Read at :
Private sector interest grows in African farming
Wall Street Journal | 28 October 2010
By CAROLINE HENSHAW
Mounting concern over security of food supplies is spurring a wave of private-sector investment in Africa that many hope will put it at the center of a green revolution.
Mima Nedelcovych hopes the 20,000-hectare Markala Sugar Project will strengthen Mali’s domestic markets.
“People are realizing the potential of agriculture,” says Lucy Muchoki, head of African business coalition PanAAC, which encourages investment in the continent’s agricultural sector.
To meet growing global food demand the United Nation’s Food and Agriculture Organization estimates an extra six million hectares need to be brought under cultivation every year for the next 30 years. With sub-Saharan Africa estimated to hold up to 60% of the world’s remaining uncultivated land suitable for farming, the region’s agriculture is starting to look an interesting investment.
“Africa has come of age,” says David Mirrin, co-founder of U.K.-based Emergent Asset Management, which has investments in 14 countries in sub-Saharan Africa.
To be sure, hopes for Africa’s agriculture sector have been dashed before. Weak rule of law, political instability and prohibitive trade policies have teamed up to keep productivity low and chase away investment. Today, yields in sub-Saharan Africa are about a third of the world average at 1 ton per hectare, highlighting the potential challenges—and opportunities—for investors.
Already investors are waking up to Africa’s potential. Forty-five private equity firms plan to invest $2 billion in the region’s agriculture in the next three to five years, according to figures from Informa Agra, and consultancy McKinsey estimates the continent’s agricultural output could treble from $280 billion a year today to $880 billion by 2030.
Mr. Mirrin says Emergent’s African Agricultural Land Fund has seen a surge of interest from institutional investors. Founded almost four years ago, the fund claims to be one of the first to invest in the potential of Africa’s farmland and targets risk-adjusted returns of 25% per year from production and land price appreciation.
Diversified across crops, biofuels, livestock, game farming and timber, the fund aims to profit by increasing yields through using modern farming techniques, investing in technology—only 2% of African farmland has any irrigation system in place—and generating economies of scale by aggregating smaller farms.
Foreign buyers have turned their eyes to Africa’s farmland before. After the commodity crisis of 2008, when record food prices caused widespread rioting around the developing world, many importing countries bought up vast tracts of land in poorer countries as a means of securing future supplies.
But while the so called “land grab” of previous years proved to be politically divisive—in Madagascar contributing to the downfall of the government after it leased an area the size of Connecticut to Korea’s Daewoo—very little has been grown.
(continued)
