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Agriculture as an economic engine

Helping boost exports, create jobs, and raise subsistence farmers out of poverty

Challenge

A North African country asked McKinsey to help transform agricultural production to stimulate economic growth, create jobs, and alleviate poverty. Among the goals: more than double the income of three million subsistence farmers.

Many daunting obstacles blocked the way forward, including a complicated land tenure system, a poorly priced and over-used system of water distribution, and heavy government regulation. With 75 per cent of farms at less than 12 acres—and an average herd of four cows per farm—fragmented land ownership was a major barrier to the development of an efficient, well-capitalized agricultural sector.

Discovery

The McKinsey team started with an intensive interview program, including Ministry of Agriculture officials, representatives of other government departments, agribusiness leaders, economic development experts and farmers. From this emerged the outline of a comprehensive reform and modernization plan.

An early hypothesis, supported by multiple stakeholders, was that growing less wheat and other staples, and focusing instead on a small number of high-value crops, would maximize productivity and income for farmers. The McKinsey team carried out deep analysis on many potential crops and livestock animals before recommending seven crops in which the country had competitive advantages in production and ready access to export markets. The team calculated that focusing on these crops could open the way to a substantial increase in agricultural exports.

The McKinsey team also worked with the government and other stakeholders to develop an innovative plan to attract capital into the agriculture sector while at the same time respecting the traditional, fragmented pattern of land ownership. The program revolves around larger nucleus farms of 50 hectares or more, on land leased by the government to a commercial farmer. The commercial farmer commits to working with surrounding smallholders, providing access to financing, equipment and expertise in return for the right to market their crops. To ensure that smallholders get a fair deal, a new government agency was created to manage contracts while also promoting the program to potential investors.

Separately, and with McKinsey’s help, the government launched a major effort to improve water resources through greater efficiency and sustainability, with new dams, pipelines, desalination plants, and water recycling.

Impact

From the start, all sides recognized that transformation would require a sustained, 10-year effort. Even so, country is more than half way to its target of converting 300,000 hectares of land from cereal to citrus-fruit and tomato cultivation, among other high-value crops. The Ministry of Agriculture has been restructured, regulations loosened and new trade agreements negotiated. Agricultural exports, identified by McKinsey as one of the keys to a more prosperous farming sector, are on a firmly upward trend.

This will be a sustained, 10-year program, and McKinsey remains deeply engaged with its success.

FEATURED EXPERTS

Jens Riese

Senior Partner, Munich

Sunil Sanghvi

Senior Partner, Chicago

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