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.

21 November 2010

Why is aid not delivering poverty reduction in Mozambique?

According to a recent report by the Government of Mozambique, there have been improvements in access to education and health services over the past decade, but poverty has not fallen. In fact, in the central region, an area with huge natural potential for agriculture, it has increased markedly. Across the country child malnutrition remains at the same level as in 2002, despite billions of aid over the period. What is going on?

The report puts the blame squarely on the lack of support for the agriculture sector. Aid dollars of some $1.6 billion per year - equivalent to 50% of government revenues - have been focused on health and education, while largely ignoring the need to boost agricultural productivity. Farming yields are some of the lowest in Africa, Mozmabique has to import large volumes of staple crops and the poor are exposed to rising international food prices.

"Achieving greater success in stimulating the agricultural sector, particularly but not exclusively the family sector, is the central policy recommendation derived from this assessment", the report concludes.

18 November 2010

FAO warns against looming food crisis

Hinting a possible food crisis next year, UN Food and Agriculture Organization (FAO) said only a substantial increase in global wheat and maize output could help prevent it.

In its latest Food Outlook report, the FAO said if wheat and maize production do not rise substantially in 2011, global food security could be uncertain for the next two years. International food import bills could exceed $1 trillion in 2010, it added.

The FAO predicts that food import bills for the world's poorest countries will rise 11 percent in 2010, while bills for low-income food-deficit countries will go up by 20 percent.

"With the pressure on world prices of most commodities not abating, the international community must remain vigilant against further supply shocks in 2011 and be prepared," the FAO report said.

Wheat and maize prices have shot past their 2009 highs, with FAO adding that international food import bills could surpass one trillion US dollars in 2010. Food imports last topped the trillion dollar mark during the 2007/08 food price crisis.

The organization anticipates that world cereals stocks will shrink by seven percent, with barley declining 35 percent, maize by 12 percent and wheat by 10 percent.

Six percent more maize will have to be produced in 2011 than in 2010, while wheat stocks need to rise by more than 3.5 percent to ensure the world has enough reserves to tide it over 2011, said the FAO Food Outlook, released on 17 November.

Global wheat and barley stocks declined in 2010 as severe drought and fires slashed production in Russia and Ukraine two of the world's largest producers.

The news drove up wheat prices by 45 percent and even 80 percent in the second half of 2010, with an export ban imposed by Russia adding impetus. Canada, another major wheat producer, was also hit by bad weather.

World wheat inventories are forecast to fall to 181 million tones, 10 percent below the 2010 level but still 25 percent above the critically low level of 2008, the Outlook said.

Maize stocks are already low as production slipped in the United States, the world's largest producer, while demand continued to grow.

15 November 2010

The UK can help Africa double its agricultural production

A submission to the UK's All Party Parliamentary Group on Agriculture and Food for Development, by Keith Palmer, Chairman of AgDevCo

Rapid growth of sustainable agriculture is essential if the poverty reduction target in the MDGs is to be met and if the global food security problems are to be solved. The appropriate response to the challenge of climate change is to develop greater resilience in agricultural systems. In Africa the two most important priorities to increase resilience are investment in irrigation and weather insurance.

Given the high quality of the natural resource base in many parts of Africa, achieving the vision of a doubling of agricultural production in 10 years is entirely feasible. Moreover it can be achieved in ways that are socially and environmentally sustainable, respond to the challenges of climate change and bring about major improvements in the livelihoods of smallholder farmers.

There are three separate but linked issues. How to bring about rapid growth of agricultural production? How to ensure that smallholder farmers are major beneficiaries of rapid growth? And how to ensure that growth of agriculture is socially and environmentally sustainable?

Doubling of agricultural production in 10 years will require heavy investment by the private sector. Currently there are major barriers to entry deterring investment by the private sector. Donors should deploy patient capital to overcome the barriers to entry and kick-start growth of sustainable commercial agriculture in Africa.

