Interview: Growing an agriculture business in Africa
Last month it was announced that a US agriculture firm, Pioneer Hi-Bred, would acquire a majority stake in Pannar Seed, a South Africa-based seed company with operations throughout Africa and other parts of the world. How we made it in Africa asked Nick Goble, Pannar’s regional manager for Africa, about the company’s operations and how to successfully invest in the continent’s agriculture sector.
Pannar already has operations in a number of African countries. Which territories hold the most potential to further expand the business?
This is a difficult question as our philosophy is to approach the market in a regional capacity as this allows for political, economic and ecological fluctuations to balance out our efforts in developing and servicing the various market segments in the seed sector.
To name a country we have targeted is Zambia as it has a high adoption rate of farmers planting improved cultivars, the government has a positive outlook towards agriculture and the country’s economic policy seems to be well managed in context of the global recession.
Pannar has registered companies in nine countries in Africa from South Africa up to Kenya. Pannar also has partnerships and agencies in most of the remaining countries in Africa.
Who are your main clients?
We have a balance of commercial and small holder farmer clients throughout our operations in Africa. Pannar has been fortunate that in its maize breeding programme our researchers have managed through extensive trialling in all ecological zones to select a range of products that allow us to service both market segments competitively throughout Africa. The synergy between commercial and small holder objectives allows us to transfer skills to small holder farmers through our numerous field demonstrations and radio shows. Outside of South Africa, small-scale farmers are about 80% of our market.
There is currently a lot of talk about the need for more commercial agriculture ventures in Africa; do you think there is a desire from small-scale farmers to increase their capacity?
The concern is if you look at statistics, in only three of our target markets are national averages in maize increasing. This is in South Africa, Zambia and Malawi. The rest of the countries are either static or declining. In the countries outside of South Africa the biggest limitation to small-scale farmers is access to the market. Often the limitation is due to poor infrastructure, access to finance and lack of availability of decent inputs. As commercial agriculture develops this draws in a better level of service from suppliers and helps open up infrastructure to small scale farmers. It also creates new markets for small scale farmers.
Are banks in Africa willing to lend to the agriculture sector?
My experience with the banks is that they have always recognised agriculture as an important sector due to the relevant contribution it makes to GDP, especially in countries outside of South Africa. The problem, however, lies with security of assets. With the land tenure system and often the failure to honour contracts it is not easy to access finance in Africa.
What are the most common mistakes made by foreign companies when investing in Africa’s agriculture sector?
If you are seriously looking to invest in agriculture in Africa, firstly you need to look at the risk profile of the country. Next you need to work out how you plan to service your potential future client. Then you need to choose a suitable method to enter the market (greenfield investment, joint venture or agency).
In the case of working with new partners make sure they have a track record. Take your time getting to know them, or your venture could be doomed before it starts. Africa has many examples of business ventures only favouring one side of the party.
Common mistakes would be choosing the wrong method of investment; brand recognition takes time to build. Companies sometimes run out of resources or patience trying to establish a brand. The cost of business in Africa is high therefore trying to launch into too many markets at once can be a massive drain on cash flows.
If you are planning direct exports take time to understand the process. Make sure you work with professionals in the field of foreign trade logistics. Make sure you understand your position with regards to your liability with the client and your payment methods. Bad debt is a great risk for start-up companies.
It takes time to build a business in Africa. The key is putting together a good team of people passionate about the business. There will always be problems to solve and you will need a level of patience, diplomacy, resources and a long-term strategy. If you have this in place, Africa can be rewarding.