New study challenges funds and governments to invest in African agrifood SMEs
This article was first published on the website of ICCO Cooperation
On 28 February, Rabobank Foundation, AgriProFocus, Food & Business Knowledge Platform and ICCO Cooperation published the study ‘Critical Capital for African Agrifood SMEs’. The study evaluates the access of risk capital by agrifood SMEs (small and medium enterprises). SMEs are key for establishing sustainable food systems, while at the same time face difficulties to access capital.
Offer agrifood SMEs an assortment of services
The study focuses on agrifood SMEs that form the ‘missing middle’: too large for micro-finance and too small for mainstream banks and private equity firms. A major conclusion is that there are very few investment funds that meet the financing needs of agrifood SMEs; the need for funding is usually under 250.000 USD, whereas most funds start investing from 1M USD. Such smaller investments are tedious and costly for investment funds, even for those set up with the explicit goal to stimulate the development of the agrifood sector.
The report therefore calls on policy makers to promote a graduation strategy, that allows investors to offer an assortment of services to agrifood SMEs that match their development stage. Governments and international development agencies can contribute to such a strategy by reorganising their own investment vehicles; giving them a wider mandate and access to relevant - low cost - financial resources to invest in the missing middle.
Importance of agrifood SMEs for food security
In 2050 the number of people living in Africa will have doubled. This entails enormous challenges for food supply. However, Africa is capable of feeding itself as their is enough availability of natural resources. It can even become a global player in the agrifood sector. And SMEs play a key role in this, because they occupy critical positions along the value chains: as input suppliers, off-takers, processors, distributors or otherwise. They constitute a pull factor, aggregating smallholder farmers into the value chain and upgrading the quality and efficiency of farming, leading to a more sustainable food system.
About the research
Apart from desk research, the study involved field research in four countries (Kenya, Tanzania, Zambia and Mali). Local researchers interviewed investment funds, agrifood SMEs, and relevant resource persons. This resulted in examples of successful SMEs that had raised capital, thereby boosting their development, and of SMEs that could not access such funds. The study also presents an overview of existing investment funds for agrifood SMEs in Africa.
The study has been carried out by Bert van Manen, researcher at Fair & Sustainable.