Considering the business case for agriculture
“It’s very exciting to see that smallholder agriculture is shifting from being a social issue to becoming business.” The words of the Honourable Dr. Gérardine Mukeshimana, Rwanda’s Minister of Agriculture and Animal Resources, speaking at an event focused on making the business case for agriculture in Africa.
But, she was quick to add, the transformation is far from complete. For the moment, there needs to be a balance between business and social concerns – a balance that’s reflected in the current evolution of Rwanda’s agricultural sector, away from widespread reliance on Government intervention as private-sector organisations become increasingly involved.
And today, acceleration is needed, attracting many more partners to meet continental aspirations for an Africa that is smart. “If we don’t do it today, we will end with just a standard Africa by 2039,” she warned.
According to IDH CEO Dr. Joost Oorthuizen, two key factors will help to prevent such a second-class future. “We need urgently to professionalise how we deal with smallholder farms,” he said. “Businesses must improve in many areas, including raw material supply, quality, logistics, incentives for farmers, all this and more needs to be better.
“Just as important, we need to understand risks better and orchestrate de-risking the agricultural sector. The main reason why farmers stay poor is because no one wants to take risks on them. Companies are too careful – if we want to change, they need to think about risk-taking and get out of their comfort zone.”
Innovative finance can be the key to de-risking the sector, said Dr. Jennifer Blanke, Vice-President Agriculture, Human and Social Development at the African Development Bank. And she had an optimistic message for her audience – that when improvements are made along the value chain, smallholder farms can become viable businesses. As she said, “It need not be costly to de-risk.”
One person who deeply understands the challenges and concerns facing investors in African agriculture is Fokko Wientjes, Vice-President Nutrition in Emerging Market and Food Systems Transformation at DSM. The company has entered into an agreement with the Rwandan government to produce fortified baby food in the country, which will ultimately involve working with 100,000 Rwandan smallholders.
His company’s motivation to take this risk was twofold: firstly, the Government has a record of abiding by the agreements it enters. And secondly, malnutrition is a huge issue which DSM believes it can profitably address through making a product that is available, affordable and aspirational.
Wientjes has a powerful message for Africa, which, if followed, would further de-risk working with the continent’s farmers. “If there is capacity in Africa, let’s use it. Let Africa feed Africa.” He went on to explain the positive impact on farmers that working with DSM is already having. “We pay quickly, improving their cash-flow. And the reduced losses that result from working with us has increased farm income by some 30 percent.”
Such benefits further reduce investor risk. As Wientjes added, “It is much less risky to lend to a farmer when you know the farmer has a market.”