Whether for profit or social motives - and often both - an increasing number of investors are targeting opportunities in African agriculture. At the same time innovative approaches for deploying aid to support farming businesses linked to smallholders are emerging. This blog provides a snapshot of who is doing what, where and how.

1 October 2010

Is Zambia Africa's next breadbasket?

Mail & Guardian - Jody Clark

The evening sun is setting on Francis Grogan's Zambian farm and the combine harvesters are finishing their work for the day. Francolins scuttle in their wake and herons pick at the ground where wheat has been growing.
But instead of letting the farmland lie fallow until next season, Grogan will soon be planting again.
"The land is so good here that there's no need for it," says the Irishman and managing director of Zambeef, one of sub-Saharan Africa's largest food producers.
"The sun shines all day and there is plenty of water for irrigation, which means we can double-crop. Once the wheat is harvested, we'll plant the maize and sorghum."

Long regarded as the poorer cousin of its Zimbabwean neighbour, Zambia is fast gaining attention as a desirable destination for agricultural investors.
International investors from Britain to South Africa have begun putting money into infrastructure development and transport, and about 200 exiled Zimbabwean farmers have taken leases from the Zambian government to develop farmland in the country.
Meanwhile, companies such as Zambeef have risen on the back of a growing Zambian middle class, whose incomes and expectations are rising.
From humble beginnings in 1991 in Lusaka, where the business started as an abattoir and two butcher shops, Zambeef is now a $200-million-a-year company. It is the largest meat producer in Zambia, slaughtering more than 60 000 head of cattle and 3,5-million chickens a year.
"We have a lot more water than Brazil, there is plenty of rainfall and solid support from the government. This is an excellent country to invest in," Grogan said.
The question now on many people's lips is: Could Zambia become the next breadbasket of Africa? It certainly has the potential.

Of a total land area of 752 000km2, 420 000km2 is classed as having medium to high agricultural potential. But, only 15% of arable land is cultivated, according to the World Bank.

Despite this, last season's maize harvest satisfied domestic consumption more than twice over, according to the International Trade Centre in Geneva.

Of a total harvest of 2,7-million tonnes, only one million tonnes of maize was absorbed by the home market. The surplus will be exported, and the country is looking for buyers.

Although economic growth has averaged 5% over the past decade thanks to a roaring demand for the country's copper, the agricultural industry has floundered. Agricultural growth has averaged less than 1% annually.

Only 1% of small farmers have access to electricity and just 28% have access to a public water supply, making irrigation all but a dream for many.

Despite the country's potential, between 80% and 90% of its farmers still work on small-scale or subsistence operations.

Access to finance and capital is also a problem. The Zambian National Farmers' Union has said that "Zambia's market for agricultural finance is fundamentally dysfunctional".

Credit is scarce and expensive for the majority of farmers and heavily skewed towards the larger corporate sector.

In addition, the union says, loan terms are often too short to accommodate the long-term nature of agriculture, and the processing of loan applications by banks frequently takes too long.

These problems make an already risky sector even more hazardous, with non-performing loans in the 0agricultural sector now exceeding 37%, against 13% across all other sectors of the economy.

Large sums of money are needed to kick-start agricultural businesses. According to Grogan, it costs $10 000 a hectare to turn bush into farmland, but even for large-scale businesses such as Zambeef, bank lending rates are about 20%.

For that reason the company has turned to international organisations, such as the European Investment Bank, which offers loans for farming operations at about 5% interest. This is not an option for most farmers in Zambia.

Despite this, the tremendous possibilities have continued to attract investors, with a delegation of Indian commercial farmers expected in December.  That could benefit both them and Zambia.

The United Nations Food and Agriculture Organisation says that if Zambia could equal agricultural activity in Kenya, a country where two-thirds of the land is semi-arid, output would amount to $1,5-billion a year --10% of Zambia's GDP.

The sector's current contribution is about 1%.

"The Zambian government is very supportive -- and they aren't looking for backhanders," said Grogan. "Of course there's a lot of red tape and bureaucracy, but that's the same everywhere in the world.

"We came up from very humble beginnings, delivering beef to the shops in the morning in Land Rovers. Now we have a turnover of £200-million a year and we're listed on the local exchange."