Agri­cul­ture

To un­lock “the wealth of na­tions” agri­cul­ture must move be­yond sub­sis­tence farm­ing. The Africa Re­port looks at schemes large and small to get pro­duc­tive in­vest­ment into the sec­tor

The Africa Report - - CONTENTS - By Ni­cholas Nor­brook

Fi­nanc­ing the farm­ers

As a young doc­tor in west­ern Nige­ria, Doc­tor Temi­tope Aroge re­calls see­ing cas­sava farms that stretched as far as the eye could see. And yet, his pa­tients were still poor, still badly fed and with­out the money to send their chil­dren to school. “I could see the plants. But I could not un­der­stand why th­ese crops were not be­ing turned into wealth,” Aroge says. His ques­tion burned to the point where Aroge, then only three years out of med­i­cal school, be­came a cas­sava farmer and pro­ces­sor. His com­pany, Arog Bio Al­lied Agro Ser­vices, has made him rich, but has also en­abled many of Ek­iti’s sub­sis­tence farm­ers to im­prove their busi­nesses and stan­dard of liv­ing – and there­fore the health of them­selves and their fam­i­lies. Fi­nanc­ing farm­ers to get be­yond sub­sis­tence agri­cul­ture is a cru­cial chal­lenge in Africa’s devel­op­ment. Get it right, and you un­lock what African Devel­op­ment Bank (AFDB) pres­i­dent Ak­in­wumi Adesina calls “the se­cret of the wealth of na­tions”. That in­cludes a broad-based im­prove­ment in liveli­hoods, a rise in em­ploy­ment and a re­duc­tion of the large food im­port bills that are weigh­ing down African treasuries. “There is no rea­son

Africa should be a net food im­port­ing re­gion, spend­ing [in ag­gre­gate] $35bn an­nu­ally on food im­ports”, says Adesina. For many coun­tries, most re­cently the giants of Asia, agri­cul­ture is the foun­da­tion on which in­dus­tri­al­i­sa­tion is built. And given the growth of do­mes­tic de­mand in Africa – which for agri­cul­tural pro­duce should hit $100bn by 2025, ac­cord­ing to a re­cent AFDB re­port – the op­por­tu­nity is such that ma­jor in­vestors should be in­ter­ested. Be­fore all that, though, you still need to find fi­nance for the farm­ers. And here, bar­ri­ers are le­gion and the land­scape is stud­ded with the fail­ures of both mar­ket and state. Not only do most gov­ern­ments ap­pear un­able to fix the prob­lem, but very few are meet­ing a shared com­mit­ment known as the Ma­puto Dec­la­ra­tion to spend 10% of their na­tional bud­gets on on agri­cul­ture.

TOO RISKY FOR BANKS

In South Africa, for in­stance, “there has been a mas­sive shrink­age in em­ploy­ment in agri­cul­ture over the past 15 years,” says Paul Boyn­ton of Old Mu­tual In­vest­ment. “Gov­ern­ment sup­port for agri­cul­ture has been quite dif­fi­dent in a way, es­pe­cially if you com­pare it to some­where like Europe, where the sup­port for agri­cul­ture is much more fun­da­men­tal.” To make mat­ters worse, com­mer­cial banks are also largely un­in­ter­ested in fi­nanc­ing small-scale farm­ers. That is “be­cause of the per­ceived risk of lend­ing to farm­ers”, says At­suko Toda, the di­rec­tor for agri­cul­tural fi­nance and ru­ral devel­op­ment at the AFDB. Her ap­point­ment in De­cem­ber 2016 marked a new agri­cul­tural push at the or­gan­i­sa­tion. “[Small-scale farm­ers] are of­ten in re­mote lo­ca­tions, quite dis­persed, so it makes the trans­ac­tion costs [of bank­ing them] quite heavy, with cli­mate risks com­pound­ing that.”

So how to get ten­der to the tillers? One op­tion is to fo­cus right at the very base of the pyra­mid. Giv­ing cash to the very poor­est farm­ers al­lows them to then trans­fer sav­ings into more pro­duc­tive ar­eas, such as im­proved seeds or fer­tilis­ers. That was the in­ten­tion be­hind Brazil’s suc­cess­ful con­di­tional cash trans­fer scheme – and Nige­ria re­cently an­nounced it is launch­ing a pi­lot ver­sion of a sim­i­lar pro­gramme.

