In its still often quoted Lions on the Move: The Progress and Potential of African Economies report published in 2010, McKinsey notes the massive agricultural potential that the continent holds for companies across the value chain.
With 60% of the world’s uncultivated arable land and low crop yields, Africa is ripe for a “green revolution” like the ones that have transformed agriculture in Asia and Brazil, says McKinsey. It acknowledges that there are well documented and complex barriers to raising production in Africa, including lack of advanced seeds and other inputs suited to the continent’s ecological conditions; inadequate infrastructure to bring crops to market; perverse trade barriers and tax incentives; unclear land rights; and lack of technical assistance and finance for farmers.
If, however, Africa could overcome these barriers – and some countries are creating credible plans to do so – McKinsey estimates that agricultural output could increase from around US$280 billion per year currently to as much as US$880 billion by 2030.
Growth of this magnitude would increase demand for upstream products such as fertilisers, seeds and pesticides, while spurring growth of downstream activities such as grain refining, biofuels, and other types of food processing.
Recognising this potential, seed company Syngenta last month announced a commitment to build a US$1 billion business in Africa over the next 10 years. This commitment reflects the company’s belief that Africa has the resources not only to feed its growing population, but also to become a major world food exporter.
Mike Mack, Syngenta CEO, said: “Africa has become one of our strategic growth regions and our aspiration is to contribute to the transformation of African agriculture. We will deploy our leading portfolio as part of a system-wide approach linking people, land and technology, with the aim of increasing productivity sustainably and thereby reducing poverty. This engagement has been catalysed by the encouraging steps taken by a number of African governments to stimulate investment, and we intend to play a leading role in public-private collaborations which will be essential to making a planned transformation actually happen on the ground.”
Syngenta will make cumulative investments of over US$500 million in support of this undertaking. These include the recruitment and training of over 700 new employees with a high level of agronomic specialisation. In addition, the development of distribution channel networks, logistics and local production facilities, in collaboration with local partners, will increase access to technology for both smallholders and large scale farms. The target over the 10 year period is to reach over 5 million farmers and to enable productivity gains of 50% or more, while preserving the long term potential of the land.
Mack continued: “We can bring the knowledge, tools, technology and services farmers need whatever the size of their field or the type of cropping system. Africa needs a fully integrated approach to crops because there is no single technology solution.”
Listed companies such as Zambia’s Zambeef and Zimbabwe’s SeedCo are among those well placed to also take advantage of this growth potential, while the controversy around the purchase and lease of vast tracts of land by private equity and sovereign funds reflect the value inherent in Africa’s unutilised arable land. Agriculture is a sector that clearly cannot be ignored.
Imara is an investment banking and asset management group renowned for its knowledge of African markets.