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.

15 December 2011

Seven trends likely to shape African agriculture in the coming years

In a recent report titled African Agriculture: This other Eden (available on subscription) Renaissance Capital has identified a number of factors that are likely to influence African agriculture in the years ahead. Femi Adewumni posted this helpful sumary on the How We Made it in Africa blog:

1. Increasing demand from China and other emerging markets
China’s annual per capita meat consumption has increased significantly, from 43kg in 2001 to 54kg by 2011. More meat consumption has led to a rising demand for soya beans – a popular source of feed for livestock. Domestic consumption of soyabean has skyrocketed from 28.3 million tonnes in 2001 to 71.6 million tonnes in 2011. This higher demand has been met through imports.

In addition to soya beans, China’s ability to be self-sufficient in the production of other crops is also likely to be reversed in a dramatic fashion over the next few years. Renaissance says that the same situation as what happened with soya beans could play itself out in other grains, such as maize, wheat and rice.

It is not only China that will import more grains. Similar dietary changes are underway in a number of other emerging economies. Renaissance says this is a good opportunity for Africa, which has significant farming potential, to increase its exports of agricultural commodities such as maize, palm oil and other crops.

2. Achieving global food security requires investment in Africa
The UN Food and Agriculture Organisation (FAO) believes that 70 million hectares of additional farmland is required to feed the world’s 9 billion people by 2050. The Americas could most likely fulfil this need alone with Canada, the US, Brazil and Argentina providing the bulk of additional supply. However, in common with the oil & gas industry, there comes a point where an over-reliance on too few suppliers for a country’s energy needs makes it hunt out alternative sources of energy. A similar need to diversify supply will likely arise in agriculture, and this represents a major opportunity for Africa to provide the world with food security.

3. Resource nationalism in agriculutre
Although resource nationalism is often associated with the extractive industries, Renaissance expects the issue to also come to the fore in African agriculture. Resource nationalism is not always entirely driven by anti-foreign sentiment. High prices help, too. The electoral success of Evo Morales in Bolivia, Hugo Chávez in Venezuela and the recently elected Sata government in Zambia might never have materialised had it not been for the prevailing high prices of oil, gas and copper over the past decade.
High prices for agricultural goods, the need to secure alternative food supplies and the sensitivities of access to and ownership of land, all suggest resource nationalism in agriculture is likely to become a more prominent theme in the years ahead.

4. Will urbanisation lead to farm mechanisation?
It estimated that 60% (currently 40%) of the continent’s population will live in cities by 2050. As more and more workers flood into urban environments and readily available pool of cheap workers disappear from the countryside, farmers are forced into a straightforward labour-capital shift. In short, farms must mechanise if they are to maintain their competitive position.

Smallholder farmers, too, must make a decision: if they dedicate their supply of labour to generating urban-derived income, what do they do with their land? Another way to look at this conundrum takes the form of a question: is the rise of the superfarm inevitable?

5. Superfarms
The rise of the superfarm is a relatively modern phenomenon. There are possibly fewer than 100 industrial groups that own, lease or operate farms of over 100,000 ha.

Do economies of scale exist in agriculture? The purchasing power on inputs or selling power on output that comes with a 100,000 ha farm is likely to be no greater than a 1,000 ha farm. This is accentuated by two factors: first, managing 100,000 ha under a single corporate umbrella is more likely to result in managerial dis-economies of scale; and second: 100 farmers managing 1,000 ha plots each can easily form a co-operative, which will provide them with all the purchasing benefits of the superfarm and none of the dis-economies of scale. However, many superfarms exist because they act as channels for investment capital. In short, while managerial or operating economies of scale might not exist, financial economies do.

How does one create a conduit for capital for investment in agriculture? Can smallholders provide that conduit? If so, it would be reasonable to assume they had a future in this most strategic of industries. However, the volatility of food prices, the rapid urbanisation that characterises large parts of our planet, the relative undercapitalisation of the sector and the sheer variability of the agricultural labour force in its current form, all suggest that in creating those conduits for capital, superfarms are likely to play a hugely important role in attracting investment to the sector.

6. Sustainability
One of the overriding issues for humanity is that every civilisation with an urban heartland has been built upon the availability of food and water. In fact, it is the existence of those food and water resources, which has allowed urban societies to flourish. However, over time, every single one of those civilisations, societies and states has collapsed because its depleted and exhausted hinterlands could not supply its cities with their food and water needs.

The collapse of food-supply systems that support urban societies has been a permanent issue since urban centres were founded. Renaissance anticipates a great deal of new thinking on sustainability in agriculture, and expects Africa to lead much of that new thinking.

7. The future of aid
African food aid will likely be transformed, too. Renaissance says that many aid agencies operating on the continent are setting agendas that hamper commercial development. The idea that some aid agencies are seeking to transform themselves into commercial enterprises highlights the new thinking that abounds in Africa. Traditional methods of delivering aid are likely to become redundant in the decades ahead

23 October 2011

The need for catalytic finance for African agriculture

The EMRC Agribusiness Forum in Johannesburg last week brought together private companies, investors and development agencies who all share a vision of a profitable African agriculture sector which delivers wide benefits to rural populations. I spoke about the role of public private partnerships (PPPs) in making this happen.

In AgDevCo’s view PPPs in the agriculture sector are most likely to be successful if they are backed up by public private finance – we call it “catalytic finance”. So what is catalytic finance and how can it be most effectively delivered?

It is concessional funding made available by governments, donor agencies and philanthropic organisations that can be invested in early-stage agriculture businesses to reduce the costs and risks of future entry by commercial investors. It is catalytic because each dollar of public capital can expect to leverage at least 5 dollars of commercial capital into agriculture businesses which would not otherwise have been able to tap the private capital markets.

Two types of catalytic finance are: i) "Social Venture Capital" for start-up businesses, expecting a return of 5% - 15%; and ii) "Patient Capital" to invest in agriculture-supporting infrastructure including irrigation, with a coupon of c. 5% over 15-20 years. Here are specific examples:

• A new seeds company in central Mozambique needs $300,000 as “social venture capital” to cover the costs of registering new germ plasm, introduce irrigation and buy seed cleaning and packaging machinery. Local bank debt is unavailable at less than 25% interest or for more than 12 months tenor. Once operational the company can supply improved, locally-adapted and lower costs seeds to over 100,000 smallholder farmers.

• An irrigated soya and barley farm which plans to incorporate large and small farmers on 2,500 hectares needs $5 million of “patient capital” to invest in feeder roads, small dams and electricity connections. The remaining finance requirement of $20 million - for land preparation, farm machineryand buildings and working capital - will come from private debt and equity providers.

The rationale for catalytic finance is the existence of mulitple market failures in early-stage African agriculture which in most situations is still at an infant industry stage of development. The lack of economies of scale and cluster effects, under-developed capital markets, weak infrastructure, and a shortage of trained and experienced management and workforce (“learning by doing”) means that pioneer investors in African agriculture – and indeed subsistence smallholder farmers themselves – face high costs in doing business which competitors in other parts of the world do not. High inputs costs, high transport costs, high personnel and training costs and high infrastructure costs typically far outweigh the benefits of relatively inexpensive land.

Catalytic finance needs to be carefully targeted. The challenge is to identify genuine situations where there is good potential for profitability once the initial market failures/ barriers to entry have been overcome. This calls for management by professional investment teams within a strict set of operating policies and procedures designed to protect the public interest.

What are the benefits of catalytic finance? If properly deployed it can be the key to unlock large volumes of new private investment in African agriculture. Numerous private equity and debt funds are being raised for African agriculture but there remains a severe shortage of “investment ready” opportunities. As argued elsewhere on this blog, the risk is that much of this money does not get deployed, or the price of the few bankable projects gets bid up to unsustainable levels. Catalytic finance helps avoid this situation by supplying a pipeline of investments that are ready to take commercial debt and equity and can offer reasonable financial returns.

