AgDevCo highlighted in Grow Africa progress report

The Grow Africa partnership aims to accelerate private-sector investment for sustainable growth in African agriculture.  Seven countries joined the initiative when it was launched in 2011 - Burkina Faso, Ethiopia, Ghana, Kenya, Mozambique, Rwanda and Tanzania. Malawi has since joined.

To date these countries have attracted investment commitments from 62 companies including 39 based in Africa. The Grow Africa report highlights AgDevCo's work building profitable and sustainable agriculture businesses in Mozambique and Ghana:

• development of three irrigated farming blocks in Ghana aimed at generating income transformation and food security for large numbers of farmers 
• management of a $20 million catalytic fund in Mozambique which has invested in 14 farming and agriprocessing businesses to date, including ECA which works with smallholder farmers to supply maize to a local brewery and other customers

One of the main conclusions of the Grow Africa forum meetings in Cape Town in May 2013 was that agricultural finance can be unlocked by impact investors providing medium-sized investment in SMEs.

Don’t beat up the banks, they can’t fix African agri-finance on their own

I have attended countless conferences and workshops on African agriculture – in South Africa, Mozambique, Ghana, Tanzania, Ethiopia, Europe and the US. There’s always a panel session on access to finance. The discussion usually follows a similar script.

Farmers and entrepreneurs complain about the high cost of finance. “We cannot afford 25% interest rates”, they say. Governments insist banks should lend more to the agriculture sector. The banks say there are too few investment opportunities; and they are forced to charge high interest rates because of macroeconomic fundamentals and the unavoidable fact that agriculture is risky.

“A quarter of our clients’ fields were under water” a Mozambican banker told a conference in Maputo earlier this month (the result of recent floods in the Limpopo Valley). “We are not making money on our agriculture loan book”.

In the discussion that follows there’s often a lot of scepticism. Surely the banks could try harder to find good investments? They should get out into the field, learn more about agricultural economics and develop affordable loan products that meet farmers’ needs.

In AgDevCo’s view, criticising the banks misses the point. Most agribusiness opportunities in Sub-Saharan Africa are greenfield or early-stage, without a strong balance sheet or management track record. Yields and markets are uncertain. The weather is always a factor. Commercial banks are just not set up to provide finance to that type of client.

Banks are – at least they should be – conservative institutions which seek to protect their depositors’ capital by taking manageable risks and earning a steady return. Would you be happy if your bank was investing your savings in unproven agriculture businesses?

What the African agriculture sector needs is risk capital in the form of equity and long-term loans. There is a strong case for subsidising risk capital for African agriculture because, while agriculture will never deliver spectacular financial returns, it can have a hugely positive impact on employment creation, rural economic growth and food security.

Where will the risk capital come from? There are private equity firms targeting African agriculture but they are looking for large deals (typically $5 million +) which are in short supply. The development finance institutions, such as the IFC and CDC group, are slowly getting back into agriculture but they also seek large deals because of high transaction costs.

Social impact investment funds like AgDevCo, Root Capital and Acumen can play a role. Unlike traditional venture capital, they raise money from a combination of charitable, government and commercial sources which allows them to take (a little) more risk and accept a (slightly) lower financial return in order to achieve high social impact.

Social impact investors can fill the agri-financing gap by investing a few hundred thousand dollars or more – bundled with professional, hands-on management support – to help SMEs grow into the commercial debt and equity markets. As with any venture capital investment there will be failures as well as successes. However, those successes could help kick-start a profitable agriculture sector.

So go easy on the banks, they are supposed to be (!) boring, conservative investors. What African agriculture needs is capital with more risk appetite - and plenty of patience.  

Unlocking the Potential of Agribusiness

A new World Bank report titled Growing Africa explores the  role of agribusiness in creating jobs and reducing poverty in Sub Saharan Africa.

• Africa has a huge challenge to create jobs, especially for the 25 million young people who will enter the labour force each year by 2025.
• Agriculture and agribusiness together are projected to be a US$ 1 trillion industry in Sub-Saharan Africa (SSA) by 2030 compared to US$ 313 billion in 2010.
• Agribusiness can play a critical role in jump-starting economic transformation through the development of agro-based industries that bring much-needed jobs and incomes.
• The attention focused on production agriculture will not achieve its developmental goals in isolation from agribusinesses, ranging from small and medium enterprises to multinational companies.
• The challenge is thus threefold: (1) develop downstream agribusiness activities (such as processing) as well as upstream activities (such as supplying inputs), (2) develop commercial agriculture, and (3) support and link smallholders and small enterprises to productive value chains.
• Private sector interest in African agribusiness is unprecedented. The past decade has witnessed an upsurge in interest from the private sector in African agriculture and agribusiness, including interest from foreign investors and investment funds. The challenge is to harness investors’ interest in ways that generate jobs, provide opportunities for smallholders, respect the rights of local communities, and protect the environment.
• The growth of competitive agribusiness in Africa is severely constrained by the low use of modern inputs and limited access to improved technologies
• Irrigation is critical to increase and stabilize production, reduce risks, and provide the basis for higher-value agriculture. Given the severe constraints on public sector resources and capacity, tapping private capital and management skills will be essential to accelerate investment in irrigation.