HARD-WORK­ING DOL­LARS

Cash trans­fers have al­ready proved their worth in Africa. In 2010, a study in Gokwe North Dis­trict in Zim­babwe by Trin­ity Col­lege, Dublin, showed that each dol­lar in cash in­jected into ru­ral ar­eas trav­elled around the lo­cal econ­omy 2.59 times, com­pared to a dol­lar’s worth of food aid that was sim­ply con­sumed. To kick­start agro-based in­dus­tri­al­i­sa­tion, se­ri­ous agribusi­ness ven­tures will be re­quired, too. And get­ting farm­ers to the next step of the lad­der will re­quire bank ac­counts. That is still a tough nut to crack, even with all the mo­bile phone tech­nol­ogy in the world. The rea­son is sim­ple: while you can eas­ily own a tele­phone to trans­fer or re­ceive cash, to get an ac­tual bank ac­count re­quires a bank to wade through com­plex ‘know your cus­tomer’ reg­u­la­tions – and the as­so­ci­ated charges are of­ten too high for the poor­est to meet. But there are so­lu­tions here, too. In­dia’ s Prime Min­is­ter Naren­dra Modi de­cided to hand out mil­lions of free bank ac­counts and roll out a bio­met­ric ID sys­tem to ad­dress the sit­u­a­tion of the nearly 500 mil­lion In­di­ans suf­fer­ing from what he calls “fi­nan­cial un­touch­a­bil­ity”. In the Amer­i­cas, Mexico has pur­sued a twotiered ap­proach to pull more peo­ple into the for­mal fi­nan­cial sec­tor. It is easy to get a low-func­tion­ing ac­count with lim­ited de­posit and credit fa­cil­i­ties. And when a per­son is wealthy enough to tran­si­tion, they pro­vide more rig­or­ous iden­ti­fi­ca­tion and get a fuller bank ac­count. Once a farmer has a bank ac­count, in­ter­est­ing things can start to hap­pen. Gov­ern­ments can eas­ily reach them for in­put sub­sidy schemes, for ex­am­ple. S ome of th­ese can be fo­cused on fix­ing the big in­fras­truc­ture chal­lenges faced by farm­ers, namely the lack of power and lack of wa­ter. In­dia’s com­pany Ro­to­sol has cre­ated wa­ter pumps linked to so­lar pan­els, a neat in­ven­tion that solves both prob­lems at a stroke. The pumps are fly­ing off the shelves in In­dia be­cause “it makes a farmer wa­ter-se­cure,” says Raghav Agar­wal, a

senoir ad­viser at Ro­to­sol. “Then that farmer will look for nearby land to ir­ri­gate. Once he does that, he not only feeds him­self and his fam­ily, but he gets sur­plus pro­duce, which he sells into the mar­ket.” While that may well be cor­rect, another rea­son they are fly­ing off the shelves is the gen­er­ous sub­sidy in­volved. Though the kit costs $1,500, the fed­eral gov­ern­ment in In­dia pays half and the state gov­ern­ments a third, leav­ing the farmer with a bill of a few hun­dred dol­lars. The price is still steep for many, but if the farmer be­comes more pro­duc­tive, it be­comes eas­ier to re­coup the costs. Sub­si­dies are also com­mon for in­puts. In Nige­ria, more than 10 mil­lion farm­ers are signed up to a fer­tiliser dis­tri­bu­tion scheme that has been in part re­spon­si­ble for the rice pro­duc­tion boom of re­cent years. Un­milled rice pro­duc­tion was 7.9m tonnes in 2016, up from 4.5m tonnes in 2010 – nearly dou­bling out­put. In a sign of the pos­i­tive feed­back loops that th­ese poli­cies can cre­ate, the new farm­ers en­ter­ing the rice sec­tor have helped to de­velop more in­ter­est from much big­ger fish – Africa’s big­gest, in fact. Aliko Dan­gote, the rich­est man on the con­ti­nent, an­nounced that his com­pany will build a rice mill that will pro­duce 225,000tn of par­boiled rice an­nu­ally. And Sin­ga­porean agribusi­ness gi­ant Olam, which al­ready has more than 4,000ha un­der rice cul­ti­va­tion in Nige­ria, plans to in­crease that to 6,000ha over the next few years.

