August 14, 2015

African agriculture is increasingly becoming a viable asset class as returns on oil and commodity exports are seeing significant declines.

Over 60% of the world’s arable land is located on the continent, 65% of the labor force is involved in agriculture, and agriculture accounts for 35% of South Africa’s gross domestic product (GDP). Despite these factors, the continent imports $25 billion worth of food every year.

“There is no doubt that the opportunity within Africa Agri is really really vast, we have a decent pipeline of anything between 200 and 400 million dollars in opportunities in Africa,” says Craig Chambers, Old Mutual Investment Group’s director of strategic projects.

Others point out that the nascent potential in African agriculture has not been utilized. Thirty nine million hectares of African land is suitable for irrigation, but only 7% of the farmland is currently irrigated. And when considering only sub-Saharan Africa, only 3.7% is irrigated, representing a vast opportunity for narrowing the yield gap, and increasing production and returns.

Examining only South Africa, the country’s farmland has returned 22.1% over 15 years ending in December 2013 – compared to the FTSE/JSE Index at 18.2% over the same time period. Farmland’s returns have also outperformed international equity (MSCI World), local bonds (BEASSA) and local real estate (IPD) indices in the medium to long term.

By 2050 global population is expected to be nine billion people – 25% of which will be living in Africa. To feed this population, a 70% increase in food production will be needed. As the demand for food climbs, Africa will be a key region offering the greatest opportunity for profits in agriculture.