There is an unbelievable contrast today in Africa: How can a continent with such an abundance of arable land, water and sunshine annually import food worth $35 billion? How can it be that the continent is not food secure? This must change.
We must change the narrative around African agriculture, which employs two-thirds of the population and accounts for nearly a quarter of the GDP. Agriculture is not a way of life, or a social sector. Agriculture is a business. A business that will help countries to diversify their economies, reduce their dependency on food imports, create jobs, and revive rural areas.
Migration out of rural areas is rising rapidly, and thousands of young people now jump on boats to the Mediterranean looking for new opportunities in Europe. The agricultural sector has four times the power to create jobs and reduce poverty than any other sector.
That is why we make the claim that we can diminish the migrant crisis in Europe by supporting agricultural transformation in Africa.
It is time that Ministers of Finance across the continent see the sector for what it is: the sector with the best potential to bring about macro-economic and fiscal stabilization.
The value of the food and agribusiness market is estimated to reach $1 trillion by 2030. This is an enormous opportunity for Africa, especially as it unlocks its agricultural and agribusiness potential to capture this market, while expanding regional trade. Africa may not be yet in a position to manufacture airplanes, but it can feed its growing population, and become a global powerhouse in food and agriculture.
A lack of basic agricultural data is holding African countries back
Feeding the estimated 9 billion people in the world by 2050 will depend on how Africa capitalises on having 65% of the world’s remaining arable land. By raising agricultural productivity, modernizing agriculture, developing agro-allied industries and investing in value-added processing for agricultural commodities, Africa can unlock its agricultural potential. As the private sector invests in large scale food processing and manufacturing factories across rural areas, and governments invest in integrated rural infrastructure – especially roads, rails, energy, water and irrigation – the cost of doing rural business will drop drastically.
New zones of economic prosperity will be created –where young people will be willing to live in the countryside and engage in profitable agricultural activities and non-farm and off-farm activities. A new generation of commercial farmers will emerge: younger, dynamic, technology-savvy and competitive. Smallholder farmers – the bulk of the farming population, the majority of whom are women – will be able to access reliable markets. Commercial banks and microfinance institutions will expand lending, as farmers secure markets for their produce and agro-industries expand Africa’s ability to compete in global markets.
Africa must think big and act big on agriculture, to help feed Africa. Africa may have the potential in agriculture, but you cannot eat potential. At a conference in Dakar this week, the African Development Bank is bringing together the best of the continent – including Ministers of Finance, Agriculture, Central Bank Governors, agribusiness people, farmers, civil society and scientists – to discuss the best hope of the continent: agriculture as a business.
Investing in Africa could yield significant returns: in Kenya, where almost 70% of agricultural productions is operated by the smallest 75% of family farms, farming accounts for nearly a quarter of national output, a common figure across the continent. As agriculture is also a huge employer of Africa's roughly 1 billion people, supporting farms, which are mostly small, could help many people.
In order to best understand what drives an agricultural investment it is vital to break the business down into two key components; the real estate and the production business. Quality agricultural real estate assets held over long periods, through generations have proven to achieve very solid capital appreciation levels. This isn’t realised until sold, but is a large contributor to generational wealth creation. In order to generate positive cash flows, the operating business must be managed extremely well. The top farmers are making good returns thus allowing for expansion, off farm investment and/or further development of farm asset.
It is vital that assets are protected through the generations as scale is an increasingly important contributor to business returns. Ensuring businesses are well structured and family succession plans are in place is very important.
Agricultural fundamentals currently are generally strong in the mixed farm sector. These fundamentals haven’t necessarily returned more profit to farmer’s bank accounts but it certainly does give confidence for the future of primary production. The ongoing challenges for agricultural businesses are unchanged; increasing costs, challenges involved in commercially driving production up, quality people, climate, access to capital, marketing…..but to name a few. The opportunities are great but farmers will need to be very good at running a complex business in difficult times.
A high quality, scalable farming asset that has enterprise options is a very good starting point. The unique opportunity that Tasmania holds is access to quality water. The challenge however is to convert this to a commercial return. Irrigation is an expensive business and thus the business risk is increased. The other point of difference that Tasmania holds and is getting increasing recognition for is the “clean green” produce marketing advantage. How this converts to improved business profitability is again a real challenge?
Efficient, well managed grass based pasture systems have a significant commercial advantage in a world of increased cost of feed and fodder. The grass you grow on your property is the cheapest feed for your stock. The focus on management is putting together a pasture based grass system that produces both quality and quantity of pasture and then over laying a grazing enterprise that matches your feed growth patterns. The other key focus should then be on ensuring that pasture grown is utilized. Studies show that utilization rates for pasture grown can range from as low as 30% up to 65%. It takes quality management, supported by required infrastructure to get to the higher levels. Increasing utilization is a cost effective way of improving profitability in any livestock business.
Markets and seasons come and go but the best farm business operators usually remain the same!
We live in a complex world with many demands at a personal and business level and how well we navigate the day to day challenges has a big impact on the businesses we are involved with. Now more than ever, quality, experienced, smart, healthy and happy people that have a passion to succeed are a vital component of business management in all sectors but particularly agriculture. If you haven’t got quality people, the business will suffer. They are out there and we are fortunate to have a good level of educated agricultural professionals coming into roles where they can have a great impact. We must manage this component of the business very well.
Farming is a tough game, with markets and seasons to deal with at the same time as managing significant assets with substantial revenue and cost exposures. Farming is a dynamic and complex business and needs to be managed accordingly. Having well considered business plans with detailed annual financial budgets that are regularly reported against and monitored is essential. A similar non- agricultural business, with similar assets and turn overs tend to be heavily monitored at both a financial and operational level.
