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Agribusiness in Africa: Investor reveals which areas hold the most potential

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Chris Isaac, chief investment officer of AgDevCo

by Betsy Henderson

Agribusiness in Africa: Investor reveals which areas hold the most potential
AgDevCo is an impact investment firm specialising in agribusiness in sub-Saharan Africa. It has a portfolio consisting of over 40 active investments throughout the continent. How we made it in Africa speaks to Chris Isaac, chief investment officer at AgDevCo, about the continent’s agribusiness opportunities and the investment lessons he has learnt.
Which agribusiness sub-sectors in Africa are you most enthusiastic about from an investment perspective?
We’ve been involved in many ventures over the past decade. We’ve learnt a lot of lessons from our investment mistakes and successes, which has led us to focus on a few areas where we see the greatest potential.
The first is tree crops, particularly avocados and macadamia. There is significant – and still growing – global demand for these crops, and if you can provide the right quality into the international supply chains, then it’s a good business. There are some risks, as there are major new plantings happening in Africa and around the world because prices are good at the moment. However, there are advantages to having export crops that bring in dollar revenue. Southern and East African countries have the possibility of being globally competitive because they can hit particular seasonal windows, they’ve got the right agro-ecological conditions, and you can build profitable new industries, as we’re seeing developing in Mozambique and Malawi.
Another area is livestock for supply to domestic markets, which plays into Africa’s demographics with an emerging middle class, increasing affluence, and a switch towards more protein-based diets. We’re doing quite a lot in poultry, including some innovative work that provides improved breeds to small-scale farmers. We also have investments in pig breeding.
The third sub-sector would be high-quality, competitively-priced basic foodstuffs. African consumers will buy good quality, locally-produced products if you can come in at the right price point. We’re currently involved in maize meal processing and groundnuts. You can find success in this area if you can assure the consumer the food is safe and if it’s well-packaged and well-branded.
Are there any areas you would be hesitant to invest in?
We’ve found you really need to know what you’re doing if you are going into large-scale production of commodity crops – like maize, soya or rice. These are relatively low-margin commodities where there is global competition and significant economies of scale (especially if you look to South America or Asia), so you really need to be sure that you can be an efficient producer and you’ve got the necessary scale. You are also sometimes dealing with unpredictable policy environments, where there may be intermittent export bans or changing tariff regimes, so primary production of low-value commodity crops is really difficult. It can make sense as part of a strategy where you’re vertically integrated and you’re also involved in the processing, but we’ve found it very challenging to make a success of doing straight primary production of those crops.
A similar challenge is if you move into, say, tomato processing or cassava starch – again, you’re taking on global suppliers who often benefit from subsidies, which makes it very difficult to get the cost of production below that of imports. It can be very tough to make those models work.
Explain the long-term impact of Covid-19 on Africa’s agribusiness industry.
We don’t know, is the honest answer. So far, the agriculture sector in Africa seems to have weathered the storm reasonably well. As one of our non-executive directors, Sir Paul Collier, has said, we are operating in a situation of “radical uncertainty”, and so all you can do is try and design strategies that will be more or less robust regardless of the pandemic’s outcome.
Initially, there was quite a lot of obstruction to logistics – borders closing, congestion at ports, supplies not going in or out – which seems to have eased. I would be surprised if we were to see further lockdowns. We were concerned earlier in the year that this was really going to hit our portfolio quite hard; we haven’t seen that yet, but I don’t think anyone knows what is going to happen over the next year or so. Hopefully, growth in the agriculture sector will be able to continue, as it has done remarkably well relative to other parts of the economy thus far.
In a sense, we are dealing with this type of uncertainty in agriculture all the time. You never know if a harvest is going to fail or if prices are going to collapse, so it’s one reason why you need an investment approach that is long-term, flexible, and that allows you to ride out the bumps that will inevitably come.
Covid-19 has focused attention on the fact that the continent is a net importer of food products, which needs to be reversed. It accelerates the trend toward orientating businesses to cater for growing demand in local and regional markets. That said, I don’t think it completely changes the game, and we’re not expecting a complete breakdown in international supply chains. You still have to focus on being internationally competitive and be able to deal with the fact that chicken can be imported from Brazil to southern Africa at very low cost and rice processing costs in Asia are a fraction of what they are in Africa.
Various stakeholders have highlighted the potential for African agribusinesses to tap into the global health and wellness trend by exporting organic products from Africa to Western markets. Do you agree that this is a good opportunity?
At one level, yes. There is value if you have full traceability back to the farmer who supplied the product, and can be sure that banned chemicals haven’t been used, coupled with sustainable and equitable trade relationships with farmers.
For example, we’re involved in sourcing organic cocoa from farmers in Sierra Leone. This achieves a premium in the market, allows us to share more value with the farmers, and it’s a good business. You could see this happening in coffee, tea, and some of the other traditional export crops, which are otherwise very low margin. If you can show consumers they’re getting a quality product and they know the farmers are getting a fair deal, I think there is a willingness to pay for that.
However, if you shift focus to niche crops – such as superfoods and that sort of thing – the challenge that you face is how big the market demand really is and to what extent you can supply that market and earn a reasonable margin without having to invest in a sophisticated marketing operation. Some people do this brilliantly, but they are really marketing businesses rather than farming businesses.
We’ve found that in order to be successful in these markets, you need a certain scale to be able to build a network of farmers and suppliers, and ensure that the company is going to be sustainable, profitable, and therefore able to maintain those relationships with farmers over time. There is a risk with new crops where the level of demand is not proven yet, and we’ve seen too many businesses spring up for a few years, but then don’t manage to achieve long-term sustainability, which risks farmers being left without a market.
What other agribusiness trends are you seeing in Africa?
Besides increasing domestic demand for better quality food and more protein-based diets, we’re seeing companies realising they need to think about vertical integration. The more successful players are becoming involved all along the supply chain in order to ensure end-to-end quality and consistency of supply. Currently, you can’t always rely on there being a steady supply of raw materials – for example, quality feed, if you are involved in the livestock sector. As markets mature, I think you’d see more specialisation again, but right now vertical integration – either through companies building it themselves or acquiring complementary firms – is a sensible strategy.
Which African country are you most optimistic about?
One country that is perhaps under the radar but where we’ve had great success is Malawi. It has a relatively small economy, but a history of commercial agriculture in tobacco, sugar, and to some extent tea, and an investment climate that is very good for agriculture. There’s also a strong overall supportive environment; Malawi has a solid legal system, it’s relatively painless dealing with the authorities, and you can get things done. We started investing there about eight years ago and have businesses in poultry, macadamia, sugar and peanuts that are all doing well.
Describe one of the investment lessons you have learnt over the years.
Perhaps the key lesson as an investor is getting the balance right between sensible caution and being decisive. In the early days of my career, there was perhaps a tendency to see every opportunity as exciting and I might have been tempted to give benefit of the doubt to a business plan. But then as you get more experience, you see more, and you become a little more sceptical. The thing is to not go too far in that direction – it’s too easy to start saying “no” to every opportunity. There are always risks and at some point you have to take the plunge and say “yes”.
One thing that is challenging in the African agriculture sector is that you have to make decisions without perfect information. We are often backing companies that are doing pioneering things and who are the first movers. So, you’ve got to do your due diligence and you can try to look at things from every angle, but at the end of the day, you do have to be decisive and trust your judgement. You won’t get it right all of the time. You are most likely to succeed if you build a team with experienced people who have seen what works and what doesn’t on the ground. We’ve also found that, as an entrepreneur, it’s important you have a business model that incorporates flexibility and allows you to course correct as you go along in order to manage uncertainty.
Original source: How we made it in Africa

