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.

22 April 2012

SAGCOT: out of the starting blocks?

In a recent blog entry, Porter McConnell of Oxfam America makes a critique of the Southern Agricultural Growth Corridor (SAGCOT) initiative. The post, titled What if we held a private sector initiative and nobody came? points out, correctly, that since the launch of SAGCOT in early 2011 no major new investments have been made in the agriculture sector.

“The lack of investors calls into question the effectiveness of the public money that has been contributed to the partnership”, McConnell writes.

It is an important issue. Private companies should not be entitled to good PR from supporting a development initiative like SAGCOT unless they are willing to contribute meaningful resources. A sprinkling of corporate social responsibility dollars is not enough.

But McConnell lets the public sector off too lightly. The reality is that to date neither the private sector nor the donors have put significant funding into SAGCOT. There have been funding announcements but so far no money has actually flowed from government budgets into infrastructure or new financing mechanisms.

Given this, it is hardly surprising there has been no increase in private investment into agriculture. As the SAGCOT investment blueprint (2011) document says: “Private investment has been low in the past because of the high costs and risks of investing in commercial agriculture at its ‘infant industry’ stage”.

Not much has changed. As argued in the blueprint, private investment will remain low until at least two things happen: firstly, there is a catalytic fund to support investment in early stage agriculture businesses; secondly, there is increased investment by the government and donors in agriculture-supporting infrastructure (e.g. roads and power lines).

SAGCOT still has enormous potential. Understandably it takes time to implement a bold new public-private partnership. Every care must be taken to ensure that public money is used wisely and for the benefit of small farmers and local communties, not large businesses.

But patience with SAGCOT is running out. The donors and the private companies need to demonstrate soon that something is happening on the ground and not just in glitzy conferences. Private and public funding must begin to flow if SAGCOT is to get out of the starting blocks.

19 April 2012

Catalytic Capital: Realising Africa’s Agricultural Potential

Chris Isaac talks about the role of clusters and catalytic capital in making Africa’s agricultural potential a reality. Article reproduced from IFC's quarterly journal on public private partnerships, Handshake: Food and PPPs.

Zacharia Elises’ maize stands tall on his 1.5 hectare plot in Catandica, central Mozambique. He expects to harvest over five tonnes this season, which is more than three times the average yield in the area. He is linked to the innovative extension and marketing company, Empresa de ComercializaĆ§Ć£o Agricola (ECA) which provided him with seeds, fertiliser and planting advice. One third of ECA is owned by local farmers so Elises will share in any profits generated from processing maize and other products for sale to the World Food Programme and a local brewery.

ECA sits at the middle of an economic ‘cluster’ of related agricultural businesses. The seeds were sourced from Phoenix Seeds, a company established in 2011, which aims to provide reliable and locally-adapted seeds at an affordable price. ECA’s milling operations produce maize meal for food consumption, starch for a local brewery, and nutritious bran that is highly sought after by local livestock farmers such as Guita Poultry and Tsetsera Pigs which, in turn, are expanding rapidly to take advantage of growing local demand for high-quality meat products.

All these agricultural businesses have received investment from the Catalytic Fund, the financing arm of a pubic private partnership launched in 2010 called the Beira Agricultural Growth Corridor (BAGC). Supporters of the BAGC include the Mozambican government, local and international agriculture businesses, the United Kingdom’s Department for International Development and the Norwegian and Dutch governments.

The Catalytic Fund, managed by AgDevCo, aims to kick-start clusters of profitable agricultural businesses in central Mozambique, in an area with reasonable infrastructure and rapidly developing new markets (the Tete area nearby has some of the largest coal deposits in the world which have attracted the likes of Rio Tinto and Brazilian mining gain Vale). Other investments made by the fund to date involve bananas, avocadoes, mangoes, sesame, sunflower and honey. AgDevCo is also developing irrigated farm blocks for use by local farmers, taking advantage of Central Mozambique’s ample water resources.

Banks will rarely lend money to start-up or early-stage agriculture businesses. Agriculture accounts for 30% of Africa’s economy but less than 5% of bank lending goes into the sector. The Catalytic Fund steps into the gap, providing ‘social venture capital’ on attractive terms to local entrepreneurs who have a solid business plan and the capacity to execute it effectively. The level of subsidy depends on the extent to which the business guarantees direct benefits for smallholder farmers and local communities. As well as capital, the US$20 million fund provides hands-on management and business support. Where necessary, it can also help mobilise targeted grant funds for small farmer development programmes.

By taking out many of the front-end costs and risks of getting new agriculture business started, the Catalytic Fund aims to unlock large volumes of new private investment. Numerous private equity and debt funds are being raised for African agriculture but there remains a severe shortage of ‘investment ready’ opportunities. Catalytic capital helps create a pipeline of interlinked and highly scalable investments that are ready to take on commercial debt and equity. When the fund sells its stakes in project any profits are recycled into developing new local businesses.

The Catalytic Fund is proving to be catalytic in more than one sense. Frustrated by the slow pace of investment in agriculture, and influenced by what is happening in Mozambique, a number of African countries including Ethiopia, Ghana, Rwanda and Tanzania are now setting up cluster initiatives and launching catalytic funds. The major donor agencies – the World Bank, USAID, DFID and others – have backed calls by African governments to do more to develop the local private sector, which is the backbone of any agricultural economy. A promising new pan-African initiative called ‘Grow Africa’, endorsed by the Africa Union and the World Economic Forum, is supporting the agenda.

For a long time people have talked about Africa’s agricultural potential; too often expectations of a take-off have failed to materialise. Perhaps this time the stars are aligned more favourably. The availability of catalytic capital, the focus on developing profitable clusters of firms in areas with reasonable infrastructure, the renewed investor interest in agriculture – all are necessary conditions for profitable and sustainable agriculture growth. Replicating these types of approaches across Africa will provide more opportunities to entrepreneurs like Elises to become successful commercial farmers.

11 April 2012

AgDevCo features in World Bank's Food & PPPs publication

While the world’s population is on the rise, food production is decreasing, and almost a billion people around the globe don’t have enough to eat. The new issue of Handshake: Food & PPPs examines how public-private partnerships (PPPs) in agriculture can help governments feed generations to come.

Handshake: Food & PPPs offers compelling and original ideas, analysis, and solutions from industry, NGOs, foundations, and across the World Bank Group. Articles and interviews cover these and many other topics:

• Q&A with AgDevCo Executive Chairman Keith Palmer
Catalytic Capital: Powering Africa's agricultural potential, by Chris Isaac
Agricultural clusters in Mozambique and Tanzania
• Innovations in agricultural extension programs: seeding knowledge
• Warehouse financing: receipts that pay
• Storage solutions: solving the problem of plenty
• New technology for agriculture and rural development: online and on time