The report cites AgDevCo as an example of an innovative financing facility which can help early-stage agribusinessess overcome the challenges of operating in frontier markets.

UK Deputy PM praises AgDevCo's work in Mozambique

UK Deputy Prime Minister Nick Clegg and DFID Minister Lynne Featherstone visited Maputo on Wednesday 13th February, where they spent an afternoon with SME agriculture businesses supported by AgDevCo, as part of the Beira Agricultural Growth Corridor (BAGC) initative.

Nick Clegg  praised the work undertaken by the BAGC in supporting small scale agricultural producers in the central Mozambican provinces of Manica, Sofala and Tete.

Launched in 2010, BAGC is a partnership between the Mozambican government, private companies and donor agencies, including the British Department for international Development (DFID). Clegg, who is on a two day working visit to Mozambique, declared that the initiative will bring substantial and positive changes in the lives of farmers in the areas covered.

DFID Minister Lynne Featherstone welcomed the work AgDevCo was doing saying that small and medium-sized businesses were critical for inclusive growth and job creation in Mozambique. In an article in the Huffington Post she wrote about the potential for mobile money solutions to provide new opportunities for farmers, such as those linked to AgDevCo's ECA smallholder farmer business.

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Opening remarks by Chris Isaac, Director Business Development AgDevCo:

"Small and medium sized enterprises (SMEs) are the engine of economic growth in all countries. Agriculture is the backbone of Mozambique’s economy engaging over 80% of the workforce. More investment in Mozambican agricultural SMEs is essential to:

• Create jobs
• Ensure economic growth is broad based
• Provide opportunities for small entrepreneurs and farmers, many of whom are women

The problem is that it is very difficult for SMEs to access financial capital. Most banks will not provide loans to SMEs due to the high-risks of starting a business – or they will only do so at very high interest rates. And private equity funds typically look for deals of 5 million dollars or more, far too big for most SMEs.

Catalytic Finance is the solution. A Catalytic Fund provides a combination of low-cost capital and “hands on” technical support to help SMEs grow, to the point where they can graduate to access commercial debt and equity. Backed by development agencies like the UK’s Department for International Development (DFID), a catalytic fund can do smaller deals, take a little more risk and accept a slightly lower rate of financial return than a private investor, while insisting on the highest social and environmental standards.

Today you will meet a number of Mozambican SMEs funded by the BAGC Catalytic Fund, which is managed by AgDevCo.

Businesses like So Soja, run by a brilliant entrepreneur Lucas Mujuju, who is bringing nutritious and delicious soy-based products to Mozambique’s schools and hospitals.

Or the Mozambique Honey Company which is creating a market for high quality honey buying from rural beekeepers, run by Anifa Osman, to be distributed throughout the country by Tropigalia.

Or Frutis Lda, owned by the charismatic Sr Issufo Valy who was born on his farm and is now singlehandedly setting about the revival of the fresh fruit industry in the Beira corridor.

You will also meet some of our corporate partners who work with us to link smallholder farmers and SMEs to reliable markets, allowing us to scale up our impact. Like Rio Tinto who are working with us to ensure that every vegetable eaten in the mining canteens of Tete has been grown in Mozambican soil; or Cervejas de Moçambique who are buying fair-trade maize from our small farmer marketing business ECA.

Lastly you will meet some financial services companies like Hollard who is working with us to introduce innovative drought insurance products for the first time in Mozambique, protecting farmers like Mussa Macaliha from the changing climate.

None of this would be possible without funding support from UK Aid. None of this would happen without the dedication and commitment day in and day out of people like Lucas, Anifa, Issufo and Mussa. At a time when all eyes are on the big discoveries of coal and gas in Mozambique, we believe it is small entrepreneurs and farmers like those here today who are the real future of the Mozambican economy."

Beira Agricultural Growth Corridor (BAGC) launches Mozambique’s first ever index-based weather microinsurance product

AgDevCo, manager of the BAGC Catalytic Fund, announced today the launch of Mozambique’s first ever index-based weather microinsurance product for farmers in the Chimoio region of Manica Province, Mozambique.

