AgDevCo believes that ‘profitable agriculture with strong links to markets is the best route out of poverty for the majority of Africa’s rural poor’. But how can we ensure that commercial agriculture really does bring transformational benefits to Africa’s smallholder farmers? Government officials, private investors, and civil society representatives gathered to hear more about the viability of AgDevCo’s approach at the group’s annual meeting in London on 12th June.
Keith Palmer, Executive Chairman, introduced the production model for AgDevCo’s ventures. He described a three tier structure with (1) a commercial farm hub at the centre, (2) serviced farm blocks of 5-15 hectares with supporting services surrounding that, and then (3) structured linkages to smallholder land parcels in satellite to these developments.
He emphasized two key elements for success: identifying private sector partners who have a strategic interest in sourcing agricultural products; and also finding sources of ‘patient capital’ to make investments viable and sustainable.
A new partnership with the global mining company Rio Tinto, sourcing food for their workers in Mozambique, was a recent example of the kind of win-win deal that could make a project viable by guaranteeing a market for farmers over a contracted period of time.
Another part of the model that was very important, but challenging to achieve, was the need for ‘patient capital’, an AgDevCo-created term to describe a type of concessional funding to make a deal commercially viable.
Palmer explained that AgDevCo’s projects needed some sort of ‘social venture capital’ in the early stages to get started. When moving to the next stage of growth and towards more mature production, there was still a need for social and catalytic finance, hopefully moving into private finance. But in order to attract private finance, there was a need for a further investment of ‘patient capital’. This money would cover the costs of fundamental infrastructure, for example irrigation systems. In all developed agricultural countries, the government had paid these costs. But in many parts of Africa the government was unable to do that and so funding had to come from elsewhere. This was where development partners might come in as aid donors or through other forms of public-private partnership.
Because there was little time to discuss it at the meeting, there was only limited information about how AgDevCo plans to work with smallholders. In one case study from Mozambique, farmers were being selected for a project on the basis of whether they were already in a cooperative, had some sort of experience of farming management and monitoring systems, and had the capacity to take on new technology. Clearly these would need to be relatively well-resourced and organised smallholders.
The AgDevCo team were optimistic about the future. Chris Isaac, Executive Director in Mozambique, said that private investors were getting more realistic about potential investments in this sector. Whereas two years ago they wanted a 20% return and management teams with at least four years of experience, they were now asking about rates of return of 10-15% and accepted that very few management teams would have much experience.
Nevertheless the AgDevCo executive team were also focused on the challenges ahead. Han Derksen, Executive Director, stressed there were still significant barriers to overcome in agricultural development ventures in sub-Saharan Africa. ‘This is not for everyone,’ he said.
AgDevCo’s aim of combining commercial success with smallholder transformation is laudable. Their annual meeting showed that their mission and work is of great interest to policymakers, investors and development practitioners. Their call for ‘patient capital’ makes a lot of sense. But it was not clear at the meeting if development partners will be willing to fund this kind of infrastructure investment. Agriculture for Impact will be following AgDevCo’s work with interest.