Afribiz.info (Washington, DC)
Lauri Elliott
23 October 2009
opinion
In general, Africa journeyed from a net exporter to a net importer of agricultural products over the past fifty years. This means Africa no longer produces enough food to feed its own people much less supply world markets. The recent food crisis exacerbated the situation. The future looks bleaker because the population of Africa will go from about 900 million to over 1.5 billion in 2050.
With so much arable land and bio diversity, why is Africa facing these challenges? Research points out that Africa continued with a traditional agricultural paradigm, which produces the same products using the same methods by small-scale farmers. In essence, Africa as a whole has not tapped into its potential due to both internal forces, e.g., farming techniques, and external forces, e.g., unfair global trading practices. With all the challenges the African agriculture industry face today and moving forward, the biggest impeder is the systems upon which it operates, according to a World Bank report.
From a business and investment perspective, the events of the past few years have pushed attention to developing sustainable, long-term solutions to the global and African food problems. Capitalized countries, such as China and South Korea, seek out arable land in Africa to assure food supply for their people and reduce reliance on imports. Foreign investors see the profit potential. Deutsche Bank recently published a report called "Investing in Agriculture: Far-Reaching Challenge, Significant Opportunity,"which highlights the issues and opportunities for private sector stakeholders. The question becomes will Africa benefit from others releasing its potential?
There are new business ecosystems and models combining existing structures with transformative innovations arising. For example, instead of focusing money on large agricultural producers, the government of Malawi developed a stronger support network for its small-scale farmers. It included simple innovations like fertilizer for higher yield crops. One successful result is Malawi produced enough maize this year to feed its own people and sell the excess to world markets.
In a private sector example, Africa Invest Malawi (AIM) found success along similar lines with high quality crops like chilis. AIM incorporated small-scale farmers in its commercial agribusiness ecosystem to increase overall output. In both instances, the challenges of global and African food supply are met while broadly providing increased economic opportunities.
The impact of new business models like these will be felt throughout African economies. Agriculture already represents a considerable portion of African GDP, but imagine if it increased the annual income of 300 million people by even just $100 per year. This adds 3 trillion dollars to African economies each year. This is possible since 50% to 70% of the African population derives income from the agricultural sector formally or informally. With more money flowing in the African economies, there is growth potential in other sectors that serve African consumers.
The business and investment opportunities in the agricultural sector are not just in production. They exist along the entire value chain – from inputs to production to processing to wholesaler to distributer to retailer to consumer. Also, there are opportunities in supporting sectors like finance, business management, and transport. In addition, the opportunities scale from a single agricultural facility (small or large) to agricultural cooperatives/clusters to large producers/processors to entire segments. Thus, opportunities are available to small and large investors and businesses alike.
For example, businesses like Kickstart make money by providing basic inputs to farming, e.g., irrigation pumps. Some firms like Yara, who develops agricultural trade corridors or ports, make money by building infrastructure. Others like Google make money with a technology platform to provide agricultural information.
While the opportunities are endless, the key is to formulate a successful strategy. Next year, Afribiz will launch products and services to help you shape a successful strategy for key sectors like agriculture. In the meantime, visit the following information resources that give different perspectives on the agricultural business opportunities in Africa.
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