of an incubation program by Acorn Computers in 1993.

In the agribusiness space, incubation has been employed to enhance the capacities of small enterprises to become competitive and sustainable. The Timbali Agribusiness Incubation Program in the Mpumalanga region of South Africa is one example of a highly successful incubator. The incubator operates a franchise model, whereby its clients or incubatees supply cut flowers to its commercial arm. This enables the incubatees to begin generating revenue almost immediately. The focus is on rural farmers whose livelihoods would otherwise be threatened by competition from large and high-volume farms. Timbali has both off and onsite training programs for its incubatees and helps them to secure loans to get started. Due to its success, Timbali now seeks to reach other parts of South Africa with the model (World Bank, 2014).

Another successful example is the case of the seven anchor incubators established by the African Agribusiness Incubators’ Network (AAIN) in partnership with Forum for Agriculture Research in Africa (FARA) and funded by DANIDA. The seven incubators operate the UniBRAIN tripartite public-private business model, which includes government & research organizations, universities and the Private sector. This unique combination allows the incubators to access improved technologies for commercialization. Other consortia partners such as the banks also help the incubators generate revenue or guarantee fund for the incubatees to warrant their access to low cost capital for business operations (AAIN & FARA, 2016). The model has been a huge success and its results are summarized above in fig 2.

Seed business incubation in Ghana

Based on the success of the UniBRAIN incubation model and the resolve of AGRA to improve the capacity of public private sector groups to deliver quality seeds to smallholder farmers, the Entrepreneurship for Commercial Seed Incubation Business (ECoSIB), the first seed business incubator was conceptualized. ECoSIB is modeled after the FARA/AAIN UniBRAIN example and is designed to build the capacities of entrepreneurs with the requisite skills to engage in commercial seed business. The incubator works with both state and non-state partners to offer distinctive services to support the businesses of its incubatees. Table 1 below illustrates the consortia partners of ECoSIB and their respective roles in supporting the seed business incubation ecosystem.

Table1. Illustration of the consortia partners of ECoSIB and their roles established by the study.

Performance Appraisal

Since inception, the seed business incubator has engaged, mentored, accelerated and supported 15 Seed SMEs in the production, processing and marketing of seeds.

Out of the 15 incubatees, 2 of the incubatees have graduated into Small Scale Incubator Hubs, who are able to offer services to other potential incubatees and seed startups. The audited financial reports of the incubatees indicate that 67% of them are operating above breakeven, with Return On Investment ranging from 11% to 73% as shown in Table 2. Combined, these incubatees have provided both direct and indirect jobs to 714 people in their communities of operation. The incubatees have also offered internship opportunities to university students who are interested in learning the trade.

Measuring ECoSIB by its overall goal of making superior quality seeds available to smallholder farmers, the incubator has been successful as about 77% of seeds produced by its incubatees are purchased by smallholder farmers (ECoSIB, 2016).

Table 2. Showing the performance of ECoSIB incubatees

This level of achievement has been possible because of the business support services the incubator offers to its seed SMEs. The operational ecosystem that has been established through the support of AGRA and the technical partners that form ECoSIB (FARA, AAIN, CSIR, Agri-IMPACT, UG) has created an effective seed marketing and business strategy which has laid the foundation for acceleration.

One innovation and strategy that has emerged and been deployed to market seeds to the rural smallholder farmer is through the “Value kit maize box”. The box contains everything a farmer will need to cultivate an acre of farmland with, fertilizer excluded. The farmer also receives after sales services such as fertilizer application and training on other agronomic practices.

There are a host of services that agribusiness incubators provide to incubatees. As the study revealed these services are not particularly different from those provided by ECoSIB as captured below:

Infrastructure or facility-based services

such as demonstration sites, shared seed processing facility as well as the facilitation of business operation equipment and asset leasing.

Financing and Access to Finance services

such as facilitating access to commercial and none commercial loans, access to grants as well as accounting and financial management services.

Business services

such as business modeling strategy development assistance, marketing assistance, licensing and intellectual property assistance, agronomic training etc.

Business networking services

such as linking incubatees to strategic partners, mentoring and access to a network of mentors.

Education and access to knowledge services

like offering comprehensive business training programs, organizing educational tours, regular business pitching and B2B match making events.

The list of services provided above may not be exhaustive but serve as a foundation on which other seed incubators will build depending on the emerging needs of the incubatees.

In order for agribusiness incubators to be well-positioned to deliver the services listed above to incubatees, the incubators must pay attention to six key drivers to successful agribusiness incubation (Ariho, 2016). These key drivers include access to innovative financial resources, a functional governance system, infrastructure, logistics management, input and out market development as well as access to Information. According to (Ariho, 2016), information remains a major factor of production as missing reliable information is the equivalent of missing working capital for business.

Fig.4: Key drivers to Successful agribusiness incubation

Common steps for Incubator establishment in Africa

The study revealed that incubator establishment follows a systematic process that involves a step by step logic or a series of business activities. The activities start from understanding the ecosystem and infrastructure, factors for the success of the incubator and opportunities for its sustainability. Actors interviewed and literature available indicated that over 70% of incubator managers follow a logic of 9 steps and activities during incubator establishment. The figure below summarizes the steps for incubator establishment.

Fig 5: Steps for Incubator establishment in Africa

Conclusion

Juxtaposing the services provided by seed incubators and the factors inhibiting the growth of the seed sector in Africa, the study suggests that business incubation is an effective tool for strengthening Africa’s seed sector, as it provides the enabling environment for seed SMEs to thrive. The 87% success rate of small businesses nurtured by business incubators as compared to the 44% for those without incubation supports this claim.

The study established that seed business incubators possess effective strategies of engaging their ecosystem, leveraging on the competencies of several partners such as government regulators, financial and research institutions and other seed value chain actors. These partners give the incubator the buttress to offer compelling solutions to the limited access to production credit, poor infrastructure and the other bottlenecks identified to be inhibiting the growth of seed SMEs in Africa.
SMEs are the focus of incubation because they form majority of the seed sector.

They are closer to smallholder farmers and understand the needs and the seed traits desired by these farmers. However, the challenge lies in the fact that the seeds they produce are of inconsistent quality. Therefore, they need to be incubated in order to become more competitive and better positioned to provide superior quality seeds to famers at favorable proximity.

Competitive seed SMEs will stimulate demand and supply of superior quality seeds which will contribute to:

  • Increased access to high-quality seed of improved varieties by farmers at affordable prices,
  • the expansion of private enterprise as the seed market develops;
  • the use of varied genetic qualities for seed breeding contributing to climate change adaptation;
  • Increased employment opportunities and income for farmers and food security.

Recommendations

Based on the findings from this study, the following recommendations have been made:

  • There should be increased investment in seed business incubation by the government of Ghana and other actors to double job creation.
  • Robust and flexible policies that can respond to market needs and challenges are needed for the development of the seed sector in Africa
  • The incubation model should be supported by governments as a tool for job and wealth creation beyond the seed sector.
  • Universities and research institutions should invest in research for business development as opposed to traditional research for development.
  • Seed business incubation requires the recruitment of more mentors and their connection to the businesses through incubators.