The most cost-effective way of improving the livelihoods of smallholder farmers is to develop a series of commercial farm hub/smallholder farmer support programmes. The investors in the commercial farm hubs agree to provide access for smallholder farmers to infrastructure, inputs, credit, extension services and markets at an affordable cost. The evidence shows that this approach can more than triple the incomes of smallholder farmers in a few years and markedly improve their resilience to harvest failure.

The way to ensure social and environmental sustainability and that investors in commercial farm hubs comply with agreements to implement smallholder farmer support programmes is to make failure to comply a condition of default in patient capital funding agreements.

DFID should refocus its policies and strategy for pro-poor agricultural development and stress: the importance of productivity improvement and competitiveness of African agriculture as the keys to sustainable growth and poverty reduction; the importance of directly supporting domestic farm enterprises and entrepreneurs in Africa to overcome barriers to entry and achieve international competitiveness; and the importance of conditioning support for domestic farm enterprises and entrepreneurs on their agreeing to commit to implement smallholder farmer support programmes.

DFID should build on its experience and leadership in creating novel financing and development vehicles in partnership with others to: design, fund and implement a patient capital fund aimed at stimulating new private investment in early-stage commercial agriculture hubs with smallholder farmer support programmes; provide development funding to not-for-profit development companies to accelerate the creation of investment ready opportunities; and consider how the role of CDC should be redefined to ensure that it plays a greater role supporting early-stage agriculture in Africa.

There have been numerous recent announcements about new funding for agriculture and food security (eg GAFSP, Feed the Future, CAADP) but insufficient creative thinking about how to ensure that the resources are deployed effectively. There is a real opportunity now for the UK to "punch above its weight" by leading the design and implementation of novel financing and delivery mechanisms which can make a major contribution to addressing the poverty reduction agenda, the global food security problem and the challenges of climate change.

12 November 2010

Afreximbank to boost assets, eyes African agriculture

* Africa's arable land a lure to investors
* Private sector needs bigger role in boosting trade
* Africa needs to diversify exports beyond raw goods

CAIRO, Nov 10 (Reuters) - Egypt-based African Export Import Bank (Afreximbank) aims to boost its assets by 10 percent in 2010 to $1.6 billion with increased lending to African firms involved in agriculture, the bank's president said.

Jean-Louis Ekra told Reuters agriculture in Africa was being given a boost because of global concerns about food security that was pushing investment into the sector, and cited opportunities in countries such as Malawi.

He also said business risks in Africa were often overstated by investors, and said he expected sturdy growth given the continent's 1 billion people, foreign exchange reserves in excess of $450 billion and agricultural potential.

"Historical data will show that less than 1 percent of the money that they (banks) lent in Africa was lost," he said.

"More than 60 percent of the arable land of the world is here on our continent. The biggest challenge of the future ... is food, access to water. This continent has it. What is left for us is to turn this potential into reality," he said.

"We've been doing more for certain countries like Malawi and doing more in certain items like fertilizers ... because the food crisis has made many more countries more interested in developing the agricultural sector," Ekra said in an interview.

Other sectors being eyed by the bank, which finances and promotes trade within and beyond Africa, include oil and telecoms, he said.

Trade finance experts have said the difficulty some poor African nations have in obtaining funding for their exports threatens their economic development.

"We still are not fully out of the so called financial crisis. It's very difficult for companies and for even banks to have access to the amount of funding that they want," he said, adding that his bank was seeking to help fill the gap.

Africa's trade in 2009 was around $900 billion, divided almost equally between imports and exports, Ekra said, adding that growth in trade was stalled by the private sector's lag in pushing for greater involvement in trade agreements.

"The private sector should as a bloc say 'look, we are not prepared to accept that (governments) go and sign an agreement that is not beneficial for us,'" he said, adding African trade delegations were often dominated by politicians not executives.

Reflecting growing appetite for African investments, he pointed to Afreximbank's $300 million five-year bond launched in Nov 2009 at a 9.125 percent yield, which was over five times oversubscribed.
Afreximbank, established in 1993, has authorized capital of $750 million. The bank's non-performing loan ratio averaged about 1 percent between 2004 and 2009, a statement from the bank said.
Its shareholders include African governments and private investors, and non-African financial institutions and its Egyptian clients include El Sewedy Cables, the largest Arab cable maker by market value, which supplies cables to various African countries.