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FARM NEWS

Five counties roll out agroecology policies to boost climate resilience

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At least five counties have adopted agroecology policies as Kenya accelerates efforts to promote climate-resilient and sustainable farming.

Murang’a, Makueni, Nakuru, West Pokot and Kiambu have already developed county agroecology policies, while Trans Nzoia, Turkana, Laikipia, Kirinyaga and Machakos are drafting similar frameworks.

Stakeholders are urging more devolved governments to fast-track implementation to strengthen food security.

Participatory Ecological Land Use Management (Pelum) Kenya country coordinator Rosinah Mbeya said counties must move beyond policy development by allocating adequate budgets and implementing programmes that directly support farmers. She spoke during the Third Agroecology Symposium.

Mbeya said although agroecology is gaining momentum in Kenya, greater  political commitment, increased financing and faster implementation are needed to help farmers cope with climate change, rising production costs and declining soil health.

Kenya continues to grapple with multiple agricultural challenges, including climate change, emerging crop pests and diseases and increasing input costs driven by global economic disruptions.

“These challenges are making farming increasingly difficult, particularly for smallholder farmers. However, they also present an opportunity to transform our food systems and build farming systems that are more resilient and less dependent on external inputs,” Mbeya said.

Agriculture& Forestry

She described agroecology as an environmentally sustainable approach that restores ecosystems while improving agricultural productivity, conserving biodiversity and protecting human health and the environment.