VALUE CHAINS

It should be noted that the rea­son that the big­ger in­dus­trial play­ers have grav­i­tated to the sec­tor is also as a re­sult of a sus­tained ef­fort by Nige­rian gov­ern­ments to de-risk agri­cul­ture for the com­mer­cial banks. This in­cludes an in­sur­ance scheme for fi­nanciers called the Nige­ria In­cen­tive-based Risk-shar­ing Sys­tem for Agri­cul­tural Lend­ing, and a gov­ern­ment im­port ban for rice that has helped im­ports drop from 4m tonnes to around 700,000tn. This whole­sale trans­for­ma­tion of Nige­ria’s rice sec­tor was achieved by fo­cus­ing on the ‘value chain’ – from gov­ern­ment sup­port to farm­ers, up through the big­ger in­dus­trial play­ers and the banks. The AFDB’S Toda ex­plains that the bank is go­ing to work on strength­en­ing 18 key value chains – in­clud­ing rice, cas­sava, maize, wheat and dairy – but the AFDB es­ti­mates this will cost

$315bn-$400bn be­tween 2015 and 2025, some­thing that out­strips public re­sources and will re­quire se­ri­ous pri­vate-sec­tor in­vest­ment. Given the lim­ited abil­ity of African states to ad­min­is­ter such schemes, what other op­tions are there to bring through a new gen­er­a­tion of bud­ding agr ibusi­nesses? The In­ter­na­tional In­sti­tute of Trop­i­cal Agri­cul­ture (IITA), based in Ibadan, Nige­ria, em­bod­ies a hy­brid state and mar­ket ap­proach. It hopes to an­swer the ques­tion.

EN­TREPRENEURIAL POW­ER­HOUSE

Leafy green, with beau­ti­ful lawns, the IITA was once a sleepy but dig­ni­fied in­tel­lec­tual bas­tion of agri­cul­tural re­search. But over the past decade it has trans­formed it­self into a pow­er­house of en­trepreneurial ac­tiv­ity. “We have th­ese de­mands for im­pact placed on us”, says IITA di­rec­tor gen­eral Nter­anya Sanginga, “so we launched the busi­ness in­cu­ba­tor plat­form.” One of its suc­cesses is the devel­op­ment and com­mer­cial­i­sa­tion of anti-fun­gal prod­uct Aflasafe, with a fac­tory be­ing built on the IITA site. But the real devel­op­ment has been in train­ing youth. “While re­cruit­ing for staff do­ing odd jobs at the cen­tre, we re­alised some of them al­ready had de­grees in biotech­nol­ogy, agri­cul­ture or were lawyers”, says Sanginga. Tak­ing an ini­tial co­hort of 50, the IITA gave train­ing, fi­nance and equip­ment, launch­ing the Agripreneur ini­tia­tive (see case study boxes). More than 30 African coun­tries have ap­plied for loans to repli­cate the pro­gramme in their coun­tries. The com­mer­cial agribusi­ness sec­tor with its out­grower schemes – con­trac­tual part­ner­ships be­tweens grow­ers and pro­duc­ers – has a clear role to play, too. Here, larger com­pa­nies can fi­nance the pur­chase of in­puts for a farmer who pays back the bal­ance at har­vest time. Th­ese schemes can come un­stuck if not prop­erly reg­u­lated. In Zim­babwe in 2016, The Africa Re­port met with farm­ers who had burnt their to­bacco-cur­ing barns as a re­minder never to re-en­ter into a re­la­tion­ship with Chi­nese to­bacco gi­ant Tian Ze. De­spite droughts hit­ting the crop, the com­pany pur­sued the farm­ers re­lent­lessly for the debts in­curred. For Dr Aroge, part of the suc­cess of his own out­grower scheme is down to the fact that his cas­sava pro­cess­ing fac­tor y is based right in the mid­dle of cas­sava coun­try. “It cuts down on travel costs for ev­ery­one,” he says. The fac­tory plans to ex­pand its ca­pac­ity to process 30,000tn of cas­sava per an­num, which would re­quire 1,500ha of cas­sava farms. “In terms of im­pact, it’s mas­sive,” says the doc­tor. But mostly, he says, the chal­lenge is in or­gan­is­ing farm­ers into mini-co­op­er­a­tives. To­day, he has helped struc­ture 20 of th­ese, each with around 10 farm­ers. With Aroge help­ing es­tab­lish them as busi­nesses and en­abling them to ac­cess im­proved seeds and fi­nance, both the fac­tory and the farm­ers are reap­ing the ben­e­fits of higher pro­duc­tiv­ity. “And be­cause they sur­round the fac­tory, they have some sense of be­long­ing in the en­ter­prise,” says Aroge. “We will be pro­duc­ing 6,000tn of cas­sava chips. And some peo­ple still think I was mad to drop out of medicine.”

MANY FARM­ERS USE MO­BILE MONEY TO TRANS­FER AND RE­CEIVE CASH, BUT CAN­NOT AF­FORD A BANK AC­COUNT

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