How we made it in Africa asked three investors to identify potentially lucrative opportunities in Africa’s agribusiness and food industry.
1. Tue Nyboe Andersen, managing director, Kukula Capital (Zambia)
The local production of processed food items that are currently imported presents attractive opportunities in Zambia, according to Tue Nyboe Andersen, managing director of Lusaka-based Kukula Capital.
“For processed food products, I think the opportunities really lie in niche products with limited competition. As a landlocked country, Zambia has some built-in import barriers; imported products need to be transported over long distances. For example, there is a company called Meraki that produces cakes and supplies them to big retailers like Shoprite. It has grown rapidly with decent margins because its competition is imported products that are way more expensive. Zambia has limited food processing and a lot of items are imported.”
Andersen explains the addressable market for food products is not only in Zambia, but also the Katanga region in neighbouring Democratic Republic of the Congo (DRC). Zambia largely supplies food to the whole of southern DRC because there are very few commercial farmers in the area. The market is Zambia’s 18 million people as well as the Katanga region, which brings the total closer to 30 million.
“In terms of primary agriculture, many farmers have diversified from row crops, such as maize, into high-value, niche export crops like macadamia nuts and avocado for the export and domestic markets. Yet, just as Zambia is protected from imports owing to high transport costs, exporters also need to move their products 2,000 km on bad roads to a port in another country. This is a huge drawback compared to a producer near Dar es Salaam or another port along the coast. That said, some export crops are still very viable despite the transport costs. With the current high wheat and soya prices, we have also recently seen strong investment cases in more traditional farming,” he adds.
Read the full interview: Investor highlights promising business opportunities in Zambia
2. Jerry Parkes, managing principal, Injaro Investments (Ghana)
Private equity investors in Africa tend to steer away from investing in the primary production of commodity crops – like maize, soya or rice – owing to low margins, strong competition and government interference. However, Jerry Parkes, managing principal of Ghana-based Injaro Investments, believes primary production does offer potential if combined with the right technology.
“One thing that has perplexed us is the almost universal aversion to primary production, both from investors and entrepreneurs. Everyone seems to want to do agri-processing, but I think the big opportunities are in tech-enabled primary production. Yields across the region are still a fraction of those in more established agricultural producing regions such as Asia and South America; and until yields in primary production are improved, the economics for agri-processing are going to be difficult,” he notes.
“Take land preparation and crop maintenance … I spoke to one business that uses drones to spray crops as a service. Currently, this has to be done manually. But the dosage can be inconsistent, farmhands are not always diligent, and the landowner has to closely supervise the workers to ensure thorough crop maintenance. Using a drone can save time, money and chemicals with the greater precision it offers. Enhanced services, such as customised dosing of different parts of the field, can also be built around the drone’s field-mapping and crop-imaging capabilities.
“For under-resourced farmers, the key to making this kind of business work is to ensure the smallholder farmers clearly perceive a cost saving or a quantifiable increase in yield, or both. This usually means delivering a service, as opposed to requiring the farmers to invest in the technology itself. Examples of this type of service provider include TROTRO Tractor (in Ghana) and Hello Tractor (in Nigeria), which own platforms that connect farmers with tractors and allow them to pay for ploughing as a service, as opposed to purchasing a whole tractor.
“Solutions like these can make primary production farming more viable, and should increase yields of crops, which will have knock-on benefits for secondary and tertiary production.”
Yet, Parkes is wary of capex-heavy agri-processing businesses where the supply of raw materials is not guaranteed. “For example, one idea that has come across our desk many times is the production of canned tomatoes or tomato puree. People assume it would be a good business because fresh tomatoes are so ubiquitous and hyper-visible following bumper harvests. However, in many cases, the tomatoes grown locally are the wrong varieties and yields are maybe a fiftieth or even a hundredth of the yields of competitors in China, the Netherlands or Italy. The processing facilities would require a huge amount of capital, but the supply of tomatoes themselves is not assured.”
Read the full interview: Ghanaian investor talks opportunities in agriculture and beyond
3. Chris Isaac, chief investment officer, AgDevCo
“We’ve been involved in many ventures over the past decade. We’ve learnt a lot of lessons from our investment mistakes and successes, which has led us to focus on a few areas where we see the greatest potential,” says Chris Isaac, chief investment officer at AgDevCo, an impact investment firm specialising in agribusiness in sub-Saharan Africa.
“The first is tree crops, particularly avocados and macadamia. There is significant – and still growing – global demand for these crops; if you can provide the right quality into the international supply chains, then it’s a good business. There are some risks, as there are major new plantings happening in Africa and round the world because prices are good at the moment. However, there are advantages to having export crops that bring in dollar revenue. Southern and East African countries have the possibility of being globally competitive because they can hit particular seasonal windows, they’ve got the right agro-ecological conditions, and you can build profitable new industries, as we’re seeing developing in Mozambique and Malawi.
“Another area is livestock for supply to domestic markets, which plays into Africa’s demographics with an emerging middle-class, increasing affluence and a switch towards more protein-based diets. We’re doing quite a lot in poultry, including some innovative work that provides improved breeds to small-scale farmers. We also have investments in pig breeding.
“The third sub-sector would be high-quality, competitively-priced basic foodstuffs. African consumers will buy good quality, locally produced products if you can come in at the right price point. We’re currently involved in maize meal processing and groundnuts. You can find success in this area if you can assure the consumer the food is safe, and if it’s well packaged and well branded.”
Read the full interview: Agribusiness in Africa – Investor reveals which areas hold the most potential