Ekra said the biggest challenge facing African trade was the need to diversify exports beyond raw commodities such as cocoa to offset demand and price fluctuations on the global market. (Writing by Shaimaa Fayed; Editing by Ron Askew)

9 November 2010

Agriculture, farmland attracting "impact investors"

Investors eyeing agriculture in Africa, Latin America and other global markets are increasingly merging their pursuit of profits with a philanthropic zeal that promoters say will pay benefits over the long term.
So-called "impact investing" is catching on with a range of private equity groups, financial services firms, venture capital funds and other moneyed players.

"There are a cadre of investors who are working under the hypothesis that one can invest for the long-term in a manner that is both economically sustainable and socially palatable," said Ademola Adesina, a former investment banker for JPMorgan who oversees business development and corporate strategy for AQUIFER, an investment company.

"Long-term sustainability, particularly in agriculture, requires a deep collaboration and symbiosis between investor activities and the communities in which they operate," Adesina said.

Full article from Reuters

3 November 2010

Time for Europe to make good on African agriculture aid pledges

A British report says Europe needs to do more to invest in African agriculture. It says a gap exists between bold rhetoric that pledges billions to aid African agriculture and a reality in which money has not materialized.

The panel of experts from Africa and Europe said European donors need to pay more attention to immediate threats of food insecurity in Africa and also to support African-led initiatives to improve agricultural productivity on the continent.

Alliance for a Green Revolution in Africa President Namanga Ngongi was on the panel of experts and says agriculture in Africa is improving. "I have seen for myself. You go into the field seeing farms where people were producing one ton per hectare before, they are now producing three, four, five tons per hectare - in some cases 6-metric tons per hectare. So now they have these possible surpluses that need to be market," Ngongi said.

He says regional bodies in Africa are increasingly making agriculture a major focus, introducing new crop breeding programs and providing start up capital for new enterprises.

And he says governments are spending more of their national budget on agricultural development.

Those efforts, he says, are paying off. For example, Nigeria has surpassed Brazil as the world's largest producer of cassava, which is a major source of calories in Africa.

Panel chairman Gordon Conway says the improvements within the agricultural sector in Africa are making it a better environment for European investment. "There is a great opportunity for the private sector to work in Africa to help increase production, both of staple crops and of crops for export. So I think it is looking optimistic," he said.

In 2009 wealthy governments in Europe and the United States pledged $22.5 billion to improve food security worldwide. Agricultural development in Africa was set to be a focus. But the panel says it is important that cash is channeled in the right way.

Child malnutrition, it says, has to be a major focus. It also says global and national food reserves need to be created to counter major volatility in global markets for staple crops.

Conway says food security in Africa is crucial for global security. "Global security is important for all of us," he says, "Every single family in Europe depends on global security. And that global security consists of a number of components, one of which is food security, another one is protection from climate change. If you do not have those two you will get political, economic instability and unrest and that is a real threat to Europe."
The report was produced by the Montpellier Panel, which was made up of 10 experts from across the agriculture, development, trade, and policy sectors.

Africa's farming sector is ripe with business opportunities

"Young people who will be future policymakers and leaders should see agriculture as a business opportunity and not simply a means of survival" - by Namanga Ngongi, president of Agra.

It is widely accepted that agricultural growth and increases in farm productivity are prerequisites to broad-based sustained economic growth and development. Yet, when it comes to Africa, this connection is just beginning to be made by the development community as well as many African governments. Smallholder agriculture and the back breaking work of millions of African farmers have been taken for granted – viewed as an accepted way of life that they embrace. Support comes mostly in the form of charity, not investment.

In Africa, you are born a farmer; you don't become one. At least, that's been the perception. But young people who will be the future policymakers and business leaders of tomorrow need to view agriculture as more than something that is done solely out of necessity and associated with the stigma of poverty and lack of education. We must make them see that Africa's farming sector is ripe with business opportunities.

Read the full article at The Guardian