The growing world food crisis may be a blessing in disguise for Africa’s farmers, the largest un-tapped agricultural resource in the world. Record commodity prices and soaring demand have sent agribusinesses looking for opportunities to expand—and Africa’s potential is glowing on their radar screens.
Oil, precious metals, and gemstones aside, the surface of the soil has barely been scratched in Africa. There is less agricultural mechanization, less irrigation, less fertilizer use, less production financing in Africa than anywhere else in the world. There are fewer farm-to-market roads, less soil and seed research, and fewer educational resources for the regions farmers. When you add in the conflicts that have chased farmers out of their fields and the neglect of agricultural infrastructure by both local governments and world development organizations, it’s easy to see where improvements can be made.
Consider the upside for just one commodity, maize. Africa, with the second largest land mass of the seven continents, produced 46 million tons in 2006 (the latest data), according to the UN Food and Agriculture Organization (FAO). Latin America, with less than 60% of Africa’s surface area (and about one-third the population), produced nearly twice as much, 91 million tons. For the sake of perspective, U.S. farmers grew 268 million tons that year, while China’s produced 146 million.
One of the biggest obstacles to development of a full-scale agri-industry in Africa has been lack of capital from both private and public sources. Aid programs have tended to target subsistence farmers in a well-intentioned effort to alleviate persistence famine in many regions with improved production methods. But turning the continent into the world’s next breadbasket requires both empowering the small family farm to compete in world markets and establishing serious industrial farms in areas where they don’t exist today. That takes capital investment, both for land and equipment and for infrastructure.
According to the Wall Street Journal (June 30, 2008), commercial banks, charities, and governments have set up funds with hundreds of millions of dollars to provide that capital in response to rising food prices. Among those looking for places to invest are:
Olam International Ltd., a Singapore-based nuts and grains producer who put $200 million into African agricultural projects last year
Rabobank Group of the Netherlands started a $75 million fund for developing country food projects
Emergent Asset Management, London, is recruiting investors to buy farmland in 13 sub-Sahran countries. They are reported to be raising $750 million for the effort.
Durabilis, a private fund in Belgium, has $15 million to help start food businesses in Africa
Africa Enterprise Challenge Fund, based in Nairobi, has $100 million from private investors to buy stakes in ag-related businesses.
America’s BlackRock and France’s BNP Paribas SA and Credit Agricole SA are reportedly building fund and looking for opportunities.
Money by itself won’t turn Africa into a farming wonderland, of course. Roads must be built to bring supplies like fuel, seed, and fertilizer to the farms and return the output to market. Water must be managed to provide irrigation. Local processors must emerge to absorb raw commodities and add value. Individual farmers must have training in how to run a business, not just grow a crop to feed their families. In addition, a stable governance climate must be developed—one where contracts are enforced by equitable laws, licenses are granted without corruption, and investors can have faith that their businesses won’t be ripped from their hands at the whim of a new government.