Another major benefit of catalytic finance is that it can be used as a tool to influence private investor behaviour. It comes with strings attached which ensure that agriculture businesses operate in a socially responsible way and build meaningful links to smallholder and emergent farmers. Again, professional management of catalytic finance is important to ensure disciplined monitoring of private sector behaviour and the design of robust contractual arrangements which can lock in development benefits for the long-term.

There is very limited catalytic finance available in the international aid system today. For a long time the aid mindset has been: provide grants directly to governments and charities; or invest on commercial terms through the development finance institutions such as the International Finance Corporation. But increasingly it is being recognised that the development of the agriculture sector does not lend itself to this model. There simply are not many opportunities to make commercial returns given the early-stage of most African agriculture. Catalytic finance is a vital bridge to long-term viability.

It is encouraging to see the traditional mindset is beginning to change. The likes of DFID, USAID and the World Bank Group are now talking the language of catalytic finance in the agriculture sector. There is broad support, for example, for the agricultural growth corridors approach. There seems to be a recognition that for private public partnerships to deliver on their potential they need to be backed up by innovative financing mechanisms. AgDevCo will continue making the case for catalytic finance for African agriculture.

Postscript: The EMRC Agribusiness Forum Johannesburg Declaration calls for "increased public investment in agriculture-supporting infrastructure" and for development partners to "increase support for catalytic financing mechanisms and matching grant facilities to promote inclusive business models".

6 October 2011

CDC announces $20m investment in Silverlands African ag fund

The UK's development finance institution, the CDC Group, has committed $20m to the Silverlands Fund to support African agriculture businesses. It follows investments made by other public agencies including the Overseas Private Investment Corporation (OPIC) of the United States ($100m) and Finnfund.

Silverlands is aiming to raise a total of $300m which it plans to invest in "up to 15 agribusinesses across the main fertile growing areas of Central and Southern Africa" according to a CDC press releaseThe fund will largely invest in primary agriculture by targeting farms producing crops such as grains, soya, fruits, vegetables, sugar, tea, and coffee.

How many $20m plus "investment-ready" deals are there in African agriculture? From AgDevCo's perspective in countries like Ghana, Mozambique, Tanzania and Zambia, such opportunities are few and far between. There are even fewer which incorporate smallholder farmers in a meaningful way.

More investment for African agriculture is a good thing especially when it comes with strong committments to social responsibility. CDC's move back into agriculture should be welcomed. But it remains to be seen how quickly the investment finds its way down into farming businesses on the ground. 

24 September 2011

East African Agricultural Fund Raises $25 Million From Backers

African Agriculture Capital Fund, set up by the Rockefeller Foundation, the Gatsby Charitable Foundation and Volksvermogen NV, raised $25 million to support emerging farmers in East Africa, the fund’s manager said.

Pearl Capital Partners Uganda, a unit of Mauritius-based Pearl Capital Partners, will manage the fund, which is expected to launch on Sept. 27 in Kampala, the Ugandan capital, the investment group said in an e-mailed statement today.

The money has been raised from the Gatsby Foundation, the Rockefeller Foundation, the Bill and Melinda Gates Foundation, and New York-based J.P. Morgan Chase & Co., PCP Uganda said.

15 September 2011

AgDevCo and Small Foundation agree strategic collaboration to reduce poverty in rural Africa

AgDevCo has been awarded a grant of Euro 2.5 million by Small Foundation to promote socially responsible investment in the African agriculture sector. The funding will help AgDevCo expand its capacity to create a portfolio of investments in early-stage agricultural enterprises in Africa, with the aim of relieving rural poverty and promoting economic growth.

The private sector is the engine of long-term, sustainable development in Africa”, said Dr. Keith Palmer, AgDevCo’s Chairman. “AgDevCo believes that profitable agriculture with strong links to markets is the best route out of poverty for the majority of Africa’s rural poor. This grant from Small Foundation will enable us to reach many more African farmers”.

To date AgDevCo has raised more than Euro 15 million to invest in African agriculture. It is rolling out pioneering investments in farming and agri-processing businesses in Mozambique, Tanzania, Ghana and Zambia. “Our distinctive approach focuses on creation of profitable farm enterprises which also generate substantial benefits for smallholder farmers and local communities” said Chris Isaac, who heads AgDevCo’s office in Mozambique.

Tim Brosnan, Chairman of Small Foundation said “AgDevCo has a highly innovative approach to building socially responsible farming businesses at scale. We look forward to working with them to achieve our mutual goal of sharply reducing poverty in rural Africa.”

About AgDevCo
AgDevCo’s mission is to relieve poverty directly and indirectly by raising agricultural productivity and incomes for the benefit of rural communities as a whole in low and low-middle income developing countries. It aims to develop commercially viable agriculture and agribusiness ventures along entire value chains (including farm operations, infrastructure leasing businesses, storage and processing) and attract private sector capital to invest in them. It aims to ensure that substantial benefits accrue to the local communities including directly raising productivity and incomes of smallholder farmers. By taking a hands-on project development role and investing in early-stage agribusinesses, AgDevCo helps remove barriers to entry by private investors and structures ventures to achieve permanent benefits for smallholder farmers. AgDevCo’s goal is to demonstrate a scalable and sustainable approach to elimination of rural poverty by leveraging-in significant amounts of private capital in ways which generate transformational benefits for rural communities.

AgDevCo was established as a UK-headquartered not-for-profit-distribution company in 2009. Its funders including the UK government, the Norwegian Government, The Hewlett Foundation and the Rockefeller Foundation.

About Small Foundation
The vision of Small Foundation is an Africa free from the threat of famine within one generation. Its mission is to help provide opportunities to food-insecure rural African families that enable them to gain economic independence through income generation. Its goal is to support scaling up processes for opening up access to knowledge, finance, technology and markets to food-insecure rural African families and communities. Small Foundation aims to do this by, inter alia, helping to encourage the emergence of business-based systems for spreading the opportunity-creating process.

Small Foundation (www.smallfoundation.ie) was incorporated in Ireland in 2007 as a company limited by guarantee and a registered charity.

Further details contact: Rosanne Whalley rwhalley@agdevco.com Tel: +44 (0)20 7841 2821

7 September 2011

Feed the World: Bob Geldof to invest in African Agriculture

Forbes.com has this story on Bob Geldof's latest venture to raise private equity for investment in Africa, with a focus on agriculture.

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Irish rock star and former Boomtown Rats front man Bob Geldof has raised nearly $200 million for an Africa-focused private equity fund, Reuters has reported.

In September 2010, it was widely reported that Geldof, who has gained a reputation for his vocal advocacy for debt relief to Africa, was looking to raise a $1 billion private equity fund for investments in the region.

The fund, called 8 Miles (the distance between the southern tip of Europe and northern Africa) will make investments in financial services and telecommunications, but will nurture a bias for agribusiness and manufacturing, as Geldof told Reuters:

“Currently 80 per cent of exports from Africa are unprocessed raw materials. There’s your opportunity: they need manufacturing.”

Private equity on the continent is experiencing an unprecedented injection of external capital. According to an April 2011 report by the Emerging Markets Private Equity Association (EMPEA), private equity inflows into sub-Saharan Africa stood at about $151 million in 2002, but grew to $1.5 billion in 2010.

A few years ago, the idea of investing in an Africa-focused private equity fund would have been considered dicey. African fund managers experienced difficulty in convincing global limited partners (LPs) to invest in the region. LPs at the time were often skeptical about Africa- not because of its lack of opportunities or potential for growth, but as a result of the realities of political, economic and social instabilities that pervaded the region.