The insurance supports a partnership between a local agricultural training college, Instituto Superior Politecnica de Manica (ISPM) and the Beira Agricultural Growth Corridor (BAGC) under which five young Mozambican farmer trainees have been allocated five hectares of land each by the college. Under the programme, the farmers receive inputs and access to mechanised services (land reparation, planting, harvesting etc.). The farmers also receive technical support from a local commercial farmer and have a guaranteed market for their production of maize, soya, beans and sesame. The weather insurance is linked to the farmer’s input financing and is intended to provide protection against “midseason” drought.

The impetus for insurance in this region is strong especially considering the rains stopped in the middle of the last growing season. Farmers in the Chimoio region of Manica Province saw their yields drastically reduced as a result. This type of midseason drought is an increasingly common feature of changing weather patterns affecting Mozambique and other countries in the Southern Africa region. For the first time in Mozambique, a small number of farmers will this season have some protection against such a drought.

With good rains the farmers can expect to make profits of more than $400 per hectare. In the event of a severe mid-season drought, the farmers will receive a pay-out to help prevent them from running up debts. A payout is triggered in the event that rainfall falls below a minimum stipulated level, as measured by satellite systems which are accurate enough to monitor precipitation in 10km2 blocks.

The cost of weather index insurance remains a challenge, due to the high risks. For this pilot, farmers can afford the weather insurance premium because they pay no interest on the finance for the inputs and other services. Scaling up the drought insurance programme will depend largely on finding innovative ways to reduce the cost of coverage.

The weather index insurance product was developed by Guy Carpenter & Company, LLC unit GC Micro Risk Solutions® alongside RMS affiliate Asia Risk Centre, Inc. with a grant from the International Finance Corporation’s Global Index Insurance Facility (GIIF). The weather product is underwritten by Hollard Moçambique Companhia de Seguros. Finance for farmer inputs and extension services was provided by the BAGC Catalytic Fund, which is managed by AgDevCo, with support from the social lender Kiva.

Food security challenges are "complex, immense, frightening and urgent"

In an opinion piece in the Financial Times Paul Polman of Unilever reminds us that, due to a rising population and changing consumption habits, we will need to produce the same amount of food in the next 40 years as we did in the past 8,000.

He calls for increased investment in African agriculture; and for developing country governments need to create long-term partnerships with the private sector, donors and civil society, to stimulate investment in commercial agriculture.

He references the Copenhagen Consensus, which concluded that an investment in fighting malnutrition would benefit people more than any other type of investment – with a return of $30 for every $1 invested.

With AgDevCo support, smallholder farming undergoes a transformation in Mozambique

Only two years since its launch, the innovative Empreza de Comercialização Agricola Lda (ECA), a social enterprise in Mozambique, is already helping to transform smallholder farming for the better. An independent evaluation conducted by AEMA Development Consultants in 2012 concluded that the business had immense potential.

 

In the 2011/12 season ECA worked with 900 smallholder farmers in the Barue district of Manica Province, central Mozambique. It organised them into small groups, facilitated access to improved inputs and credit, and provided extension advice and a guaranteed market at fair prices. ECA achieved a 100% recovery on input credit and has expanded its farmer base to 2,200 for the 2012/13 season.

 

ECA is supported by the Beira Agricultural Growth Corridor (BAGC) initiative, a public-private partnership backed by the Government of Mozambique and international funding partners. ECA received debt and equity investment through the BAGC Catalytic Fund, which is managed by AgDevCo.

The independent evaluation found that: 

• Maize production for ECA farmers who received the complete input package of improved seeds and fertilisers increased by 104%, from 2.4MT during the baseline period to 4.92MT this year. Other ECA farmers on a lower cost package saw yield average increases of 46%. 
• ECA farmer household cash incomes increased by an average of 35% for the complete input package and 17% on the basic package. That compares to a slight reduction in incomes of local farmers who were not linked to the ECA programme (likely due to lower rainfall compared to the previous year).
• Conservation agriculture - minimum tillage to maintain soil quality - was extensively adopted by both ECA beneficiaries and non-beneficiaries within the same communities.
• Extension services provide by ECA to its 900 farmers during 2011/12 were assessed as “very effective” by over 75% of beneficiaries. Over 98% of farmers rated the extension services as “effective” or better. Before the ECA programme farmers produced using whatever farming practices they chose. Contact with extension staff was totally non-existent or at a bare minimum.
• Farmers benefited from opportunities for economies of scale because of bulk buying, group marketing and the subsequent reduction in unit transaction costs.
• The ECA programme has ushered in a new marketing channel for growers’ maize and sesame produce, including a contract to sell some maize to a local brewery.