Special Session - Monty Jones - FARA

Forum for Agricultural Research in AfricaForum for Agricultural Research in Africa

Monty P. JonesExecutive Director, Forum for Agricultural Research in Africa (FARA)

Chair, Global Forum for Agricultural Research (GFAR)

AGRITEC ID - EMRC International Business Forum

20-21 January 2011

Lisbon, Portugal

Improving small farmer productivity: Agribusiness at the Bottom of the Pyramid

G F A R

F M R A

F G I A

LOBAL ORUM ON GRICULTURAL ESEARCH

ORUM ONDIAL DE LA ECHERCHE GRICOLE

ORO LOBAL DE NVESTIGACION GROPECUARIA


This presentation examines

• The economic performance of African economies and agricultural sectors

• Government frameworks for agricultural development

• The alternative opportunities for investment in African agriculture

• Agribusiness opportunities at the Bottom of the Pyramid

• Conclusions


1960–2000

• Overall stagnation

• Decline in share of world trade from 3.5% to 1.5%

• Equivalent to annual loss of USD 70 billion; approx 3x annual ODA to Africa

The African economic stereotype


2001 2002 2003 2004 2005 2006 2007 2008

8

2

6

10

4

2

0Latin America & Caribbean

Developed economies

World

Africa

East & South Asia Economies in Transition

2001 2002 2003 2004 2005 2006 2007 2008

8

2

6

10

4

2

0Latin America & Caribbean

Developed economies

World

Africa

East & South Asia Economies in Transition

-

2000-now

• Sustained GDP growth averaging 5.4% pa.

Growth is driven by:

• Better macroeconomic polices and terms of trade

• Higher commodity prices

The new African economic reality


Africa is the premier global investment destination

Over the 10 years to 2010, 6 of the world’s 10 fastest-growing economies were in SSA

IMF forecasts that Africa will grab 7 of the top 10 places over the next 5 years


Africa is the premier global investment destination

Over the past decade the simple unweighted average of countries’ growth rates was virtually identical in Africa and Asia

Over the next 5 years Africa is likely to take the lead and the average African economy will outpace Asia


But more investment is needed in African agriculture

Undernourishment in total population (%)

Africa has the highest proportion of people living on (<USD 2/day) People at the Bottom of the Pyramid (BOP)

Severe undernourishment

• 25,000 deaths daily

• physical and cognitive stunting of 150m children


• It is key to economic growth: contributes 27% of GDP; linkages

through keeping food prices, down

• It is essential for food security. The 2008 food price crisis threatened

stability in several countries

Investment in African agriculture is needed

• To improve livelihoods of 62% of working population in SSA (excl. South Africa)

• Because it is the most effective pathway for reducing poverty (1% increase in cereal yield can lift 2 million people out of poverty)

Food insecurity can reverse hard-won development gains by threatening political stabilityThe food price crisis in 2007-08 sparked riots:


Agricultural productivity growth reduces poverty and hunger

An example from Ghana (1992-2003)


Vision for African agriculture (by 2015)

1. Attainment of food security

(availability & affordability)

2. Improved agricultural productivity

attaining 6% annual growth rate

of production

3. Dynamic agricultural markets

between nations and regions

4. Farmers integrated into market

economy making Africa net

exporter of agricultural products

5. More equitable distribution

of wealth

6. Africa becomes a strategic

player in agricultural science

7. Sustainable management of

the natural resource base.

http://www.flickr.com/photos/christopics/3632638119/

1/24/2011 111/24/2011 11

Forum for Agricultural Research in Africa

Framework for African Agricultural Productivity (FAAP)

To achieve;

1. Evolution & reform of

agricultural institutions &

services

2. Increasing the scale of

Africa’s investment

3. Harmonizing investments

While working with;

Extension, research, training

& education

African governments, private

sector

Development agencies, int’l

financing institutions


Opportunities for investment in African agriculture

Africa accounts for:

• 1/5 of global land area (10 x

the size of India)

• 1/6 of world’s forested

area and diverse ecologies

(biodiversity)

• 1/4 of the world’s arable

land

• 1/6 of global population

(44% under 15 years in

2006)

http://strangemaps.files.wordpress.com/2006/11/africa_in_perspective_map.jpg


Opportunities for investment in African agriculture

There are substantial opportunities for generating profits through

closing the gaps between what farmers are achieving and the

potential crop and livestock yields

Cereal yields (t/ha) in SSA (1960-2005)

Private sector investment is required

Investment by the private sector is essential:

• To bridge the wide productivity gap

• To develop innovation systems for technology development and delivery

• To apply efficiency enhancing and value adding technologies for entire value chains

• Scale out existing successful technologies

• Adapt advanced technology developed from elsewhere

• To anticipate and develop the technologies required for the future

Contribution of yield increase & area

expansion to increases cereals production,

1980-2003


The investment opportunities at the bottom of the pyramid (BOP)

• In Africa, ~218m people hungry

– If they spend only USD1/day that is

US$ 79 billion per year

• Globally, ~925m people hungry

– Could be worth over USD 335 billion

• This is a huge opportunity but it

requires new thinking to create

profitable and sustainable

business with the most

discerning customers where

every cent matters

Undernourishment as a percentage of the population is highest in Africa (30%)

Source: SOFI, 2010


Challenges of investments in African agriculture

Most severe impediments to

commercial development

• insufficient infrastructure

• insecure property rights

• weaknesses in the production

structure

• finding ways to reach/engage

smallholders farmers who

dominates the population

– smallholder farmers fields of <3 ha

– multinational engaging smallholder

farmers


Underutilized land is attracting foreign investment

~20 million ha land in Africa acquired by foreign

interests in the last 3 yrs

• This is a relatively small proportion of total available land (~1% of

cultivable land in Ethiopia)

• But investors take up good land which can have serious local

consequences and land ownership is very politically sensitive


Investment alternatives to land acquisition

• Provide beneficial opportunities

for both globally active firms and

local smallholder farmers

• Attractive for agro-food

companies because they

facilitate control over supplies

and create access to local

markets

* Why Big Multinationals Link up with African Smallholders Katharina Felgenhauer and Denise Wolter

A long-term business interest and

development of mutual trust are key to

success

Out-grower schemes are an

alternative to ownership*


Success stories: outgrower schemes provide large

companies assured right quantities and quality

Illovo Sugar Group of South Africa

51% owned by Associate British

Group present in 7 African

countries working with outgrowers

– assured of timely and right

amount of sugarcane

products

SABMiller brewers contract

farming schemes in India and

South Africa

– the company injected

management know-how and

improved technology


The Cadbury Cocoa Partnership

The challenge

• Average cocoa production per farmer

dropped to only 40% of the potential

yield

• Cocoa farming is less attractive to the

next generation of potential farmers

The solution

• Cadbury Cocoa Partnership

• Established to secure the economic,

social and environmental sustainability

of ~ 1 million cocoa farmers and their

communities


Investment alternatives to land acquisition

The Cadbury Cocoa Partnership is

• Improving cocoa farmer incomes

– Increase yields and quality produce

• Introducing new sources of rural income

– Microfinance

• Investing in community led development

– investing in education

• Working in a pioneering model

– Farmers leading governments, NGO and

international agencies on decisions about

funding and turning plans into action


Generating innovations and creating entrepreneurs

Possibly the biggest obstacles to advancing agribusiness

in Africa are:

• The lack of endogenous innovation capacity

• The shortage of entrepreneurs and problem solvers

FARA and its partners thru

funding from DANIDA,

addresses by linking

To promote innovation and produce graduates with entrepreneurial

and business skills: www.fara-africa.org/our-projects/unibrain/


UniBrain interventions among universities, research

and private enterprise

1.Development and implementation of collaborative

programmes which foster innovation

2.Development and implementation of improved and

better contextualized BSc and MSc teaching and

learning that takes advantage of various approaches

and tools

3.Facilitating exchange of experiences and sharing of

resources and knowledge to raise awareness and

realise the potential to drive positive change


Conclusions

There is a growing recognition that the

social and environmental challenges

facing us in the 21st century are so

complex and so multi-dimensional that

they cannot be solved by governments

alone.

– Patrick Cescau, CEO of Unilever (retired)


Conclusions• Africa is a premier investment destination

• African agriculture offers unparalleled opportunities for investment

• African governments have developed systems to support rational

and rapid agricultural investment across whole value chains

• There is growing experience in alternatives for mutually

advantageous business with the majority of agricultural producers

who are smallholders at the Bottom of the Pyramid (BOP)

• To take full advantage of the BOP there is need to identify novel

business opportunities and to be prepared to apply new thinking

to generate mutually beneficial profitable and sustainable

businesses


Conclusions

Investing with the

BOP is a

challenging and

vital opportunity...

... but it is

important to have

well-balanced

investments!


Thank youfor your attention

www.fara-africa.org www.egfar.org

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Special Session - Monty Jones - FARA