But as socio-economic stability sets into various parts of the continent, private equity is experiencing a record boom, driven primarily by Africans. Earlier this year, Helios Investment Partners, an African-focused private equity firm, closed its second fund, sized at $900 million. The fund is one of the largest in African private equity, and it was mobilized by Nigerian proprietors Tope Lawani and Babatunde Soyeye, both former staff of Texas Pacific Group. In 2007, Pamodzi Investments raised a $1.3 billion fund, the largest in Africa at the time. Other African-based firms like African Alliance Capital, Satya Capital and Citadel Capital among others are at the vanguard of the region’s private equity revolution.

But foreign firms are scrambling for their own share of the African private equity market. In March, American buyout firm Carlyle Group announced the launch of a $750 million African-focused fund. Last month, Singapore state investor Temasek Holdings joined forces with South Africa’s Oppenheimer family to launch a $300 million private equity fund for targeted investments in agribusiness and consumer goods. In March, London-based Asset manager Duet Group also teamed up with Standard Bank to launch a $100 million African fund.

The new scramble for African private equity is logical. According to a 2010 McKinsey report Lions on the move, the rate of return on foreign investment in Africa is higher than in any other developing region. Which explains why it appears that everyone wants a piece of the action.

10 August 2011

More funds targetting African agriculture businesses

South Africa's Oppenheimer family and Singapore state investor Temasek Holdings have set up a $300 million private equity fund to invest primarily in consumer goods and agricultural sectors across Africa. The 50/50 joint venture named Tana Africa Capital will target Africa's growing young population and also focus on agricultural production and processing of farm produce. More from Reuters Africa.

21 July 2011

The farm at the end of the long dirt road


This recent photo from the Kilombero Valley in Tanzania illustrates how poor infrastructure makes agriculture a tough business in many parts of Africa. Carter Coleman, Managing Director of Agrica Ltd, a company which has commercial rice operations in Tanzania, spells out the challenges in this interesting interview - Farming at the End of a Long Dirt Road.

21 June 2011

What are the realities of farming in sub-Saharan Africa?

There is enormous agricultural potential in many parts of Africa. There is no reason why Africa cannot be a major producer of agricultural products on a scale equal to South America. But it will take heavy investment by the private sector to realise the potential.

Why has there been so little private investment in agriculture to date? It is certainly not a lack of finance. There is more international interest in investing in Africa now than ever before.

The real problem is a lack of sufficient profitable opportunities. Agriculture in Africa is an infant industry. It faces high start-up costs and lacks supporting infrastructure. In contrast, international markets are highly competitive and benefit from economies of scale.

The challenge is how to get things started. How to deploy public sector resources to overcome barriers to entry and stimulate rapid growth of profitable and socially-responsible commercial agriculture?

At the Agriculture Investment Summit 2001 (London 21-23 June), Chris Isaac, Business Director of AgDevCo, a social investor and project development company, will describe approaches which are helping “kick start” investment in African agriculture:

Agricultural Growth Corridors in Tanzania and Mozambique
• A Public-Private Capital Fund to stimulate profitable investment in early stage agriculture

AgDevCo has a strong portfolio of investment opportunities which can achieve major social impact and deliver good financial returns. The presentation will be available on the AgDevCo website soon.

15 June 2011

HIlary Clinton backs Tanzania's Southern Agricultural Growth Corridor

Speaking at a women farmers' cooperative in Dar es Slaam earlier this week, US Secretary of State Hilary Clinton announced a major increase in support for the Southern Agricultural Growth Corridor of Tanzania (SAGCOT). She said:

"The United States will invest nearly $70 million in agricultural development and food security in Tanzania over. This is a 14-times-greater investment than we made in 2008 and 2009...Now, to take advantage of Tanzania's fertile farm land, we will pool more than 80 percent of our Feed the Future investment in this southern growth corridor. We have decided to concentrate our resources here in line with the country-led vision laid out by the government of Tanzania."

14 June 2011

Land grabs or economic development?

An interesting article on the land grab phenomenon by Professor Calestous Juma of Harvard University, author of The New Harvest: Agricultural Innovation in Africa appears in Kenya's Daily Nation. Juma argues that campaiging organisations like the Oakland Institute are wrong to paint all private sector investment in African agriculture with the same brush. It is true, he says, that many of the mega-land deals on the continent are not structured to benefit local communities. But a moratorium on all foreign investment would, in his view, amount to economic suicide for Africa, where access to infrastructure, skills and technology to drive increases in agricultural productivity is desperately needed. For example, only seven per cent of African agriculture is irrigated — 3.6 per cent in sub-Saharan Africa — compared to 47 per cent in south Asia. The challenge is to find ways of promoting socially-responsible investment where benefits are widely shared with local farmers and communities. Get this right, Juma argues, and Africa could feed itself within a generation.

3 June 2011

Is Small always Beautiful in agriculture?

Oxfam’s report Growing a Better Future brings urgency to the debate about food security and poverty. It shows how a billion people worldwide are going hungry, more than at any time in human history.

With climate change, population growth and rising food prices the situation is likely to get worse. Against this background of human misery, the report points out the inequity in a global food system which contributes to unprecedented levels of obesity and food waste in wealthy countries.

So what is to be done? Oxfam calls for massive, government-led investment in smallholder farming and supporting infrastructure. While warning against large-scale “land grabs”, Oxfam also recognises the private sector has a role to play in linking smallholder farmers to international markets.

The report is an important call to action backed up by sound analysis. But one section of the report does not ring true: the claim that smallholder farming is typically more efficient than large-scale farming. Big is not beautiful in agriculture, the authors say. “Surveys often find that, when the focus is shifted from yields to total productivity, small farms are more efficient”.

Is that correct? The research is not clear cut. Professor Paul Collier of Oxford University disputes the view in his paper African Agriculture in Fifty Years. He writes: “The evidence is far more mixed than the exclusive emphasis upon the smallholder approach would lead us to believe. Indeed, much of the focus on smallholders may actually hinder large scale poverty reduction.”

In AgDevCo’s experience smallholder farmers in Africa with access to modern inputs can achieve yields equal or greater to commercial farms, for certain types of crops. But the cost of labour is usually not factored into productivity calculations, or is given a very low value. Furthermore for some crops, such as barley and wheat, mechanisation is essential if African farmers are to become internationally competitive.

We need to move beyond the simplistic debate about small versus large-scale farming. Both can and should co-exist in ways that benefit local communities. The agricultural growth corridors in Tanzania and Mozambique, for example, are an attempt to promote balanced and sustainable agricultural development.That message may have less public appeal than the Bill & Melinda Gates Foundation's new campaign Smallholder Farmers are the Answer, but it is closer to reality.

As E.F. Schumacher, author of Small is Beautiful, and my grandfather, said what matters is finding the appropriate scale when tackling a given problem. Writing in the early 1970s he observed “an almost universal idolatry of giantism” and wished to correct the balance. He continued: “If there were a prevailing idolatry of smallness, irrespective of subject or purpose, one would have to try and exercise influence in the opposite direction.”

The need to invest in smallholder farming is indeed urgent. It requires smart combinations of government spending, overseas aid and private investment. But let’s not to dismiss the role of larger farming enterprises – where appropriate – in addressing global food security. With the stakes so high we should be careful to avoid an idolatory of smallness.

29 May 2011

Food prices continue upward trend

Maize prices show no sign of falling from recent highs. On Friday 27 May the Gulf of Mexico price for a tonne of maize, as reported by Index Mundi, was US$322.64. That represents a doubling in twelve months and a nearly four-fold increase in a decade.

Continuing dry weather in many parts of Europe has led the FAO to warn of food riots. Abdolreza Abbassian, senior grains economist at the FAO, said: "If the current situation continues prices will respond very aggressively. . . Our fear is that we still haven't seen the worst of food inflation in vulnerable countries and that could be coming".

