Role of commercial investment in agriculture in Africa

Role of commercial investment in agriculture in Africa

-An Investor perspective-

Huge Growth Potential for Investment in Agriculture – Unrealised

The potential for growth in Sustainable Agriculture in Africa is well understood, but has not been realised. Currently agriculture-related industry (in primary processing) accounts for nearly half of all economic activity in sub-Saharan Africa. At the same time, the continent spends $25bn each year importing food (Source: World Bank) and still has significant food risk and nutritional deficiencies in many regions.  This is despite the fact that the continent holds much of the world’s potential agricultural land.  Indeed, it is forecast by the World Bank and others that by 2030 agribusiness will grow to be a US$1 trillion industry in Africa.

3 Reasons for Unrealised Potential in Investment in Agriculture

  1. Smalholders: In many Sub-Saharan African countries outside South Africa, agriculture is dominated by smallholder farmers, or is based on operations for export markets. Activities focusing on smallholder farmers have not resulted in major flow of capital into the sector.  There are only limited number of small-scale farmer projects that are supported by commercially viable business plans.
  2. Scale: Many of the business models are not sufficiently scaleable and therefore suitable for growth capital. While, there are many people investing in agriculture at a $1-2 million scale, there is a much smaller number of investors making much larger investments (e.g. KKR’s investment in Afriflora of about $200Million investment in 2014)
  3. Greenfield vs Brownfield: Many of the agricultural opportunities are greenfield or early stage. However, most investors are looking for brownfield, or existing businesses with track records. In some cases, investment in agriculture is being made where processing facilities are struggling with their security of supply.

5 Ways to Encourage Investment in Agriculture

This is not to say that major investment opportunities cannot be developed. However, investors looking at African agriculture have to consider a number of factors:

  1. Managing Risk: While “greenfield” investments can be seen as too risky, with the right partners a ‘greenfield’ project can be less risky than an established operation in a poor supply chain.
  2. Consider the entire value chain: Many investors looking for opportunities in food processing often overlook associated agricultural projects providing inbound supply for the plant.
  3. Size & Aggregation: Global capital needs to more effective in considering farms at the 500 Ha – 10,000 Ha within the portfolio. This includes developing more effective models for aggregation.  It cannot focus solely on established operations at scale or farms over 50,000 Ha farms; which are unlikely to be socially or politically acceptable in the long term.
  4. Scalability: A more systematic approach for assessing plans for rapid scale-up once proof of concept has been demonstrated needs to be developed.
  5. Blended Finance: There are many sources of finance. Often these can be overlooked.  Projects need to consider the role of vendor finance, development finance institutions and impact investors among others.  People need to have a holistic view of the project and consider where an additional type of funding can leverage both commercial and social impacts of the investment in agriculture.

 

Author, David Lyon of ImpactAgri which creates and improves large scale, sustainable  agricultural value-chains.  ImpactAgri acts as both principal and project developer, also working globally, acting as advisors to major companies, investors and governments.

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Developing African agriculture with entrepreneurial small-scale farmers

Kobus ImpactAgriInterview with Kobus Hurter,

part of the ImpactAgri network

on small-scale farming in Africa

December 2017

Over the past 30 years, Kobus has worked tirelessly to reform and modernize the face of African agriculture, working with small-scale farmers in Africa. He focuses on improving farm performance as well as building self-sufficient farming systems across Africa to support the many people who on a daily basis are not sure where their food will come from (10 million people in South Africa alone). He is working together with ImpactAgri on a number of projects.  Here we talk to him about the steps to success in developing resilient, inclusive African agriculture.

kobus

 

 

 

 

 

What are the key features of a successful field crops business that works with small-scale farmers?

You need a good balance between production, ethical discipline or stewardship, and a sincere commitment to support people, starting at root level. Thereafter it is important to do market research to identify and formalize markets for local high margin crops.

Seven steps to success in Africa agriculture

  • Evaluation of Resources

In developing a successful smallholder farmer program, the first priority is the detailed assessment and evaluation of resources (natural, human, financial, etc). The key to success is not to compromise on any of the crop requirements: a limited resource at the start will restrain the potential of a project throughout its life. The scale of the farm is also important, since the overhead costs have to be reduced to a level where it becomes an acceptable fraction of the unit cost.

  • Careful Crop Selection

Second, a successful project will pick a selection of top margin crops (e.g. tomatoes in many locations), using other existing local projects and official trials to benchmark types of crops, varieties, yield etc. Successful programmes are planned up-front by simultaneously balancing a basket of top margin crops without compromising crop-rotation policy.

