Pooling perspectives on African agriculture
"We have shifted from training farmers agronomy, to training them how to assess costs - results are much better." "In the agricultural section of xx bank, we were told not to invest in production." 'We treat farmers as business, not as beneficiaries." "The J-curve and agricultural curve are never going to match." "With high risk and lower return, African agriculture needs patient capital to bridge the gap." "The trend to see Impact Investment as a silver bullet is worrying." "The big retailers are moving into Africa."
These were just some of the views expressed at a meeting in the UK Parliament yesterday. It was an eclectic gathering - from agribusiness, non-governental organisations, bankers and former bankers, convened by the UK's All Party Parliamentary Group on Agriculture and Food for Development, and focusing on the role of the private sector in the 'Integration of Smallholder Producers in Supply Chains in the Developing World'.
Aside from the depth of their varied experience, and their commitment to profitable smallholder-based models of African agriculture, the participants also found some other commonalities.
The finance gap, as usual, was the most recurring theme. The irrelevance of mainstream banks for smallholders, or even for commercial production, was a cause of regrettable consensus. One West African agricultural investment bank was reported to make 86% of its investments outside agriculture. Of the other 14%, most is in agri-trade. Agricultural production is the very last thing on a bankers' mind, even in an agricultural bank. One participant from a multinational agribusiness explained that the company had tried and struggled to link their farmers to banks, even when providing purchase guarantees. Instead, they have ended up financing farmers themselves - to the tune of many millions. This kind of non-bank finance emerged as one of the important strategies to develop.
The fact that there is not 'one' finance problem, and neither 'one' solution, was clear. Patient capital is part of the answer: it can tolerate the slow return and risk of agriculture investment. But the rigours of commercial capital are needed. The grants for initial upfront costs, pilots and proof of concept should not be dismissed. For farmers, working capital is a massive challenge which may not match well with forms of patient capital. Beyond the farmers, the small and medium enterprises that trade with farmers also lack finance. Indeed the whole value chain needs finance. The lack of agricultural insurance exacerbates risk for banks, and could also be addressed.
The other main theme that struck me, was the need to shift from thinking of farmers as beneficiaries, to farmers as businesses. Olam reported how they have introduced basic business training into their skill development for farmers, as part of their Livelihood Charter: less on fertiliser, more on how to assess costs. The results - a dramatic improvement in supply. The approach of International Development Enterprises (IDE) is to sell services to farmers as private sector operators: hence their project supported by Innovations Against Poverty, to develop private sector farm business advisors in Mozambique. Not every farmer wants to be a businesswoman or businessman - some just want to feed their family while investing in other options. Others don't want to farm at all - but the jobs they want just are not there. But business options for farmers could provide a better means to investment and productivity for many.