The Economist also warns of potential for food prices to trigger unrest. It reports that people living in the towns of sub-Saharan Africa spend a bigger share of their income on food than do urban residents almost anywhere else in the world.

Initiatives to stimulate investment in agriculture, such as the Southern Agricultural Growth Corridor in Tanzania, could do much to boost yields and farmers' incomes. But time is running out. As Jawaharlal Nehru the first Prime Minister of India said, "Everything else can wait but not agriculture".  

23 May 2011

Seeds can change the world: Mozambique, Beira Corridor

Associated Press: Peter Waziweyi is bouncing around the lush countryside of Mozambique in his 30-year-old truck, visiting his customers' maize fields and relishing the sight of their rich, ripening crops.

In an East African country that tried and failed to run its economy on Marxist lines, it is now the turn of small-time businessmen like Waziweyi to step forward. Waziweyi is a seed salesman and part of a chain linking scientists and farmers that experts hope will help Mozambique and other African countries solve their chronic food crises.

Waziweyi has gone from aid worker to entrepreneur, producing high-yield, drought-resistant hybrid seeds and selling them through the company he and his wife founded last year, called "Nzara Yapera" — "an end to hunger."

"That's what we call positive results with immediate impact," he says after meeting a farmer who has seen what hybrid maize seeds can do and wants to buy them.

Better seeds fueled the "green revolution" of higher, more reliable crop yields that transformed farming in many parts of the world.

But Africa has come late to the green revolution, and Mozambique later than most. The former Portuguese colony is almost a laboratory specimen of the continent's post-independence woes: 17 years of civil war, spells of flood and drought, one-party rule tainted by corruption and antidemocratic tendencies. Like several African countries last year, it suffered riots over high food prices.

Gradually, the government is relinquishing control of the economy. A state-owned seed giant was broken up recently into an array of private producers, and Antonio Limbau, Mozambique's deputy agriculture minister, said he wants the profit motive to spread.

Across Africa, experts say, only 20 percent of farmers are using state-of-the art seeds. In Mozambique, Limbau said, it is just 5 percent.

While genetically modified seeds raise objections here just as they do in some Western societies, hybrid seeds and other modern techniques go down well in Africa. Success stories cited by researchers include cocoa in Ghana, cotton and coffee in Uganda, flowers in East Africa and beans in Rwanda.

But the World Watch Institute, a Washington, D.C. think tank, cautions that better seeds are not enough: Farmers need ways to keep their soil nourished, reliable customers and roads to bring their produce to market.

While free-market approaches may have some effect in Mozambique and elsewhere, however, the drive for better seeds is led by charities and other nonprofit organizations, because Africa is too poor to be of interest to big international seed companies, says Joe DeVries, a Kenya-based seed expert. He works for the Alliance for a Green Revolution in Africa, or AGRA, set up in 2006 by The Rockefeller Foundation and the Bill & Melinda Gates Foundation.

AGRA is working to get governments to leave seed distribution to the private sector. In Mozambique, it gave $1.5 million to train small merchants to run better businesses, develop links with suppliers and learn tips to pass on to farmers. The three-year project is run for AGRA by the International Fertilizer Development Center, based in Muscle Shoals, Alabama, and financed by the U.S. and other governments.

One of those attending an IFDC dealer-training session last year was Paulinho Wilson. He used to sell packets of vegetable seeds and the odd bag of maize seed out of his grocery in Catandica, a town in west-central Mozambique. Now, using his newly acquired entrepreneurial know-how, he has sold 20 25-kilogram (55-pound) bags of hybrid seed. He also advises farmers on how to use fertilizer wisely.

He has even come up with an advertising ploy, hiring a farmer to plant a crop of hybrid-seed maize outside town where farmers would notice it. Now, he says, customers are urging him to sell less soap and cooking oil and more seeds out of his tiny store. "Business has really expanded," he says.

The IFDC's Gil Mucave said some 25,000 farmers in northern Mozambique saw such demonstration plots or received other information about hybrids last year, and he is hoping to reach 60,000 this year. The training projects also put dealers in touch with banks willing to give loans.

Waziweyi, a short, white-goateed man, buys stock from government researchers to mass-produces seeds for sale to dealers — Wilson is one of them — or directly to farmers. Last year he produced 100 tons of seeds on more than 100 hectares (250 acres), and believes he has enough buyers to justify tripling his output this year.

One of his favorite farmers is Joseph Dzindwa, who has expanded his maize fields eight-fold to eight hectares (about 20 acres) in the last few years. Dzindwa said he could not have done it without hybrid seeds.

Waziweyi visits Dzindwa regularly to check on his progress and offer advice. "If he continues to grow, then our company will grow," he said.

Meanwhile, Catandica offers plenty of evidence of how hybrid seeds can help improve lives. The fruits and vegetables in the roadside market stalls are testimony to the soil's richness and the farmers' hard work. Yet behind the stalls, Mucave, the development worker, points to row after row of stunted maize raised from traditional seeds and untouched by modern technology.

"It's really true," he said, "seeds can change the world."

17 May 2011

Global food waste tops 1bn tonnes a year - FAO

More than a billion tonnes of food is being wasted globally every year, unnecessarily exploiting land, water and energy, the United Nations Food and Agriculture Organisation (FAO) has claimed.
A report commissioned by the FAO said improved harvest techniques and farmer education was needed to reduce the 1.3bn tonnes of food which is lost along the food chain or wasted every year.

The study says food loss - which occurs during production, harvest, post-harvest and processing phases - was more significant in developing countries. But in the developed world, consumer food waste was the biggest trend - accounting for 222m tonnes - more than the entire net food production of Sub-Saharan Africa (230m tonnes).

Making a series of recommendations, the FAO report says greater investment in processing facilities in developing countries was needed. It also calls for the creation of contract farming linkages between processors and farmers, as well as a "better enabling environment" to stimulate the private sector investment in the food industry.

Marketing cooperatives and improved market facilities, with funding from public and private sources, were also essential, with a role for farmers markets to narrow the gap between producers and consumers, the report adds.

6 May 2011

World Economic Forum: Innovative Partnerships Are Essential for Development Success

Innovative partnerships are essential to the success of African development, said business, government and civil society leaders in a plenary session on the second day of the World Economic Forum on Africa. “Partnerships are desirable and necessary and have worked well for us,” Tanzanian President Jakaya M. Kikwete told participants.

Kikwete described how his government has worked with farmers, local and international business, donor partners and civil society groups to develop the Southern Agricultural Growth Corridor (SAGCOT), a public-private initiative to drive growth and productivity in Tanzania’s breadbasket region. A SAGCOT Centre has been established and a Catalytic Fund will be launched in a few months. He also noted that his government is collaborating with the Alliance for a Green Revolution in Africa (AGRA) chaired by former UN Secretary-General Kofi Annan. “The innovative partnerships that we have created address one particular problem we face – how to transform Tanzanian agriculture, which is predominantly subsistence and marked by low productivity.” Added Annan: “Our vision is not just to help farmers to feed themselves but also to feed the markets so Africa can become part of the global food security system. This is not a pipe dream.”

Governments cannot do everything, Annan argued. “That mindset has to change.” Partnerships offer a way to different players with differing skills and resources to join together and create a venture that is greater in value than the sum of the parts. “We in the private sector live with partnerships,” explained Strive Masiyiwa, Group Executive Chairman of Econet Wireless Group. “Anyone trying to build a global business knows you cannot do anything without a sincere approach to partnership.”

