TGAIS agri panel: Commercial scale is key

The buzzword on The Global Africa Investment Summit‘s agribusiness panel was ‘commercial’, and for good reason. With Africa’s population expected to grow by half a billion in the next 20 years, the pressure on the continent’s agribusiness sector to meet demand is immense.

The panel was optimistic that the continent could rise to the challenge, however, with access to the right mix of investment from private equity houses, development financial institutions and public-private partnerships with African governments.

The panellists, including Sri Venkatramani, managing director at Olam, an international agribusiness, suggested investor opportunities were best targeted at the mid-stream areas of the value chain, in areas such as agro processing, logistics, agri technology and infrastructure, food storage and warehousing, and consumer food products.

To achieve this, the panel emphasised the importance of private investors being prepared to share some of the expense for infrastructure. Farm technology, such as irrigation and transportation to markets, are essential elements which investors should consider in their overall capital expenditure.

Another important element in African agriculture investment is access to institutional financial products, including debt and insurance, according to Matt Smith, managing director at Rwanda Trading Company, a specialty coffee producer. Crop insurance, input loans and price insurance for commodity producers are all largely missing from the sector. Private investors have a real opportunity in primary agricultural financial services, particularly as raw producers are often missed out in the conversation about investment in Africa.

In terms of improving efficiency and value addition, initiatives such as commodity exchanges and warehousing are helping to develop market education among smallholder farmers on the continent. An example is the exchange and warehousing service provided by Africa Exchange Holdings, a privately-held commodities trading, exchange and warehousing platform operating in East Africa.  Such services are enabling Africa to be price setters of its agricultural products and leverage this financial knowledge in the global markets, according to Africa Exchange’s managing partner, Jendayi Frazer.

In pursuit of achieving commercial scale in agriculture on the continent, prospective investors and those with existing investments in Africa should not see commercial scale as an option, according to Frank Braeken, chief investment officer at Amatheon Agri, a Berlin based company developing sustainable agri and food projects in sub-Saharan Africa. Banks are not interested in businesses valued at $10 million, nor are they excited by businesses which lack the potential to diversify. To access bank financing and diversify operations, investors should be aiming for commercial scale, and this can be achieved by investing in consolidating small, competitive agribusinesses, that can be found across Africa, he said.