  • Phasing of Technology Implementation

Third, while use of technology and advanced equipment can optimize any farming operation, it can be highly overwhelming to smallholders in the beginning. The progressive phasing-in of advanced practices and systems is much more successful; it allows adequate time for the transfer of skills and farming acumen. By keeping it simple and starting with one tractor fitted with GPS (assuming that the operator will be properly trained to do the correct practices, correctly and safely), a project can grow from 1 ha to 20 ha in little time. More equipment can be added once the planned growth, is exceeded.

  • Focus on Yield

Fourth, farmers must pursue a 100% crop stance from the start of the first season through attention to detail. This means that a production unit has to perform to its planned potential: For example, farmers are encouraged to shift their effort from the parts of fields with poor yields to the better areas. Once they see the difference, they will never compromise again on yield.

  • Crop Marketing

Fifth, the next focus area is the improvement of crop marketing for all crops, whether A, B or C grade. No produce should be allowed to be sold without passing through a central grading point.

  • Build complexity over time

Sixth, other concepts like pest scouting, irrigation scheduling and fertigation are more complex, but should be introduced gradually over the following seasons.

  • Continuous On-site Training

Finally, continuous onsite training is of utmost importance; visits or excursions to other farms, should never be neglected, since it creates a new frame of reference for all. There needs to be one person with some experience on the ground to manage equipment, inputs and costs for the first 2 – 3 seasons for about every 30 small-scale farmers. It is also important to assign a local administration clerk (who understands basics of financial systems) for on-going management.

The importance of finance in small-scale African agriculture

Finance is obviously a critical part of small-scale farming. The most popular financing system is a credit revolving system, where farmers get credit from pre-approved suppliers. It is crucial that the project manager is level-headed to ensure that no good money is thrown after bad.

Measuring performance in small-scale African agriculture

Because African agriculture has unique challenges, various critical performing areas should be identified upfront (e.g. a farmer’s experience of crop production, the functionality level of his/her equipment and the quality of pre-plant seedbed preparation). By using weighted average techniques and systems with benchmarks, the potential of a field to perform can be determined. Subsequently if yields are still poor, there is no use in spending more money on it. New farmers often find it hard to make drastic calls like when to abandon a crop and cut losses.

ROI for Small-Scale Farmers

Among emerging small holder farmers, a situation may occur where 50 – 75% of enterprises are paying back within 2 years (and others only partially). Once the correct practices are followed and the best suited varieties are found, normally yields then start to increase and as if overnight, seemingly farmers get the total picture and are profitable.


What one thing would you like to see change in improving small-scale farming in Africa?

African agriculture is extremely varied. There is not a focused effort differentiating between the different types of farmers: commercial, emergent, subsistence, crops, livestock, poultry etc. It is often taken for granted that a farmer should be able to handle all types of farm-related production enterprises, despite it being such a wide field.

While a lot of progress has been made in African agricluture to support subsistence farmers migrating to emerging farmers, these group programmes do not develop and acknowledge the identity or brand of a single farmer. Spending time to categorize farmers based on their personal interests, exposure to business acumen, their family history and their own unique dreams and beliefs, the farmer support programs can be better structured.   By adding specific focus to these programs, it is possible to acknowledge the individual and then to identify those individuals who are making notable progress and introduce them (individually) to funders, bankers and markets – even if their operation is small.

At root level, using ‘starter pack concepts’ for crops gives some exposure to aspiring farmers, since it contains a minimum of the essential input to start up a garden which could later turn into a business. These include seed kit combos including seeds, fertilizers, insecticide spray, planting utensils and illustrated manuals, starting from as little as £8. It could include staples sufficient for 0.5ha maize and 0.5ha beans or vegetables on 15m2(e.g. squash, green beans, summer cabbage, carrots, spinach, etc.), or even be customized according to specific needs.


About ImpactAgri

ImpactAgri is committed to supporting the development of a commercial and self-sustaining farming industry with a fully inclusive ethos (small-scale farmers and landowners improve their skills, yields, and farm size over time, building climate-resilient commercial farms). Our focus is African agriculture.

Kobus HURTER is an expert Agronomist whose skills are currently deployed in several of the showcase projects where ImpactAgri is a partner.

Contact Us About developing Inclusive, Commercial Agriculture in Africa

Email: david.lyon@impactagri.com