Sustainable businesses regard the communities in which they operate as partners, Godfrey G. Gomwe, Executive Director of Anglo American South Africa, stressed. “We look at ourselves as partners of development with host governments.” For some governments, partnering with business is hard enough; joining together with civil society requires a major leap of faith, said Lindiwe Majele Sibanda, Chief Executive Officer and Head of Mission, Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN). “This is a sector that is not incorporated in formal structures,” she explained.

According to Mark Suzman, Director, Policy and Advocacy, Global Development, at the Bill & Melinda Gates Foundation, there are three keys to successful partnerships: clear definition of the roles of each partner, understanding that joining together offers clear mutual benefit and the willingness to be flexible. “Very few partnerships work seamlessly from the start,” Suzman noted. “The difficulty is doing the upfront mapping [to determine if] the partnership will really add value and be self sustaining.” Reckoned Annan: “For partnerships and relationships to work and be sustainable, there has to be social trust. Otherwise, some groups will not get into partnerships, or if they do, they will not last.” Building that trust, however, takes time, warned Rajiv J. Shah, Administrator of the US Agency for International Development (USAID) and a Co-Chair of the World Economic Forum on Africa. “It takes a lot of time working together.”

To African business, government and civil society leaders considering partnerships, Masiyiwa offered this advice: “You must first know your partner. If you want to go into a partnership, start building them among yourselves as Africans. Know the terrain. Go travel. Africans often don’t know Africa.”

17 April 2011

African agriculture could be worth $880 billion - McKinsey

A McKinsey report on the potential of African agriculture suggests the sector could be worth $880 billion annually by 2030, up from $280 billion today. To put this in perspective, total aid flows to Africa are some $50 billion a year.

How will that transformation be achieved in a way that is socially and environmentally sustainable? McKinsey partners Sunil Sanghvi and Roberto Uchoa de Paula call for holistic solutions to achieve a green revolution. One approach is agricultural development corridors, as promoted by AgDevCo and others in Mozambique and Tanzania.

According to Uchoa de Paula: "I can totally see Mozambique being a next Brazil in the next 10 to 20 years. They are now developing some infrastructure that will provide roads, railroads, and energy across the country. There are investments in credit, and irrigation . . . But most importantly, I see Mozambique actually engaging their small holders as part of their solution."

11 April 2011

Putting philanthropic capital to work in African agriculture

Today's announcement of a philanthropic investment by the Tony Elumelu Foundation in Mtanga Farms in Tanzania points the way to a future model for aid.

This deal will help Mtanga Farms establish a seed potato industry, which will benefit more than 125,000 local smallholder farmers who have proven able to increase yields threefold when provided with clean seed potatoes.

Tony Elumelu is a successful African entrepreneur who set up United Bank for Africa Plc, now active across three continents. He brings a business-minded approach to making investments which can deliver financial as well as social retruns.

"With this deal, we hope to set a new standard for both philanthropy and investing within Africa," said Founder and Chairman Tony O. Elumelu.

"Through impact investing, we seek to drive African economic growth from within by investing in businesses that generate social, environmental, and financial returns. This can also change the paradigm of how development takes place on the continent."

25 March 2011

Launch of the 2nd funding round of the Mozambique Catalytic Fund

AgDevCo is pleased to announce the launch of the second funding round for the Beira Agricultural Growth Corridor (BAGC) Catalytic Fund. The Catalytic Fund is designed to support commercially-viable agriculture businesses in the Beira corridor in Mozambique which benefit smallholder farmers and local communities. Proposals are now invited from entrepreneurs with business proposals which meet the funding criteria as described on the BAGC website. Amounts of up to $500,000 per business opprtunity are available. The deadline for the submission of funding applications is 15 April 2011.

17 March 2011

Acumen Fund raises assets in East Africa to $25 million

The Acumen Fund, a non-profit venture capital firm, will double its assets under management in East Africa to Sh2.1 billion ($25 million) in the next two years.

The organisation, which targets institutions that have a potential to make social impact when choosing companies to lend growth capital, has invested $12 million in East Africa and another $48 million in social projects for the poor in India and Pakistan.

The focus of the new investments in East Africa will be in food and nutrition, microfinance, health, water and sanitation, housing, agriculture and energy.

Biju Mohandas, the regional manager, said on Wednesday the firm is about to seal a deal with a microfinance institution. He did not reveal the name of the institution.

“With regard to agriculture, we are looking at nutrition, tissue culture and artificial insemination,” Mr Mohandas said.

Early this year, the organisation along with Root Capital, signed a $2.2 million (Sh187 million) financing deal with a Ugandan cotton ginnery, deepening regional investments by the firms.

The Ugandan ginnery will create jobs for an estimated 32,000 small scale cotton farmers in Uganda.

The company on Wednesday further deepened its social impact projects by signing an agreement with the KCB Group charity arm, KCB Foundation, which will sponsor the first Acumen Fund East Africa Fellows Programme aimed at training 20 emerging leaders in Kenya, Uganda, Tanzania, Southern Sudan and Rwanda.

The foundation donated Sh16 million for the training programme.
“The objective of the programme is to build an entrepreneurial pool of talented leaders who have the financial and operational skills to build strong organisations and the moral imagination to create a more inclusive economy,” said Susan Omanga, the KCB Foundation chairman.

The training targets people carrying out compelling projects with large social impact, passion for the region and a proven track record.

Since its founding in 2001, Acumen Fund has invested more than $40 million in companies that provide access to health, water and sanitation, energy, among others to low-income consumers in south Asia and East Africa.

10 March 2011

High Food Prices And Popular Uprisings – Is Ghana at Risk?

The following is an extract from Peace FM Online. The full article is available here
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The ongoing popular uprisings in North Africa and the Middle East poses the question if other developing countries, including Ghana, may experience similar or other forms of uprisings in the light of the imminent global food crisis of 2011. The question on everybody’s mind is if the revolutions and protests in North Africa and the Middle East can and will spread to other developing nations, including Ghana.

Similar circumstances in Ghana

It is clear that there are corresponding factors between the countries where the revolutions and protests are taking place and Ghana. Some of these include:

Poverty – Although Ghana has been hailed to have made great progress in reducing poverty, 30 percent of its population (approximately 7.8 million people) live on less than US$ 1.25 per day. However, according to the UNDP’s International Human Development Indicators about 46 percent of households are poor or deprived.

Unemployment and youth representation – The youth in Ghana younger than 30 years make up 60 to 70 percent of the population, while those between 15 and 25 make up 25 percent. With an unemployment rate of more than 25 percent in this segment, it means that Ghana is sitting with more than 6 million young and unemployed people.

High food prices – Food prices in Ghana have been spiraling upwards. This trend will increase due to the latest global food crisis and due to the fact that Ghana is highly dependent on imports of especially cereals such as rice.

High food prices – The straw on the camel’s back in Ghana?

There is little that any government can do about food price volatility and food crises such as the 2008 and 2011 crises – the last of which will hit Ghana in the soon. The 2011 food crisis is a global problem that requires both long-term strategies and short-term initiatives.

Long-term strategies

The world agrees that the best protection for developing countries is to become self-sufficient (as far as possible) in terms of food production. The GoG stated that they are pursuing this objective, and plans to make Ghana self-sufficient in terms of rice production within two to three years.

Local production only caters for between 10 to 30 percent (no one really knows the true status) of local demand. To produce the deficit of 70 to 90 percent locally within two to three years is just not possible due to various factors.

The truth is that the dream of self-sufficiency can only be reached in ten or more years if, and only if, massive commercial farming is introduced and millions more is invested in the agriculture in terms of:

- Quality seeding programmes;
- Irrigation systems;
- Mechanisation;
- Farmer education;
- Fertilization;
- Creation of markets.

The conclusion that must be reached is that Ghana is indeed at risk.

Ghana sits with millions of unemployed youth without hope, millions of people are reeling under high food, utility and fuel prices, corruption in the government and judiciary continues as a matter of course and the government seemingly does not care.

