June 6, 2016

Global population is continuing to climb, but the bulk of available arable farmland is already in production. To meet global demand, a second green revolution is currently happening within agriculture, only unlike the first green revolution that occurred after World War II, this one is more focused on the integration of technologies that will allow growers to sustainably produce more food from the same land.

Within this need, Africa is positioned to play a key role in increasing global agricultural output, according to the Africa Agribusiness Insights Survey 2016 recently released by Price Waterhouse Coopers (PwC). Agribusiness currently accounts for nearly half of sub-Saharan Africa’s GDP and is set to grow to a value of US$1 trillion by 2030, according to the World Bank.

Long characterized by a need and opportunity to improve production capabilities, investment in agriculture in sub-Saharan Africa now has a new driver, according to Global AgInvesting’s Global Ag & Food Investment in 2015 report. As oil and commodity prices decline, oil-rich African nations, once dependent on capital resulting from high oil prices in recent years, are now looking for ways to diversify their economies. Agriculture offers a reliable inflation hedge with a low correlation to traditional asset classes.

Interest in investment in the African agribusiness sector is reflected in the size of deals that were seen in 2015. There was a promise of a $1.5 billion investment into Mozambique’s sugarcane by Kuwait’s Al-Badel International Development Co. and the acquisition of 33,000 acres for pulse production by India’s Embee International led capital allocations to the region, demonstrating the recognized potential for returns on foreign capital investment in energy and food production on the continent. Dairy and livestock deals, included Angolan investment company S. Tulumba’s $120 million acquisition of Fazenda Vales Silvestres and Kenyan billionaire Naushad Merali’s development of a $30 million milk factory, also supported global trends of increasing protein demand.

However, the support of the expansion of the agribusiness sector requires not only investment in the agricultural assets but also in production efficiency. African countries are dedicating more resources to improving output within their agricultural supply chains through leveraging agricultural technologies, the development of irrigation schemes, storage infrastructure, transportation networks, and training programs.

The second green revolution in Africa is targeting growth through four agtech approaches according to PwC:

~ Using breeding techniques to create crop varieties that are drought or salt tolerant.

~ The cycling of soil nutrient through crop rotation methods and biomass recycling.

~ The development of genetic pest and disease resistance, in order to reduce reliance on chemical or mechanical pest controls.

~ Integrated crop management methodologies to maintain soil fertility and crop health.

Indeed, the PwC report states that African producers are already striving to increase productivity through the integration of some of these types of technologies, including smart water management systems, soil and water surveys, drone use for real-time crop monitoring, automated and smart agricultural machinery, and integrated pest management systems that can trap, count, and monitor pests, and the use of pheromones that can disrupt pests’ mating cycles.

Despite these advances, the African continent still spends $25 billion on food imports per year. However, given the continent’s vast arable land bank, available natural resources, remaining yield gap, and supply chain inefficiencies, there exists a significant but nascent potential for return on agricultural investment in the space.

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Lynda Kiernan

If you are interested in reading more about investment trends in 2015 and their expected impact in 2016 and beyond, get your password to download the Global Ag & Food Investment in 2015 report by emailing report2015@highquestgroup.com.