Farming is a tough business. It is especially tough in Africa where infrastructure is often weak, there is a shortage of experienced (commercial) farm management and the wider agribusiness ecosystem – from the availability of inputs to spare parts for machinery – is underdeveloped or missing.
That makes the costs of doing agribusiness in many parts of Africa high. Combine that with the largely uncontrollable risks common to all farming – weather, pests, market price fluctuations – and it is not surprising that few banks will lend to the sector.
But one needs to put this in the context of long term trends which point towards a massive increase in the demand for food. Farming is likely to be a more profitable activity in the future as the world’s population increases towards nine billion. If African countries can clear the first hurdles and establish a competitive farming base the rewards – financial and social – are potentially very significant.
How to do this? There has to be a recognition that building a competitive agriculture sector takes time and requires a lot of investment in things like roads, power lines and irrigation systems which will not pay a commercial rate of return. That requires 'patient capital' ie long-term low cost finance which can only come from governments or development agencies.
Moreover, AgDevCo believes there is a case for providing patient capital (alongside private capital) to support start-up commercial farming operations as long as they commit to supporting smallholder farmers and local communities. We see enormous potential for public-private partnerships (PPPs) where irrigation infrastructure is shared between commercial and smallholder farmers.
The land grab debate has highlighted cases where investments have gone wrong. There have been situations, including here in Mozambique, where investors have leased large areas of land and made unrealistic promises to their financial backers and to local communities about what can be achieved and how quickly.
But it would be a disaster for Africa, as Professor Calestous Juma of Harvard has written, if concerns about land grabbing led to a moratorium on new investment in African agriculture. The sector badly needs more resources, human, financial and technical to help create jobs, address food insecurity and tackle malnutrition.
There are ways of doing investment right. There is such a thing as a win-win where both the investor and the community benefits. But you have to do things properly and be patient for the returns to come.
7 June 2012
18 May 2012
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.”
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.
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.”
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| One of ECA's farmer members with his family in front of a good maize crop |
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| The first Chibuku beer to come off the factory line using Mozambican maize |
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.
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.
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.
6 May 2012
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.
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.
“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 Comercialização 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.
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 Comercialização 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
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
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