The chance of a revolution similar to those in Tunisia, Egypt and Libya is slim. Uprisings in a so-called democracy such as Ghana is much more likely to take the form of more and more activists who will come forward to expose the non-caring character of the NDC led government, peaceful demonstrations and eventually a silent revolution at the ballot box.

Ghana will be going to the polling booths again in less than two years. High food prices and the lack of political will by the government to support its people will definitely play a major role in the outcome of the 2012 elections.

3 March 2011

Food prices still climbing

Global food prices increased for the eighth consecutive month in February, with prices of all commodity groups monitored rising again, except for sugar.The FAO Food Price Index averaged 236 points in February, up 2.2 percent from January, the highest record in real and nominal terms, since FAO started monitoring prices in 1990.

27 February 2011

The price of food is at the heart of this wave of revolutions

An article in today's Independent makes the link between high food prices and revolutions across North Africa and the Middle East. And it's not just countries north of the Sahara. Last week in Senegal, an army veteran died after setting fire to himself in front of the presidential palace, emulating Mohamed Bouazizi, the market trader whose self-immolation sparked the revolution in Tunisia.

Against this background the US Department of Agriculture is predicting that grains markets will remain tight this year and into 2012, with international prices likely to continue to push higher. Many countries in Sub-Saharan Africa have been protected from the global surge in food prices in recent months because of healthy domestic harvests. That situation could turn about rapidly if rains were to fail this year. There are already worrying signs in East Africa.

What's clear is that there needs to be massive investment to increase Africa's production of maize, rice, wheat and soyabeans, to meet the continent's own needs but also to supply global markets. Done properly and repsonsibly that investment can also generate jobs and income earning opportunities for hundreds of thousands of young people.

21 February 2011

Ag jobs, food production hikes can help stem protests, UN told

With world food prices soaring and unrest surging in the Middle East, boosting food production and finding agriculture-related jobs for disenchanted young people are now crucial, keynote speakers told the annual meeting of the U.N. fund for reducing rural poverty.
IFAD President Kanayo F. Nwanze said, "The first step is recognizing that farming of any scale is an economic activity, a business. And businesses need clear links along the value chain – from production to processing, marketing and consumption."

More from Reuters here

15 February 2011

Record maize prices - but few benefits for African farmers

By Chirs Isaac

The world is staring down the gun of a new food crisis. Global maize prices have doubled in the past six months, reaching record levels. The chart below from IndexMundi shows the extent of the increase, caused by poor harvests and low global stocks. Today the FOB Gulf price for maize (corn) hit $295 per tonne.


That must be good news for African maize farmers, right? Not in the short term. A number of countries in Southern Africa - Malawi, Tanzania, Zambia and Mozambique - have recorded bumper harvests this year following good rains. But surplus crops are flooding local markets, driving prices down, rather than taking advantage of export opportunities.

As this article reports the price of maize in Malawi is currently as low as $3 per 50kg bag - equivalent to just $60 per tonne. That is hardly sufficient for farmers to recover the costs of seeds and fertiliser let alone provide an income.

Why the disconnect? A combination of policy, logistical and infrastructure challenges keep African farmers locked out of international markets. It costs up to $150 per tonne to ship maize from Malawi to an international port, for example. There are also cleaning and storage costs to be taken into account.

The solution? Agricultural growth corridors in Tanzania (SAGCOT) and Mozambique (BAGC), both of which link back into Malawi and Zambia, are a way of leveraging socially-responsible private investment to drive investment along the agricultural value chain, building links from African farmers to regional and international markets.

With more investment, economies of scale along the value chain will start to kick in, driving a virtuous cycle of increased competitiveness, higher productivity and better incomes for African farmers.

11 February 2011

Concessional Funding Key to Unlock Africa’s Agriculture

At least three major demands: “catalytic funding”, some form of “patient capital” and the setting up of “agricultural growth corridors” – need to be met in order to boost the productivity of Africa’s farm sector, creating jobs, improving livelihoods and alleviating poverty.

This is one of the conclusions reached last week by experts meeting at the World Bank in Washington, DC, to discuss how best to assist African smallholder farmers to transition from subsistence to commercial farming.

An essential first step, the experts agreed, must consist of helping smallholder farmers gain access to credit, farm inputs and protection for their land rights. A similar step is needed for African commercial farmers, who need access to grants, subsidized or long-term funding.

“About 60 percent of the world’s uncultivated farmland is in Africa, yet the continent receives only five percent of global investments in agriculture, ” noted World Bank Managing Director Ngozi Okonjo-Iweala, pointing to the tremendous window of opportunity agriculture represents for Africa.

The representatives of African commercial farmers told the meeting that every dollar in “catalytic funding” (subsidized loans) devoted to Africa leverages up to $20 in private capital.

World Bank President Robert Zoellick, who hosted the talks, pledged Bank support in helping establish a “catalytic fund” and mobilize “patient capital” (resources from foundations and Trust Funds) to help nurse Africa’s “baby agricultural industry” to the maturity needed for it to satisfy demand from global retail giants like Walmart and Shoprite.

“Only one percent of commercial lending in Africa went to agriculture in 2010, not enough to ensure that the sector expands by at least 5 percent a year, ” commercial bank executives and some of the region’s biggest agri-business representatives acknowledged.

A mere third of the $3bn devoted to agriculture by private investors worldwide goes to Africa, where 60 percent of all arable land continues to lie fallow.

These problems are compounded by limited use of science – agronomic research, genetically modified seeds, fertilizers and other inputs. In addition, about 40 to 50 percent of Africa’s total farm yield is believed to be destroyed or lost between the harvest, warehousing, conservation, post-harvest marketing and transport to the final consumer.

More from the World Bank here.

7 February 2011

World food prices reach new historic peak

World food prices surged to a new historic peak in January, for the seventh consecutive month, according to the updated FAO Food Price Index, that regularly tracks monthly changes in global food prices.

The Index averaged 231 points in January and was up 3.4 percent from December 2010. This is the highest level (both in real and nominal terms) since FAO started measuring food prices in 1990. Prices of all monitored commodity groups registered strong gains in January, except for meat, which remained unchanged.

"High food prices are of major concern especially for low-income food deficit countries that may face problems in financing food imports and for poor households which spend a large share of their income on food", said FAO economist and grains expert Abdolreza Abbassian.

28 January 2011

USAID commits to Tanzania Catalytic Fund for agriculture

As the world faces up to another food crisis, Tanzania is leading the fight back with a strategy to triple agricultural production and lift millions out of poverty.

A report launched in Davos on Friday by Tanzanian President Jakaya Kikwete shows how to achieve a green revolution in East Africa, by promoting “clusters” of profitable agribusinesses which incorporate small-scale farmers.

At the launch Rajiv Shah Administrator of USAID announced a $2 million investment into the Corridor’s $50 million catalytic fund. USAID is considering additional annual investments up to $10 million.

The Southern Agricultural Growth Corridor of Tanzania (SAGCOT) is an area the size of Italy with rich farmland and good “backbone” infrastructure - roads, rail, power and an international port at Dar es Salaam. It could feed the East Africa region and become a major agricultural exporter, to rival the likes of Brazil.

SAGCOT is supported by a public-private partnership of global agriculture businesses, international development agencies, farmers’ groups and the Government of Tanzania. It promises a transformation in the fortunes of hundreds of thousands of Tanzanian farmers.

Small-scale farmers in Tanzania, as in many other parts of Africa, lack access to modern inputs, are at risk from climate change and remain locked out of international markets. SAGCOT will link farmers to modern supply chains and make agriculture a profitable activity, in a country where over 75% of the population is engaged in the sector.

