Food security challenges are "complex, immense, frightening and urgent"

In an opinion piece in the Financial Times Paul Polman of Unilever reminds us that, due to a rising population and changing consumption habits, we will need to produce the same amount of food in the next 40 years as we did in the past 8,000.

He calls for increased investment in African agriculture; and for developing country governments need to create long-term partnerships with the private sector, donors and civil society, to stimulate investment in commercial agriculture.

He references the Copenhagen Consensus, which concluded that an investment in fighting malnutrition would benefit people more than any other type of investment – with a return of $30 for every $1 invested.

With AgDevCo support, smallholder farming undergoes a transformation in Mozambique

Only two years since its launch, the innovative Empreza de Comercialização Agricola Lda (ECA), a social enterprise in Mozambique, is already helping to transform smallholder farming for the better. An independent evaluation conducted by AEMA Development Consultants in 2012 concluded that the business had immense potential.

 

In the 2011/12 season ECA worked with 900 smallholder farmers in the Barue district of Manica Province, central Mozambique. It organised them into small groups, facilitated access to improved inputs and credit, and provided extension advice and a guaranteed market at fair prices. ECA achieved a 100% recovery on input credit and has expanded its farmer base to 2,200 for the 2012/13 season.

 

ECA is supported by the Beira Agricultural Growth Corridor (BAGC) initiative, a public-private partnership backed by the Government of Mozambique and international funding partners. ECA received debt and equity investment through the BAGC Catalytic Fund, which is managed by AgDevCo.

The independent evaluation found that: 

• Maize production for ECA farmers who received the complete input package of improved seeds and fertilisers increased by 104%, from 2.4MT during the baseline period to 4.92MT this year. Other ECA farmers on a lower cost package saw yield average increases of 46%. 
• ECA farmer household cash incomes increased by an average of 35% for the complete input package and 17% on the basic package. That compares to a slight reduction in incomes of local farmers who were not linked to the ECA programme (likely due to lower rainfall compared to the previous year).
• Conservation agriculture - minimum tillage to maintain soil quality - was extensively adopted by both ECA beneficiaries and non-beneficiaries within the same communities.
• Extension services provide by ECA to its 900 farmers during 2011/12 were assessed as “very effective” by over 75% of beneficiaries. Over 98% of farmers rated the extension services as “effective” or better. Before the ECA programme farmers produced using whatever farming practices they chose. Contact with extension staff was totally non-existent or at a bare minimum.
• Farmers benefited from opportunities for economies of scale because of bulk buying, group marketing and the subsequent reduction in unit transaction costs.
• The ECA programme has ushered in a new marketing channel for growers’ maize and sesame produce, including a contract to sell some maize to a local brewery.

McKinsey: Investment in agriculture the best bet to create jobs in Africa

By 2035 Africa is expected to have a larger working age population than China or India. The number of 15 – 64 year-olds on the continent will be three times higher than Europe and five times higher than North America. The McKinsey Global Institute’s report, Africa at work: Job creation and inclusive growth, calls for targeted investment to accelerate the creation of stable employment opportunities, especially in the agriculture sector.

The McKinsey report notes:

• Africa has shown impressive growth since 2000, outpaced only by the East Asia region, with the natural resources sector (oil, gas, mining) being the single largest contributor.
• Natural resource sectors make crucial contributions to Africa’s GDP, government revenue and export earnings but they employ less than 1% of Africa’s workforce.
• Africa will add 122 million people to its labour force by 2020 – more than any other region. By 2040 it will have a larger working age population than India or China.
• Economic growth reaches most people through employment income so Africa’s challenge is to ensure that economic growth translates into more stable wage-paying jobs.
• If large numbers of stable jobs can be created Africa could benefit from a demographic dividend at a time when Europe and China have declining working age population. If not, the risks of growing inequality leading and social unrest are clear.
• As countries develop both the share and number of jobs in agriculture typically decline. But countries with rich natural endowments of arable land and favourable climates – like many countries in Africa – can defy this trend. Thailand is an example. It grew the number of stable agricultural jobs from 519,000 in 1960 to almost three million by 2008.
• McKinsey estimates that 14 million stable wage paying jobs could be created in agriculture by 2020, if development of the sector was accelerated.
• Furthermore, of the potential 15 million additional jobs that could be created in the manufacturing sector, a large proportion are likely to be agriculture related. Agriculture today accounts for about half of all manufacturing jobs in Africa.

