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In February 2011, the FAO Food Price Index reached an all-time high, while in 2010 the number of hungry in the world exceeded one billion people
Time to focus on solutions
Although it is no doubt vulnerable, Africa also has enormous potential to help address this dilemma of rising prices and growing demand. As Kofi Annan remarked in a speech to the FAO in June, “Cereal yields in Africa are less than a quarter of the global average – and have barely increased in 30 years … But at the same time, Africa is the continent which has perhaps the greatest opportunities to help find solutions to global food insecurity. It is blessed with abundant land, containing some 60per cent of the world’s uncultivated arable land. Even within existing cultivated land, a doubling of cereal yields would turn Africa into a major food surplus region.” 1
There will be no single solution to this complex and growing problem. While alarm over controversial land acquisitions make headlines, informed debate on ways to tackle mounting food demand garners less media attention. Genuine concerns have been raised about deals termed “land grabs”: moving indigenous people off customary lands, inappropriate (or lack of) compensation and unfair treatment of local populations. Clearly, where such reports are true, unethical behaviour should be censured, and there is no question that investment into Africa must be done responsibly.
International investors bring benefits
At the same time, it would be a mistake to indiscriminately discourage international investment as that could have an equally negative impact on the rural poor in Africa. As Calestous Juma, a Harvard professor who directs the Agricultural Innovation in Africa Project funded by the Bill and Melinda Gates Foundation, put it recently, critics are “…wrong to demonise all the deals as ‘land grabs’ without offering better alternatives on how Africa can meet the needs of its growing population. To call for a blanket moratorium on investment is tantamount to asking Africa to commit economic suicide.” 2
Attracting foreign investors can facilitate growth of the agricultural sector through commercial expansion, increasing yields by implementing techniques like conservation tillage, crop rotation, doubling cropping and irrigation. Ultimately, such investment will produce more food for Africa, and has the potential to stimulate much needed improvements to infrastructure, provide access to education and training, increase economic prospects in rural areas and better social conditions.
The recent growth of African economies has been impressive. According to the World Bank, sub-Saharan Africa, excluding South Africa, is one of the world’s fastest growing developing regions, supported by a growing middle class with discretionary income to spend and rising business confidence.
However, the latest Africa Competitiveness Report highlights the importance of the private sector in sustaining this growth story, stating that “to grow further and be globally competitive, Africa needs to put in place the conditions for a vibrant private sector.” 3 The argument for encouraging private investment has been made emphatically by the World Bank and McKinsey, among others.
For example, Robert Zoellick, President of the World Bank Group, has repeatedly emphasised the critical role private equity has to play in emerging markets: “The combination of expertise and capital is the reason why private equity companies have a strong developmental impact. This combination accelerates both growth and efficiency. Companies backed by private equity are more inclined to make long-term investments; they pursue more economically important innovations and concentrate on the business application of core technologies. Private equity acts as a catalyst for creating jobs. It is part of a dynamic that improves governance, too.” 4
“Lions on the Move”, McKinsey’s 2010 landmark study, examines the long-term prospects for economic growth in Africa, noting that growth to date has been underpinned by positive reform and greater stability, and highlighting the need to diversify economies into key sectors like agriculture. The report makes a strong case for the positive impact of international investment, which brings with it new skills and technology and has the potential to increase local competition and drive down prices as well as spur job growth. 5
Need for agricultural development
A constructive debate on the merits of agricultural development should take into account another point emphasised by Kofi Annan, which is the acknowledgement that subsistence farming alone will not solve the food crisis. The aforementioned McKinsey report estimates that “if Africa could raise yields on key crops to 80per cent of the world average – similar to the achievements of other countries that experienced a green revolution in agriculture – the continent would increase the value of its agricultural production by $235bn over the next two decades.” 6 Not only are Africa’s yields a fraction of the global average, investment today into African agriculture is relatively limited. And clearly such a transformation would require significantly more international investment into the sector than has been committed to date.
A Rabobank report on global food supply states that lack of investment in agriculture will impact the world’s ability to meet future demand, highlighting the important role private investment has play, and pointing out that “…additional investments in agriculture of at least $30bn annually are needed in developing countries in the coming four decades.” 7 Yet recently we have seen broad condemnation of all investment into African agriculture, which could have devastating consequences at a time when capital is needed and can be successfully deployed in ventures that apply sound agricultural practices and are rewarding for both international investors and local populations.
Annan highlights Zambia and Angola as two countries with significant agricultural potential. Extensive fertile land is available and, due to the climate, two crops a year can be harvested, which presents one way in which to dramatically enhance the continent’s low yields.