The 63-page Investment Blueprint report was developed with support from AgDevCo, a social impact investor, and Prorustica, a consultancy. Global corporate partners are Unilever, Yara International, Dupont, Stanbic Bank, Monsanto, SAB Miller, Diageo, Syngenta and General Mills. Tanzanian businesses and farmer groups are also involved.

The main findings and recommendations are:
• $3.4 billion of public and private sector investment could triple agricultural output over a 20-year period, achieving food security for the region, creating 420,000 jobs and lifting two million people out of poverty
• Tens of thousands of subsistence farmers would have opportunities to become profitable, commercial farmers in their own right, with access to modern inputs, irrigation and international markets.
• To achieve these results, new financing facilities will be established, including a $50 million Catalytic Fund – backed by the Tanzanian government and international donors – to provide low-cost capital for start-up agriculture businesses.
• The report lists a number of “early wins” in the corridor – agricultural investments which could achieve rapid results in terms of increased output and benefits for small-scale farmers and local communities.
• A SAGCOT partnership organisation, with a professional Secretariat, will help coordinate and monitor public and private sector investments along the corridor.

Global fertilizer company Yara International announced one of the first major investment in the corridor in January 2011 with a USD 20 million investment into a new fertilizer terminal by the port in Dar es Salaam.

President Jakaya Kikwete said:
“Tanzania has immense opportunities for agricultural development . . . SAGCOT is an initiative which I believe personally is the best model to fast track the green revolution in Tanzania".

Prime Minister Mizengo Pinda said:
"SAGCOT will show the way by demonstrating that smallholder agriculture pays and can be a business. The Tanzanian government will commit resources to the Catalytic Fund".

Dr. Keith Palmer, Chairman of AgDevCo, a social impact investor, said:
“Profitable agriculture with strong links to markets is the best route out of poverty for the majority of Africa’s rural poor. SAGCOT can deliver transformational change within a generation”.

17 January 2011

Southern Agricultural Growth Corridor of Tanzania report available to download

Launched in Dar es Salaam, Tanzania, on 13th January by Prime Minister Pinda, the Southern Agricultural Growth Corridor of Tanzania (SAGCOT) Investment Blueprint is now available for download.
President Kikwete of Tanzania will present the Investment Blueprint at the World Economic Forum in Davos, Switzerland, on 28th January, 2011.

SAGCOT is highlighted in this month's Harvard Business Review as an example of a "new conception of capitalism which recognises that societal needs, not just conventional economic needs, define markets and long-term business success".

15 January 2011

Agricultural Growth Corridors: Going Beyond Corporate Social Responsibility

An article in this month's Harvard Business Review by Michael Porter and Mark Kramer identifies agricultural growth corridors in Mozambique and Tanzania as examples of the next major transformation in business strategy: "shared value".


"Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. It is not on the margin of what companies do but at the center. We believe that it can give rise to the next major transformation of business thinking."


According to the authors, shared value is about much more than corporate social responsibility. It is a new conception of capitalism which recognises that societal needs, not just conventional economic needs, define markets and long-term business success.


The agricultural growth corridors in Tanzania and Mozambique, developed by social investor AgDevCo, are cited as an example of a shared value approach with the potential to kick-start a virtuous cycle of social and economic improvement.


Porter and Kramer write: "A shared value perspective [in the agriculture sector] focuses on improving growing techniques and strengthening the local cluster of supporting suppliers and other institutions in order to increase farmers’ efficiency, yields, product quality, and sustainability."


They continue: "Early studies of cocoa farmers in the Côte d’Ivoire, for instance, suggest that while fair trade can increase farmers’ incomes by 10% to 20%, shared value investments can raise their incomes by more than 300%."


The Southern Agricultural Growth Corridor of Tanzania (SAGCOT) and the Beira Agricultural Growth Corridor (BAGC) in Mozambique are innovative partnerships between businesses, governments and development agencies. For more information see http://www.africacorridors.com/

13 January 2011

Tanzania to become a global player in agriculture: Investment Blueprint launched

Today in Dar es Salaam, Prime Minister Pinda of Tanzania launched the Southern Agricultural Growth Corridor of Tanzania (SAGCOT) Investment Blueprint (see Executive Summary). It promises to make Tanzania internationally competitive in agriculture within a generation, to compete with global players like Brazil.

Later, at the ground-breaking ceremony for a $20 million investment by Yara International in a fertiliser terminal at Dar es Salaam port, President Kikwete said:
"SAGCOT is an initiative which I believe personally is the best model to fast track the green revolution in Tanzania".

Initiated at the World Economic Forum on Africa in May 2010, SAGCOT is an international partnership of global agriculture businesses (e.g. Unilever , Yara International, Diageo, Syngenta, Dupont, Monsanto), development agencies (e.g. USAID, the Alliance for a Green Revolution in Africa, Food and Agriculture Organisation), Tanzanian businessess and the Tanzanian government.

In a foreword to the Blueprint, President Kikwete of Tanzania said:
“Tanzania has immense opportunities for agricultural development….The southern agricultural corridor can be the breadbasket of Tanzania and beyond.”

By catalysing $3.4 billion of socially responsible private investment, the SAGCOT initiative will deliver rapid and sustainable agricultural growth in Tanzania – with major benefits for small-scale farmers and rural communities.

Keith Palmer, Executive Chairman of AgDevCo, a social impact investment company which prepared the report, said:
“Profitable agriculture with strong links to markets is the best route out of poverty for the majority of Africa’s rural poor. As a business-driven initiative with the full backing of the Tanzanian government, SAGCOT can deliver transformational change within a generation”.

The result will be a tripling of the area’s agricultural output, with anticipated benefits including:
• approximately 350,000 hectares brought into profitable production,
• tens of thousands of smallholders becoming commercial farmers, with access to irrigation and weather insurance,
• at least 420,000 new employment opportunities created in the agricultural value chain,
• more than two million people permanently lifted out of poverty, and
• annual farming revenues of $1.2 billion

To achieve these results, new financing facilities will be established including a $50 million catalytic fund, backed by the Tanzanian government and international donors, to provide start-up capital for new agriculture businesses. There will also be a SAGCOT partnership organisation to coordinate public and private sector investments.

At the launch event Prime Minister Pinda said:
"SAGCOT will show the way by demonstrating that smallholder agriculture pays and can be a business...The Tanzanian government will commit resources to the Catalytic Fund".

Pinda urged the country's development partners to incorporate SAGCOT in their country assistance strategies and support the fund.

AgDevCo is a not-for-profit agricultural development company operating in sub-Saharan Africa. AgDevCo is managing a catalytic fund for the Beira Agricultural Growth Corridor in Mozambique, where it has made investments in a number of early-stage agriculture businesses including seed production, mangoes, bananas, honey and livestock.

For media enquiries please contact Keith Palmer, Executive Chairman of AgDevCo, or Chris Isaac, Director for Business Development. Tel: +44 (0)20 7841 2821

12 January 2011

Agriculture leads poverty reduction

Investment of patient capital can stimulate rapid growth of agriculture in Africa, writes Keith Palmer of AgDevCo.

There is enormous agricultural potential in many parts of Africa. All the necessary natural conditions – good soils and climate, plenty of land and water – are present in many countries. There is no reason why Africa cannot be a major producer of agricultural products on a scale equal to that of South America. But it will take heavy investment by the private sector to realise this potential, and the reality is that there has not been nearly enough of it. As a result the potential remains largely unrealised.

Rapid growth of agriculture is the most effective means of reducing poverty in Africa. According to the World Bank the poverty reduction impact of growth in agriculture is three times greater than comparable growth in any other sector. But since there has not been rapid growth in agriculture the opportunity to reduce poverty has not been grasped. Rural Africa remains extremely poor.

