Agro-processing in Ghana and Globally

By: Katie Collier

Date: April 19, 2021

Ghana’s agro-processing industry is in its nascent stage, constituted by 97 percent micro- and small-scale and 3 percent medium-scale processing firms. This industry largely produces commodities for the local Ghanaian economy rather than for global export and heavily relies on the informal economy.

Within Ghana’s agro-processing sector, there are two groups. Comprising most of the sector is domestic processing: essentially, the agro-processing cottage industry, employing mostly family labor which often leads to inconsistent quality output. Factory processing occurs in much smaller amounts. It is mostly owned by foreigners or the state and contributes positively to the economy through exports.

By generating demand for products of upstream and downstream industries, agro-processing has potential to be integral for Ghana’s economic development. The industry in Ghana is an essential employment sector for rural populations and women in particular. Nearly half of this labor force works in micro agro-processing enterprises. In fact, shares of employment in agro-processing are highest in Africa. Agro-processing has also made a significant contribution to Ghana’s total export earnings.

Although Ghana’s entire agricultural sector is an important component of the country’s economy, employing 53.6 percent of the labor force, its link to manufacturing is weak. There remains a poor connection between agricultural raw materials and the processing industry, resulting in little value added by the manufacturing sector. The agro-processing industry comprises more than half of the value added in this sector; however, Ghana’s manufacturing sector is largely struggling, seeing limited growth and a fall in its share of the GDP.

Most products sold on local markets have paltry value added. For example, grain legumes are only threshed and roots and tubers are sold raw. Low value-addition in Ghana’s agro-processing may be a result of a lack of technological innovation with low amounts in cottage industries and few large-scale operations. In fact, the only good of the Ghanaian agro-processing industry processed on a large-scale is cocoa. The country’s processing activities have been predominantly characterized by traditional methods, but have slowly moved towards more mechanized models, although still not incredibly advanced. Firms who maintain this use of indigenous technology see slowed the opportunity for growth and scalability in comparison to multinational firms who have access to highly efficient and modern technology.

Over 70 percent of agro-processing occurs within the informal economy, which as the FAO states “includes legitimately-produced goods and services that do not necessarily follow formal processes,” including regulations, registrations or licenses. In part, this makes large-scale production unlikely within small and medium firms and the informal nature of the industry creates barriers for knowledge transfer of technological practices, which is likely why indigenous methods persist.

Many Ghanaians do not make use of agro-processing, due to a lack of modern agro-processing facilities and equipment. The agro-processors themselves receive limited information from ag-researchers via their extension officers, little access to packaging materials, and often have poor marketing skills to encourage processing. Also, due to the low profitability of the industry, Ghana’s youth demonstrate low interest in employment and tend to go into the mining sector instead.

Globally, food chains, and thus agro-processing, is controlled by few suppliers and retailers that dominate the market. It’s likely this control comes from developed countries in the formal economy which is far different from Ghana’s informal cottage industry-style practices. Ghana is not the only nation that struggles with agricultural value-addition. Research suggests that this is an issue in other parts of the world other than Africa, including Indonesia and Malaysia. These countries produce 85 percent of the world crude palm oil, but a negligible amount of it is refined into its more profitable form domestically.

Ghana and other African countries have much higher sector contribution shares to total manufacturing value-added. In these countries, agricultural inputs account for around 66 percent of total manufacturing value-added while urbanized countries contribute only 37 percent. Thus, the former are more reliant on agro-processing as a part of their economy than developed nations. In the United States and European Union, agriculture contributes around 0.8 percent and 1.6 percent to the GDP, respectively. In China, the agricultural sector contributes a slightly higher amount, but still landing below 10 percent. Ghana’s agriculture makes up 18.3 percent of its GDP, making it more essential to the country. However, other African countries’ agricultural sectors have far higher percentages of GDP contribution, including Sierra Leone and Niger, both with contributions over 50 percent. Hence, agriculture and agro-processing has a higher relative economic importance in Ghana and other African countries’ economies than in urbanized or developed countries.

Overall, the agro-processing industry is generally thought to have significant potential to improve development in African countries. Rudimentary agro-industries only exacerbate poverty and the limited growth of African markets. Improving this sector could limit post-harvest losses and align African countries with the global food market’s attention on processed food and other developing nations’ focus on “non-traditional exports” as their primary food export.