Mbeya said the focus should now shift from developing strategies to implementing them through adequate funding and practical support for farmers.

“The discussion is no longer about developing strategies. It is now about implementation, budgeting and ensuring these policies benefit farmers on the ground,” she said.

Mbeya said agroecology continues to attract support from development partners, researchers and policymakers.

However, only a small proportion of Kenya’s estimated 7.5 million smallholder farmers practise agroecology through organised networks.

She said Pelum works with about 1.5 million farmers but said wider adoption is needed to transform the country’s food systems.

Farms& Ranches

Agriculture secretary in the State Department for Agriculture Peter Aoko said crop diversification remains one of the government’s key strategies for strengthening climate resilience and improving household nutrition.

“Different crops perform differently under different ecological conditions. Diversification ensures that if one crop fails because of weather or pests, another succeeds while also providing better nutrition,” he said.

Aoko said the government is strengthening farmers’ capacity through agricultural extension services and knowledge sharing while working with county governments to domesticate the National Agroecology Strategy.

He acknowledged that implementation has progressed slowly because agriculture is a devolved function but expressed confidence that momentum would increase as more counties adopt the strategy.

“Agroecology is about producing food sustainably while protecting the environment, particularly soil health. Without healthy soils, agricultural production cannot be sustained over the long term,” he said.

Dr Lisa Fuchs, a scientist with the Alliance of Bioversity International and CIAT, said agroecology extends beyond environmentally friendly farming by integrating ecological sustainability, economic viability and social equity.

She said the approach promotes crop diversity, healthy soils, circular farming systems and locally adapted food production to improve food security and nutrition.

Agriculture& Forestry

Fuchs encouraged farmers to recognise the value of indigenous knowledge and work collectively to develop solutions suited to local conditions.

“Agroecology is a science, a practice and a movement. Farmers should organise, share knowledge, work with their neighbours and partner with government, researchers and other stakeholders to strengthen local food systems,” she said.

She said agricultural research institutions are increasingly embracing participatory approaches that involve farmers and communities in developing, testing and scaling innovations to ensure solutions respond to local needs.

Source: the-star.co.ke/

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FARM NEWS

200 farmers demonstrate at parliament, worried about new seed monopoly

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About 200 individuals consisting of rice farmers, small farmers, environmental activists and NGO representatives gathered in front of the parliament building in Kuala Lumpur to urge the government to cancel Malaysia’s participation in the 1991 UPOV convention.

The gathering aimed to submit two memorandums demanding the defense of the rights of small farmers who are alleged to be at risk if the amendment to the Protection of New Plant Varieties Act 2004 is continued.

Assembly spokesman Abdul Rashid Yob claimed that the Ministry of Agriculture and Food Security (KPKM) submitted a draft amendment to the act to the UPOV Secretariat in Geneva last September.

“The involvement of foreign bodies in the formation of national laws without comprehensive consultation with stakeholders, including the governments of Sabah and Sarawak, is seen as a form of violation of national sovereignty.

“This amendment will revoke the traditional rights of small farmers to exchange and sell seeds, as well as limit the right to save seeds for the next breeding season,” he told reporters after handing over the memorandum.

The government has so far neither confirmed nor denied the allegations of submitting the draft act to the UPOV Secretariat.

Malaysiakini is trying to obtain clarification from Agriculture and Food Security Minister Mohamad Sabu and his officials regarding this allegation and issue. 

Today’s gathering was organised by the Malaysian Food Sovereignty Forum (FKMM) and was also attended by representatives from the Malaysian Socialist Party (PSM) and the Mandiri student group.

The attendees carried various placards with slogans such as “Lift Farmers’ Rights”, “Students with Farmers”, “Farmers are not lazy” and “Reject Upov”.

Also on display was a large sketch of Mohamad showing the “good” finger gesture.

More than 50 uniformed police were present to control the rally, which proceeded without any disturbances.

Earlier, a memorandum was also given to Deputy Minister of Agriculture and Rural Development Chan Foong Hin, PN Chief Whip Takiyuddin and Gopeng MP Tan Kar Hing representing the Agriculture and Domestic Trade Special Select Committee (PAC).

All parties that received the memorandum promised to bring the issue to parliament.

Seed supply monopoly

Meanwhile, the coalition claims that the 1991 UPOV will only strengthen the monopoly of large companies on seed supply, thus eliminating traditional practices that have long been the backbone of local farmers’ survival.

“The existing PNPV Act 2004 is sufficiently balanced in protecting the rights of breeders and farmers, as well as safeguarding the interests of Indigenous communities and local biodiversity.