Why has there been so little private investment in agriculture? It is certainly not a lack of finance per se. There is more international interest in investing in Africa now than ever before. New private equity funds focused on agriculture in Africa are searching for viable investment opportunities. The development finance institutions have under-utilised their capital allocations for agriculture in Africa for many years.

The real problem is not lack of finance – it is lack of sufficient profitable opportunities in which to invest. The reason is straightforward: agriculture in Africa is an infant industry. It lacks the infrastructure required for commercial agriculture – such as water supply for irrigation, electricity supply to the farm gate and feeder roads to access markets. It has to incur start-up costs such as land clearing and trial planting, costs which do not have to be borne by its competitors. It lacks experienced managers and a trained workforce resulting in lower productivity and higher labour costs.

Above all infant industry by its very nature operates on a small scale and therefore does not benefit from the economies of scale available to international competitors. As a result in many cases unit costs are high and expected returns are low. Furthermore early stage agriculture is very risky. This raises the minimum return required by private investors. With low expected returns and a high risk-adjusted cost of capital it is not surprising that many early stage opportunities are not attractive to private investors.

But if the infant industry can ‘grow up’ there is no reason why it cannot be internationally competitive. As the infrastructure platform is strengthened and the benefits of scale economies and ‘learning by doing’ drive down costs, as the industry grows in size and matures over time, the returns on new investment will be attractive to private investors.

The challenge for the international community is how to get things started: how to deploy development assistance resources in ways that will overcome the barriers to entry, resulting in rapid growth of profitable commercial agriculture and thereby a rapid reduction in poverty.

Successful interventions should: be targeted at the market failures which create the barriers to entry; be catalytic, levering-into African agriculture new private investment in amounts many times greater than the amount of donor funding; and be time limited so that over the medium term public funds can be withdrawn, replaced with private capital and the proceeds re-invested in new early stage ventures.

The key to success is patient capital. Patient capital is long-term, low-cost, subordinated capital provided by donors and invested in the early stages of private sector agricultural ventures. It would be used to finance start-up costs, to part-fund the cost of infrastructure (such as irrigation assets) and to part-fund working capital required by small and medium-size enterprises (SMEs) and smallholder farmer organisations (SFOs), these being sponsors who would not otherwise be able to secure sufficient working capital from banks.

The long tenor and low cost of patient capital reduce unit production and delivery costs in the early years. This increases the incremental return on private investment in the venture. Subordination of patient capital reduces the risks faced by private investors. The result is to shift the opportunity ‘above’ the line in figure 1 making it attractive to private investors.

Patient capital should have ‘upside’ sharing to ensure that funders share in any unanticipated upside; and should be secured on the assets in the business to ensure that there are consequences for sponsors if they fail to comply with the conditions on which the funding was made. Conditions should always include undertakings to help integrate smallholder farmers into agricultural value chains and provide them with access to infrastructure on affordable terms.

Patient capital deployed in this way would be catalytic, levering-in large amounts of new private investment, and it would also bring transformational benefits for smallholder farmers, taking them out of poverty ‘at a stroke’.

How can patient capital best be deployed? The best approach is to create a public/private equity fund in which public sector donors (and private sector foundations and social impact investors) fund a tranche of patient capital and private investors fund a tranche of private equity expected to generate commercial returns. The low cost of the patient capital would lever-up private equity returns and the subordination would reduce the risks. The fund would invest both patient capital and private equity into a portfolio of early-stage agricultural ventures.

The fund would differ from a standard private equity fund in several respects. First the governance: the fund would have dual objectives. To invest in early-stage agricultural ventures that are expected to be socially and environmentally sustainable and generate commercial returns on the private equity tranche; and to deliver explicit poverty reduction objectives framed in terms that are quantifiable and can be monitored. The investment committee, made up of nominees of the funders of patient capital and private equity, would be responsible for ensuring that both of the fund’s objectives were met. Second, the incentives: the fund manager would be remunerated for achieving success which in this case means delivering the outcomes sought by both the patient capital and private equity funders. Remuneration should be linked to both the financial performance of the fund and the delivery of specific targets relating to development impact and poverty reduction.

As well as patient capital there is a need for two additional development assistance instruments. The first is social venture capital (sometimes called catalytic funding). This is concessional funding from donors used to co-invest alongside SME and SFO sponsors to make a greater number of very early stage opportunities ‘investment ready.’ The experience of InfraCo and AgDevCo shows that small amounts of social venture capital invested pre-financial close can not only be highly effective in catalysing additional private investment but also in structuring investments so that they achieve high development impact and strongly pro-poor outcomes.

The second is partial risk loan guarantees. Sponsors must have access to committed credit lines to fund working capital as well as equity if they are to grow their businesses rapidly. Debt providers are extremely nervous about extending credit to early-stage agricultural ventures when the sponsor has limited track record and collateral. The solution is partial risk loan guarantees which are instruments that transfer some of the credit risks from the lender to the guarantor for a fee. There are a number of credit guarantee facilities operated by donor agencies which perform this role including the USAID DCA programme and Guarantco, a public private partnership facility funded by European governments. However, if credit to support rapid growth of early stage agriculture is to be sufficient there is a need for more loan guarantee capacity, greater willingness to take risk positions on early-stage agricultural ventures with SME/SFO sponsors and pricing that recognises the need to keep the cost of capital as low as possible in the early years.

Social venture capital invested in the very earliest stages creates a larger number of investment ready opportunities. It is withdrawn as soon as possible after financial close and reinvested to create more investment ready opportunities elsewhere. The patient capital fund invests a blend of patient capital and private equity at financial close. Over time the patient capital is withdrawn and replaced with private equity. Loans made at financial close benefit from partial risk loan guarantees but over time as the guarantees lapse and lenders become more comfortable with the sponsors they extend new credit lines without loan guarantees. Once the infant industry has grown into a mature, profitable industry, all the finance required to continue to grow will come from the private sector.

In conclusion, there is a real opportunity for the international community to catalyse large-scale private investment and realise the great agricultural potential of Africa. In doing so, it will meet its primary objective of reducing poverty. It will also contribute to addressing the global food security agenda and to increasing the resilience of Africa to the consequences of climate change. That really would be effective aid!

7 January 2011

Africa set to grow faster than Asia

By Chris Isaac, AgDevCo

Latest projections from The Economist suggest Africa will grow faster than Asia over the next five years. What is especially impressive is that, of the ten fastest growing economies in the world, seven are expected to be in Africa.


The challenge is to ensure that growth brings poverty reduction. Countries like Mozambique and Tanzania have experienced strong growth in recent years, but only limited reductions in rural poverty, mainly because of low agricultural productivity.

There is an increasing body of economic evidence based on the experience of Asian countries such as Vietnam (e.g. see here), which shows that growth in agriculture is the most effective way of boosting the incomes of the poorest.

Without more investment in agricultural productivity, the African growth story of the next few years is likely to disappoint those hoping to see sharp falls in poverty.

5 January 2011

World food prices at fresh high, says UN

Global food prices rose to a fresh high in December, according to the UN's Food and Agricultural Organisation (FAO). Its Food Price Index went above the previous record of 2008 that saw prices spark riots in several countries.

Soaring sugar, cereal and oil prices had driven the rise, the report said.The index, which measures monthly price changes for a food basket composed of dairy, meat and sugar, cereals and oilseeds, averaged 214.7 points last month, up from 206 points in November.

It stood at 213.5 points at the high of June 2008 - sparking violent protests in countries including Cameroon, Haiti and Egypt.There were further riots over food prices in Mozambique in September last year.

However, despite high prices, FAO economist Abdolreza Abbassian said that many of the factors that triggered food riots in 2007 and 2008 - such as weak production in poor countries - were not currently present, reducing the risk of more turmoil.

But he added that "unpredictable weather" meant that grain prices could go much higher, which was "a concern".


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