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Case studies of investments in Agriculture in Africa: How SA could benefit

Case studies of investments in Agriculture in Africa: How SA could benefit. AMT 13 September 2011 John Purchase. Introduction. Realities of the Global Food System The Big Africa Debate Scope of Africa’s agro-food challenge Reasons for underdeveloped agro-food system

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Case studies of investments in Agriculture in Africa: How SA could benefit

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  1. Case studies of investments in Agriculture in Africa:How SA could benefit AMT 13 September 2011 John Purchase

  2. Introduction • Realities of the Global Food System • The Big Africa Debate • Scope of Africa’s agro-food challenge • Reasons for underdeveloped agro-food system • Required interventions & opportunities • Some positive developments • Conclusion

  3. Want to Make More than a Banker? Become a Farmer!By Stephen GandelJuly 10, 2011 • If you want to become rich, Jim Rogers, investment whiz, best-selling author and one of Wall Street's towering personalities, has this advice: Become a farmer. Food prices have been high recently. He predicts that farming incomes will rise dramatically in the next few decades, faster than those in most other industries — even Wall Street. The essence of his argument is this: We don't need more bankers. What we need are more farmers. "The world has got a serious food problem," says Rogers. "The only real way to solve it is to draw more people back to agriculture." Tools of the trade surround John Willoughby on his 800 ha plot outside Grand Island, Neb. Photograph by Danny Wilcox Frazier/TIME

  4. A Future of Price SpikesBy Michael Schuman July 14, 2011 • Thomas Malthus lived in an era much like today's — when emerging technologies made anything seem possible. The 19th century was approaching, the Industrial Revolution was steaming along, and in intellectual circles it was popular to believe that expanding scientific knowledge could create a more enlightened, even utopian, society. • Malthus, however, was making a more dire calculation. In 1798 he published An Essay on the Principle of Population, whose grim vision of the future haunts mankind to this day. Malthus thought we could never overcome two basic laws of nature: the planet's population grows exponentially, while food production increases arithmetically. Therefore the planet will become short on food. Red vs. green Rising incomes give more people a taste for meat, which is costlier to produce than vegetables Alexandre Severo for TIME

  5. FAO Food Price Index Source: FAO

  6. FAO Commodity Price Indeces Source: FAO

  7. BRIC(S) to drive Modern Retail growth Note: 2010F and 2014F are calculated using fixed exchange rates based on the average rates of 2009 from www.oanda.com (01.01.09 to 07.12.09). Source: IGD Research, December 2009

  8. Marcos Fava Neves Calgary, March 10th. 2005 Agri-Food Program www.pensa.org.br FEA-RP Business School University of São Paulo – Brazil

  9. The Global Land Rush: Ensuring Socially and Environmental Sustainability Derek ByerleeIFAMA, FrankfurtJune 22-23th, Washington DC

  10. Liberalization and Higher Commodity Prices have Stimulated Private Investment in Agriculture • Strong private interest • Liberalized markets • Commodity prices • Diverse range of investors • Agbiz companies, energy companies, equity funds, pension funds, SWFs All low and middle income countries Source: WIR, 2009 (From: D. Byerlee, World Bank)

  11. Index of land prices (1980=100) Rising Land Prices Make Land in Some Countries Attractive Land rental prices for 3 t/ha oilseeds, 2009 Source: Dr D. Byerlee, World Bank

  12. Conclusions • Major changes in land markets • Rapidly growing demand for land • Land available but concentrated in a few countries • Private investment interest in farmland is high • AgBiz companies, pension funds, SWFs • Significant debates about FDI in land • Investors need to pay attention to local outcomes • Governments need to level the playing field and strengthen property rights Source: Dr D. Byerlee, World Bank

  13. The Emergence of a Multipolar Growth World • The WB Growth Report identified 13 economies that had an average 7 percent or higher growth rate for 25 years or more in the post-WWII period. • The conditions for those economies to achieve that remarkable rate were: • Openness • Macro stability • High rates of savings and investment • Market mechanism • Committed, credible, facilitating state • In 2000-08, 29 economies achieved that outstanding rate, including 11 from Sub-Saharan Africa. Source: Justin Lin – Chief Economist, World Bank

  14. Growth acceleration in developing countries facilitated by Trade and Capital Flow The world is more interconnected via trade and finance… Source: World Development Indicators, available at data.worldbank.org

  15. … and with greater linkages between developing countries… Source: World Development Indicators, World Bank

  16. Source: FAOSTAT, 2010

  17. Net Trade in Food Map 5 : year 2005-2007 Rome, 2010

  18. The Big Africa Debate • ‘Africa is rich, but Africans are poor’ • Surge in FDI in agricultural production in Africa in late 2000’s from all over, including by South African farmers, agribusiness and private equity • Reasons diverse and complex, but main drivers linked to the steep rise in commodity prices in 2007-2008 • Food insecure countries investing in resources, especially land and water, to meet growing demand • High energy prices – international investment in biofuels further drove demand for soft commodities • But, weak investment over 30 years – low • productivity and stagnant production in Africa.

  19. The Big Africa Debate • Additional investments of US$21 billion annually needed in SSA agriculture to meet targets for reducing poverty and numbers of malnourished. • FDI can generate benefits for ag-sector of host country such as employment creation, technology transfer and access to capital and markets. • However, benefits not automatic. Will depend on investment contract, the type of business model and institutional framework in place in host country. • Possible adverse impacts on host countries of new forms of investment, esp. large-scale land • acquisitions.