The missing middle of African agriculture

A good article: Spotlight on African Agriculture by Lion’s Head Global Partners which goes beyond the often sterile debate of mega farms versus smallholders.

The article focuses on the “missing middle” – i.e. medium sized farming businesses of a few hundred hectares, which are starved of capital. Those farms can be the engine of growth for primary agriculture helping address food security and stimulating job creation throughout the agricultural value chain.

The authors, who have first-hand experience of investing in a seed potato farm in Tanzania, wonder why development finance institutions (DFIs) are not doing more in the sector:

“Yet so many DFIs find this sector too risky. . . A DFI setting out to promote African agriculture should find the blended return between financial and development payback very compelling. If DFIs don’t give extra weight to development outcomes, then they are no different than other institutional investors.”

Exactly right.

The African agriculture investment paradox

African agriculture is an investment paradox. The world needs more food. Africa has the potential to boost agricultural productivity to feed itself and become a major exporter. There is plenty of private investment capital – domestic and international – looking for opportunities in the sector. So why is so little capital actually hitting the ground?

An article in this month's AgProfessional magazine provides an answer: most farms and companies are simply too small to absorb the cash or provide attractive returns. The USD 5 million plus-sized deals that investment funds and commercial banks are seeking are rare. AgProfessional quotes Peter Baird, Standard Chartered's head of private equity for Africa:

"The targets are either too small or too early in their development, and are grappling with price and weather risks, making deals scarce. It's hard to either acquire existing assets or to cobble together investible opportunities."

That rings true with AgDevCo's experience. In places like Mozambique, Ghana and Tanzania most commercial farming and agri-processing enterprises are at an early stage. As a result they typically lack the three key attributes investors look for:

i) a management team with a track record;
ii) a reasonably healthy balance sheet to provide collateral; and
iii) some certainty over future cash flows (e.g. off-take agreements from large buyers).

The investment paradox means that billions of dollars of potential investment in African agriculture remain idle because of a shortage of investment-ready projects. That is a major missed opportunity to improve food security and boost the continent’s economic growth.

Are there ways to solve the problem? Two important steps can be taken. Firstly, incubation of SMEs. By providing a combination of equity finance and hands-on business development support, a professionally-managed incubator can help new agriculture businesses get through the risky early years. That is the role played by the Catalytic Fund in Mozambique.

Secondly, development finance institutions should make available a lot more patient capital (i.e. low-cost, long-term debt) to part-fund investments in ‘last mile’ agricultural infrastructure such as feeder roads, power connections and irrigation. AgDevCo is raising a patient capital fund to support socially responsible farming investments.

Together, incubation facilities and patient capital offer a way of building a pipeline of investment-ready deals which can attract private capital. That will help with the USD83 billion a year agricultural funding which, according to the Food and Agriculture Organisation (FAO), is needed if there is to be enough food to feed a world population of 9 billion in 2050.

Investing in agriculture is an efficient use of aid

Unless more is done to improve food security in poor countries, recent progress against millennium development goals (MDGs) for health and education will count for little. By Chris Isaac, AgDevCo.

Despite many successes against the MDGs, advances in the fight against poverty and hunger have begun to slow or even reverse as a result of the global economic and food crises. According to the United Nations one in four children in the developing world is underweight. Almost a billion people do not have enough to eat.

By 2030 the world will need 50% more food for a growing population which is consuming more meat and dairy products. With the increasing frequency of food supply shocks - and the risk of export restrictions by large producer countries - a major increase in agricultural productivity is needed in geographies where demand is growing rapidly. In particular that means Africa, where today's population of 1 billion is expected to increase by another 500 million within twenty years.

Smallholder farmers need to be a focus of attention, certainly. Yields in many parts of Africa are less than a tenth of farms in the Americas (North and South). A doubling or tripling of yields is achievable if farmers could get access to better seeds and fertiliser. Jeffrey Sachs makes the point that moving farmers from average yields of 1 to 2 tonnes per hectare would eliminate Africa’s food deficit.

But an exclusive focus on smallholder farmers is unlikely to be sufficient. Firstly it is not easy to pull off. Coordinating interventions to reach hundreds of thousands of small farmers is difficult and costly even with new mobile technologies. Secondly, it is unlikely to stimulate broader, long-term investment along the agricultural value chain where there is most potential for job creation. That sort of investment will only happen at scale when there is a stronger commercial farming base.

