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.

7 May 2012

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.