Agribusiness partnership to tackle poverty, Mozambique

At the G8 meetings in Washington D.C. today world leaders committed to lifting 50 million people out of hunger by promoting new partnerships with private companies. AgDevCo, a social impact investment company, is delighted to announce the launch of one such partnership in Mozambique.

Cervejas de Moçambique (CDM), part of the SAB Miller group, has signed a three year purchase agreement to buy maize grown by local smallholder farmers to use in its Chibuku beer. Until now all maize used in CDM’s beers and non-alcoholic beverages has been imported.

The three-year agreement was signed In Maputo on Friday with Empreza de Comercialização Agricola (ECA) Lda, a Mozambican marketing company, which is 45% owned by smallholder farmers. ECA will this month start producing maize grits for delivery to CDM’s factories in Beira and Maputo.

ECA works with its farmers to boost yields by providing access to improved seeds, fertilisers and affordable finance. In its first year many of ECA’s farmers have achieved maize yields of more than four tonnes per hectare.

“Linking our farmers to reliable markets which pay a fair price is central to our business model” said Grant Taylor, ECA’s Managing Director. “By increasing farmer yields 3-4 times we can help ensure families have enough food to eat and can sell their surplus for cash”.

CDM’s Adrian Mitchell, Director of Chibuku, said: “Sourcing raw materials locally is a key objective for us. Doing so makes good business sense and it contributes to the economic development of Mozambique. We are delighted to enter into this partnership with ECA and we see great potential for it to grow.”

One of ECA's farmer members with his family in front of a good maize crop



The first Chibuku beer to come off the factory line using Mozambican maize

Chibuku and other beverages made with Mozambican maize will be on sale from July 2012. ECA will buy maize from at least 750 Mozambican farmers in 2012 increasing to over 2,500 farmers by 2015.

ECA received equity investment and technical support from the Beira Agricultural Growth Corridor Catalytic Fund, which is managed by AgDevCo. A local commercial bank and a microfinance institution provided farmer loans and working capital for crop purchases.

Let's get down to business: the three Cs of agricultural development

As African political and business leaders gather in Addis Ababa for the World Economic Forum meetings, agriculture will again take centre stage. In fact there’s a new initiative this year – Grow Africa – sponsored by WEF and the Africa Union which aims to broker partnerships between businesses, governments and donors. A full day session on Wednesday 9th May will be attended by three African heads of state, the CEOs of major African companies and top officials from international development organisations.

No doubt, these conferences are helpful in building momentum for change. Since the food crisis of 2008 there has been a remarkable reshaping of the debate around agricultural development with a consensus that the public and private sectors need to work in partnership for maximum impact. Some new models are showing promising results – for example local sourcing of cassava by SAB Miller in Mozambique. But overall there are still not enough examples of words translating into action on the ground.

In Addis this week I will be saying that three things must happen to move from grand plans to transactions which deliver real benefits for farmers:

Firstly, the private sector must come forward with multi-year contracts to source their agricultural raw materials locally. As argued by Zahid Torres-Rahman of Business Action for Africa, companies who source locally derive a whole range of business benefits such as reduced risk, reduced costs and better supply chain management. In the early years companies should be willing to pay a premium over the cost of raw material imports as an investment to achieve these long-term gains.

Secondly, donors must be willing to provide patient capital (i.e. long-term low cost debt or equity) to support investment in primary production. The economics of farming in Africa with high upfront investment needs, especially in irrigation infrastructure, means entrepreneurs cannot access (or afford) fully commercial capital from day one. Patient capital should come with strings attached: recipients must demonstrate they are supporting local smallholder farmers and delivering meaningful benefits for local communities.

Thirdly, there needs to be an entity on the ground responsible for coordination. This involves coordinating demand with supply and developing "hub and spoke" farming models which combine large and small-scale farming systems. This a role being played by AgDevCo which has a presence in four African countries and has the expertise in investment and agribusiness to ensure that deals are commercially viable and socially equitable.

It is not particularly complicated. When all three Cs are in place – contracts, capital and co-ordination – remarkable things can happen quickly. Read for example about the ECA smallholder farmer extension and marketing business in Mozambique, which is partnering with a major brewery. AgDevCo has similar initiatives underway with other large buyers of grains and tropical fruits.

Grow Africa’s success will be measured not by the number of investment plans drawn up or new funding announcements made but by the number of transactions that are executed and make a difference to the lives of farmers on the ground.

The Africa Report: How to feed Africa's two billion

AgDevCo is referenced in this month's edition of The Africa Report. The editorial titled How to feed Africa's two billion discusses the global food crisis and how governments and donors have so far failed to live up to their promises to boost funding to the agriculture sector. The article describes innovative private sector partnerships to promote food security, such as the catalytic fund managed by AgDevCo in Mozambique. A lot more investment - public and private - will be needed to grow agricultural production 70% by 2050 to keep up with the world's population. With water scarcity increasing and a rapid shift to meat-based diets in the developing world, the article concludes that even bigger challenges lie ahead.