Investing in Agriculture: Food for Thought.

Nick Long reports:

Food security and responsible investment in agriculture were the main themes of this event on November 23. As usual, okra eXpress had assembled an impressive line-up of speakers, this time to talk about the opportunities for, and obstacles to, investment in agriculture in developing countries. Their presentations and the interactive session allowed for a wide ranging debate on many aspects of this controversial topic.

The panel, meeting at Portcullis House, Houses of Parliament, Westminster, London, comprised

• Susan Payne, executive chaiman of EmVest Asset Management. Africa
• Ian Hope-Johnstone, director, agricultural sustainability, Pepsico International.
• Detlef Schöen, managing director, Aquila Capital Assets GmbH

The discussion was chaired by Alex Ritson, formerly a business and financial reporter and presenter for the BBC  

 EmVest Asset Management (headquartered in Pretoria) has farming operations in five southern African countries and plans to expand in 14 SADC countries. Susan Payne was recently described by "Financial News" as one of the 100 most influential women in finance in Europe. PepsiCo International is a $57 billion business, the second largest food and drinks company after Nestlé with an expanding $22 billion business outside North America. Aquila Capital (based in Hamburg) has three agricultural funds. Detlef Schöen was managing director of Cargill's European Commodities merchandizing division and head of global grain trading for NIDERA in Rotterdam before joining Aquila Capital. 

Key messages

Food security. With global food price inflation up almost 30% over the past year and farmland topping almost all other investments between 2000 and 2010, the long term trends are unmistakable. The Food and Agriculture Organization's prediction last year that food production will have to increase 70% by 2050 underlines the scale of the challenges. Susan Payne said the question was not whether this boost to production was technically feasible but whether food would be affordable to all. China's ban on the use of land to grow biofuels shows how seriously it views demand presures. Ian Hope-Johnstone quoted five food security goals: stop agriculture consuming more tropical land; boost productivity of farms with lowest yields; raise efficiency of water and fertilizer use; reduce waste; and reduce per capita meat consumption. Payne and Detlef Schöen agreed that GM crops will be part of the solution, with more recent GM varieties reducing the need for other inputs. More African countries besides South Africa would soon be allowing GM, Payne predicted, with Zambia likely to be an early adopter. Besides technical solutions, speakers all emphasised the need for deeper public-private cooperation in agriculture. 

Responsible Investment. Investing in African farmland is not as easy as investors might like. Restrictions on transferring land ownership in most African countries are a key reason why Aquila Capital has so far preferred "lower hanging fruit" in investment grade countries, although Schöen predicted huge institutional investor interest in Africa within a few years. EmVest operates farms in five southern African countries under leasehold arrangements. These leases were acquired to working farms, and in Mozambique to 2,000 ha of unused land, following "a very defined process" which involved negotiations first at community level and then with local and national government. The Mozambican lease was granted on a two year "use it or lose it" term. EmVest’s Mozambican farm employs 320 local people, end Q3 and provide offtakes (market access) for the smallholders. PepsiCo has partnered with the World Food Programme and USAID in a chick pea project - Enterprise "ETHIOPEA" - which will enable 10,000 Ethiopian smallholder farmers to nearly double production, thanks to a plant breeding solutions, better cropping practices and drip irrigation. The food giant worked with local experts and none of the technology had to be imported. PepsiCo also has an Indian project which has helped 11,000 smallholder potato farmers to form cooperatives and obtain credit for drip irrigation, crop insurance and disease control packages, with the product being sold at pre-agreed prices. PepsiCo is likely to expand this kind of collaboration as it continues to diversify its global product portfolio.

The downside to investor interest in African farmland, Schöen argued, is that in the absence of strong institutions, sovereign wealth funds are fencing off and colonizing huge areas. China's example was not one to be emulated, he said. Aquila's  investors, by contrast, are put off by the lack of an institutional framework and regard investment in Brazil, never mind Africa, as already requiring “panache”. They are looking for “value storage plus cash returns” – Aquila’s farmland investments typically offer 10% IRR. Big money had been made from "development projects" in African agriculture, Schöen added. These clearly require good relations with local actors. "It's imperative that governments devise rules with us", said Payne, "if they don't, it's a lose-lose situation". Working clearly with local communities is the EmVest Asset Management mantra. "The bottom line is if we don't work closely with locals, and in some instances, for example, train them in how to maximise output on their own lands and provide them with a market to sell into, then we're not doing our jobs". As a final tip to anyone interested in creating new business in Africa, Payne suggested that retail was the one of the best opportunities in sub-Saharan Africa at the moment, after agriculture and the food business generally.