We see enormous opportunities as we look to develop agricultural businesses across the value chain in Zambia, where as much as seventy-five percent of small-scale farmers mono-crop, a practice that can lead to poor yields and limit farm development. Low-cost techniques like conservation tillage and crop rotation can easily be introduced to local farmers by neighbouring commercial operators.
Scope for improvement
Conservation tillage leaves the soil undisturbed with a blanket of rich organic matter covering the soil. As seeds and other inputs are spread, the subsequent rotting of the top layer creates natural fertilising effects and protects against the erosion that would otherwise sweep away the most fertile part of the soil due to wind and rain. Soil degradation leads to lower productivity. Traditionally, as the quality of their soil depletes, mono-cropping farmers move to another patch of land, starting the cycle again. Conservation tillage not only reduces soil erosion, it also preserves moisture, reduces farm labour requirements, expands the growing window between planting and harvest, and increases organic matter in the soil, boosting nutrients, improving soil structure and helping to sequester carbon, as CO2, in the soil.
Typically, farmers in Zambia grow maize, sorghum, or cassava, with maize being the national food staple. We see an opportunity to introduce outgrower schemes in which we encourage neighbouring small-scale maize farmers to grow soya as well, a legume with a natural nitrogen-fixing effect on the soil. This requires no additional investment or special equipment, yet farmers have no apparent incentive as they have no need for soya and lack a market for it. Commercial farm operators can introduce routes to market for soya, enabling local farmers to increase their income while improving the quality of their soil. Over time, the productivity of the maize/soya farmers will increase, which can in turn further increase their incomes as maize yields rise in response and surpluses can be sold.
Without support, however, distribution could remain a challenge for local farmers. According to the FAO, food loss that takes place post-harvest and in marketing tends to be highest in countries most in need of food, where production is often not linked to marketing. Providing routes to market and access to infrastructure introduced by commercial farms, such as storage, milling, and transport, can have a dramatic effect. For instance, rather than selling at harvest time or losing their grain to decay, small-scale farmers could choose to wait to command a better price later in the season.
While conservation tillage and crop rotation have obvious benefits, they are not widely practiced in southern Africa. However, these techniques are commonly taught and implemented in western agricultural colleges, and we believe that through establishing outreach programmes and by forming relationships with agricultural colleges we can begin to assist in their introduction locally. This type of knowledge transfer can have a significant impact on sustainable agricultural development.
A commitment to feed Africa
We invest in sustainable agricultural ventures in Africa. By acquiring existing brownfield farms in private transactions where leaseholds are purchased from individual private owners, we enter into transparent commercial deals. In Zambia, leases are transferred through a process by which we obtain the State’s Consent. A typical transaction comprises 2,000 to 5,000 hectares of land; we aim to establish three to five production hubs, each with approximately 10,000 hectares under irrigation, and seek to make the land more productive and increase yields.
A commitment to feed Africa is integral to our business model, which focuses on exporting food cross-border within sub-Saharan Africa to meet the growing demand of a continent in which market inefficiencies and poor infrastructure have contributed to high food prices.
In conducting our business, we are committed to following the IFC Performance Standards which relate to environmental and social practices, and we are poised to introduce local outgrower schemes as well as training and educational programmes, transferring skills and creating jobs.
At Chayton Africa, we believe in the transformational power of introducing knowledge and financial capital as well as proven approaches that can pave the way to future prosperity for the people of Africa. While solutions to the world’s food crisis will be many and varied, it is our view that expansion of commercial farming in Africa must play a role and that international investment into Africa, when done in an ethical and responsible way, should be encouraged.
Dabney Tonelli, Managing Partner of Chayton Capital LLP and Managing Director of Chayton Africa (Pty) Limited
1 H.E. Mr. Kofi A. Annan, Chair of AGRA, Delivering Global Food and Nutrition Security – the Challenge of Our Time; Address to the FAO Conference in Rome, 25 June 2011.
2 Calestous Juma, Stop Demonising Foreign Investors in Agriculture, They’re Not Grabbing Land, Op-Ed, The Daily Nation, 13 June 2011.
3 The Africa Competitiveness Report 2011, World Economic Forum, the World Bank and the African Development Bank.
4 Robert B. Zoellick, President, World Bank Group, speech delivered at IFC’s 12th Annual Global Private Equity Conference: Returning to Growth: Private Equity in Emerging Markets, May 12, 2010.
5 Lions on the move: The progress and potential of African economies, McKinsey Global Institute, McKinsey & Company, June 2010.
7 Sustainability and security of the global food supply chain, Rabobank Group, 10 October 2010.