  20. Africa’s robust growth • Stronger macro-economic policies, reflected by healthier budget deficits, improved BoP’s, lower inflation, etc. • Post-2002 surge in commodity prices, allied to the expansion of oil production • Substantially higher inflows of foreign capital, most notably foreign direct investment (FDI)

  21. Status and Trends South Africa

  22. Scope of Africa’s agro-food challenge

  23. % of Population Undernourished

  24. % of Population living <1.0$ pd

  25. Current and potential arable land in developing countries, 1997/1999 and 2030 From: N Vink

  26. Current and potential irrigated land in developing countries, 1997/1999 and 2030 From: N Vink

  27. Yield trends in Africa From: N Vink

  28. Total and per capita agricultural production in Africa, 1964-2006 From: N Vink

  29. Spaghetti bowl of African trade agreements From: N Vink

  30. Case Studies by FAO & GTZ • Targeted 8 developing countries in Africa • Ag-sector FDI low (generally 1-3% of total) • Push and Pull economic impacts - employment - agricultural production - trade - access to finance, technology, markets, skills - Infrastructure development - Macro-economic impacts

  31. Case Studies by FAO & GTZ • Environmental impacts - Intensive use of land and water resources - Impacts on forests and biodiversity - Introduction of more environment-friendly production techniques • Social impacts - Displacement of indigenous people - Impacts on legal framework and governance - Impacts on food security - Uneven allocation of FDI - Interaction of foreign firms with domestic enterprises - Access to rural education and health services

  32. Principles for responsible agricultural investment (FAO, UNCTAD, IFAD and World Bank ) i) land and resource rights: existing rights to land and natural resources are recognized and respected ii) food security and rural development: investments do not jeopardize food security and rural development, but rather strengthen it iii) transparency, good governance and enabling environment: processes for accessing land and making associated investments are transparent, monitored, and ensure accountability by all stakeholders iv) consultation and participation: all those materially affected are consulted and agreements from consultations are recorded and enforced v) economic viability and responsible agro-enterprise investing: projects are viable economically, respect the rule of law, reflect industry best practice, and result in durable shared value vi) social sustainability: investments generate desirable social and distributional impacts and do not increase vulnerability vii) environmental sustainability: environmental impacts are quantified and measures taken to encourage sustainable resource use while minimizing and mitigating negative impacts.

  33. Reasons for problem areas

  34. Reasons for problem areas • Government form and policies - Dictatorships and totalitarian governments – more democratic governments now - poor policies in terms of property rights (land ownership), market development, production strategies, agro-processing support, land & agriculture finance, trade & tariff policy, regulatory policies, infrastructure, skills development and training, etc. - Lack of recognising multi-functionality of agriculture

  35. Reasons for problem areas • Lack of, or limited local markets with integrity • Lack of disposable income for food purchases • Distorted international agricultural trade environment – WTO embarrassment • Poorly developed agro-processing industry • Poor productivity in production environment (lack of skills, finance, inputs, equipment, post- harvest technologies, etc.) • Lack of institutional capacity, especially in private sector.

  36. Core interventions

  37. Core interventions 1. The creation of partnerships throughout the entire value chain – from raw material providers to marketplace distributors. These partnerships, whether they be Private to Private or Public to Private, are seen as tools to strengthen the agricultural industry in Africa as a whole. Includes critical institutional development and engagement.

  38. Core interventions 2. Governments in Africa must be committed to enacting considerably more favourable agricultural policies that can create enabling environments for agriculture and agri- businesses to be more globally competitive. Trade agreements and regulatory legislation need to be harmonized on regional basis.

  39. Core interventions 3. Infrastructure development and energy access are fundamental to the process of growth. Africaneeds investments in infrastructure to get markets working, and investment in energy, especially clean renewable energy, to drive production, processing, storage and distribution.

  40. Core interventions • Market development and accessibility will be a key component in the sustainable development of African agriculture. Understand local, regional and global market demand dynamics. Add value, improve quality, innovate and adapt quickly to market demand. Collectively press for trade reform for EU and others to open markets and remove trade barriers. Develop intra-Africa markets and trade.

  41. Core interventions • Effective and innovative risk-sharing models to facilitate access to credit are being developed andare already proving successful. These need to be expanded considerably as access to credit remains one of the major constraints facing the development of African agriculture. Commercial financiers, such as the banks, as well as Development Finance Institutions (DFI’s) and even the donor community, can play a major role by partnering and coordinating their efforts. Need to also look at role and reform of institutions, especially role of Central Banks.

  42. Core interventions 6. Research and Development is a necessity for agricultural development; not only to raise production and productivity to much higher levels, but also to improve value added processes and product quality. The need for scientific R&D will certainly require all parties involved, both the private sector and the government, to take solid measures in educating their stakeholders about the value of R&D and how new approaches and techniques, including biotechnology, can make a valuable contribution to agricultural growth. National Innovation Systems (NIS) of critical importance.

  43. Core interventions • Underpinning much of the above, is the fact that, despite Africa’s huge reliance on agriculture for its GDP (~35%), only a handful (about 5) of countries invest 10% of their annual budgets in agricultural development, despite the Maputo Declaration, signed by African Heads of State, committing to this target. Investment by African Governments in agriculture will send a profound signal to the private sector, and private sector investment will be sure to follow.

  44. Some developments • CAADP Implementation • ABC involvement: - JADAFA - NEPAD Business Foundation - FAO, UNECA & AU Value Chains Task Team - FAO: HLPE for World Food Security

  45. CAADP • Comprehensive Africa Agriculture Development Programme (CAADP) • CAADP is the NEPAD implementation programme for the revitalization of the agricultural sector in Africa. A programme of the African Union(AU). • Goal: To help African countries reach a higher path of economic growth through agriculture-led development which eliminates hunger and reduces poverty and food insecurity, and enables expansion of exports.

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