AgDevCo is a social impact investor which supports medium-sized commercial farming enterprises in Sub-Saharan Africa. The farms acts as "hubs" sharing the benefits of economies of scale – bulk purchasing power, logistics, processing and storage facilities – with large numbers of local smallholder farmers. The infrastructure for the hub farm (e.g. irrigation and power connections) can be extended to smallholder farmers in the vicinity at low marginal cost, transforming productivity.

Much more concessional funding should be directed to supporting investment in small and medium sized agricultural enterprises, as is happening through the AgDevCo-managed Catalytic Fund in Mozambique, to nurture companies thorough the risky early years when private capital is unavailable. And much more public spending is needed for infrastructure on which a successful agricultural sector depends – roads, power lines and water storage.

This type of patient capital should come with strings attached: agricultural entrepreneurs accessing concessional funds must demonstrate that benefits are flowing to local farmers and communities while maintaining high environmental standards. Projects should be independently monitored and funds withheld (or collateral called) if they go off-track.

Investing in agriculture can be a highly efficient use of aid. If directed wisely it should earn a financial return that can be recycled into more projects, making taxpayers’ donations work harder. It also points towards a credible exit strategy for aid by stimulating private investment that boosts agricultural productivity, jobs and incomes.

What better way for Justine Greening, DFID’s new International Development Secretary, to demonstrate the UK government’s long-term vision for moving countries beyond aid than by putting investment in agriculture at the top of the agenda?

Mining drives agricultural development in Mozambique

The Government of Mozambique, the British Government, Rio Tinto and AgDevCo have teamed up to assist thousands of small farmers who live in the vicinity of mines in Moatize, central Mozambique, to boost their crop yields for commercial food production.

The first of its kind in Mozambique, the new agreement will bring access to private investment for smallholder farmers who would otherwise struggle to get the investment they need to thrive.

Eric Finlayson (Rio Tinto), Andrew Mitchell (Secretary of State, DFID), Keith Palmer (Chairman, AgDevCo) and Daniel Clemente (PS Agriculture, Govt Mozambique)

 Investment in the mining sector is resulting in new infrastructure links – roads, rail and ports – being built and an increase in the local population. This provides an opportunity for small farmers in terms of a larger local market for their produce and improved transport links opening up new potential markets. However many small farmers lack the access to affordable capital to develop their farms despite being highly suitable for a wide range of crops and livestock.
Andrew Mitchell, Britain’s International Development Secretary, said: “Mozambique is at a crossroads. For the first time, its enormous natural resources could give it the chance to escape poverty for good. Britain will help harness the skills and resources of the private sector to ensure the poorest benefit from the country’s phenomenal potential. This partnership is proving that investing in development is good for business, as well as good for the poor.”

Eric Finlayson, CEO of Rio Tinto Coal Mozambique, said: “This initiative, which is part of our wider commitment to support broad-based economic development in Mozambique, will provide a practical boost to farmers and can help the development of Mozambique’s agricultural sector”.

Chris Isaac, Director of Business Development at AgDevCo said: “By working in partnership with the mining sector, we can invest to help local farmers access rapidly growing domestic markets and, from there, expand their businesses to take advantage of export opportunities in the Middle East and Asia”

The memorandum of understanding signed in Tete today, co-signed by Mozambique’s Ministry of Agriculture, involves initial investments of up to US$500,000 to link local farmers and businesses into the mine’s supply chain by:

• Investing in local businesses and buying local produce: Rio Tinto, AgDevCo and the Ministry of Agriculture will explore how promising small and medium agricultural businesses can supply food to communities living in the Tete mining area. This could result in Rio Tinto offering long-term contracts to local farmers to supply locally grown produce to its mine, helping them to expand and create more jobs. Currently, international firms rely on imported food as very few domestic suppliers are capable of growing enough quality food at a competitive price.

• Irrigating land: Develop sustainable irrigated agriculture and improve livestock and fish farming to increase harvests across Tete province. Support will be targeted towards helping farmers who are resettled as the mine expands.

• Growing new crops: Work with specialist businesses and institutions to create cost-effective and sustainable sources of biodiesel for the mine. As well as providing new sources of income for local farmers, newly irrigated land will boost food production.

Investments will follow the United Nations’ Principles for responsible agricultural investment (PRAI).