“Deleting the section relating to the prevention of biopiracy and the obligation to supply seeds at reasonable prices will only place the country’s seed policy under the influence of foreign powers,” he said.

Apart from the seed issue, rice farmers also raised the cost of living crisis which is becoming increasingly pressing due to the increasing cost of agricultural inputs and pressure on paddy prices in the market.

Among their main demands is a call for the government to set the maximum paddy grading rate at 20 percent to avoid losses for the farmers.

They also demanded that the government revise the price of paddy to RM1,800 per metric ton and make immediate improvements to the agricultural subsidy system.

They also complained about delays in fertilizer distribution, weak water management, and bureaucratic red tape in the disaster takaful scheme that made it difficult for them to receive compensation.

“The government needs to address the issue of leakages and weak governance in relevant agencies which have been alleged to be affecting the country’s rice production chain.

“If these demands are ignored, the country’s food sovereignty will continue to be threatened and dependence on imported seeds will increase dramatically,” he added.

Abdul Rashid added that UPOV 1991 is an international agreement that gives plant breeders intellectual property protection rights for new plant varieties they produce.

However, it became controversial after allegations that farmers were not free to store, exchange or resell protected seeds, unless permitted by national law.

Small-scale farmers do not agree with this agreement because it is seen as potentially detrimental to small farmers and only benefits large seed companies, as well as potentially threatening food sovereignty.

Source: malaysiakini.com

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FARM NEWS

Farmers count losses as maize prices drop

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Farmers in the greater Kibaale area, covering Kagadi, Kakumiro, and Kibaale districts are counting losses after maize prices dropped sharply during the peak harvest season.

Many farmers said they had invested a lot of money, hoping for better profits, but the market prices let them down. They blamed the low prices on the high supply of maize, saying many people planted the crop after making good profits in the previous season.

Last season, a kilogramme of maize was sold between Shs900 and Shs1,000, but this season the price has fallen to between Shs500 and Shs700.

Farmers said the sharp drop has left them without profits, with only middlemen and casual workers benefiting.

Mr Dezii Katongore, a large-scale farmer in Kitonya Village, Bubango Sub-County in Kibaale District, said he spent more than Shs2m on pesticides, labour, and renting land to grow maize, expecting to earn more than Shs4m. He planned to harvest 90 sacks but only got 52 because of a long dry spell after planting.

“To my dismay, I sold at Shs750 per kilogramme instead of Shs1,000 as I had anticipated. Losses start even before the market stage. I had nowhere to store the maize. If I had kept it, it would have spoiled. I don’t know if I will farm maize again next season,” he said in an interview on September 8.

Similarly, Katangwe Birungi, a small-scale farmer from Kataara Village in Kibaale District, said he invested more than Shs1m in his four-acre maize farm at the start of the season.

He harvested 28 sacks, earning about Shs1.26 million instead of the more than Shs3 million he had expected. Mr Birungi said he was unable to raise enough money to pay school fees for his children. He now plans to switch to beans, saying their prices are more stable.

Mr Businge Byamukama, a resident of Kijungu Village in Kagadi District, shared a similar experience. He spent nearly Shs900,000 on labour and farm inputs for his two-acre maize garden but harvested only 27 sacks.

Mr Byamukama was forced to sell each kilogramme at Shs250, far below what he had hoped, earning just Shs1 million. He said from the little he earned, he had to clear a Shs300,000 loan, pay Shs200,000 in school fees, and settle hospital bills of Shs100,000.

What remained, he said, was hardly enough to take care of his family.

“I was forced to sell because I couldn’t afford storage. I am now planning to intercrop next season because relying on just one crop isn’t sustainable. I want to switch to beans,” he explained.

Mr Zimwanguhiiza Byaruhanga, a farmer from Kibaale District, said he invested about Shs800,000 in labour, pesticides, fertilisers, and seeds for his two-acre garden. He had expected at least 20 sacks but ended up with only 16.

“What we put in doesn’t match what we got out. We’ve been neglected, yet agriculture is a major contributor to the country’s economy. Why doesn’t the government set regulations to fix prices for farmers? We’re making losses on some of the money we invest, including bank and Sacco loans, and now we’re finding it hard to pay them back,” he said.

He said he had hoped to sell his maize at Shs1,000 per kilogramme, but the market only offered Shs500. Mr Byaruhanga accused middlemen of exploiting farmers by setting unfair prices during harvest time and urged government to step in and regulate the market. ‘

“Even after harvest, the middlemen manipulate measuring tapes to cheat us. But we have no choice—we must sell to support our families, pay loans, and school fees,” he said.

Source: Monitor

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