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AgDevCo - a positive investment approach in difficult times

The cooperative's irrigated maize crop has provided food security in an area which has been frequently dependent on food aid (Kevin Thompson)
The cooperative's irrigated maize crop has provided food security in an area which has been frequently dependent on food aid
Kevin Thompson

Despite the global recession, agriculture remains an important driver of growth for Africa. But the recent economic crisis has hit Africa hard: growth has fallen to less than three per cent in 2009, down from almost six per cent in 2007, when the outlook for Africa was beginning to look more promising. At recent events, such as the World Economic Forum on Africa, agriculture was a major topic of discussion.

Lack of infrastructure across the continent is cited as a key constraint to development, but improvement of infrastructure requires investment. Rather than calling for increased support from donors and national governments, a new not-for-profit public-private partnership - AgDevCo - aims to stimulate profitable agricultural production in Africa, using a private sector approach to develop commercially viable and socially responsible projects.

Taking the risk

Working alongside local entrepreneurs and farmers, AgDevCo aims to improve access to infrastructure, agricultural services and finance for small farmers. With capital invested from private foundations, development finance institutions, and donor agencies, AgDevCo is able to shoulder the high costs and risks of project development, particularly in the initial stages of establishment, which private investors are typically unwilling or unable to bear.

Once a project has been developed to become a successful and sustainable business, AgDevCo will sell the majority of its shareholding to private investors at the market price. Any profits from the sale of AgDevCo's interests will then be reinvested into developing a pipeline of new projects, ensuring a high "developmental" return on its capital.

Launched in London in May 2009, AgDevCo has been set up using the principles and lessons learned from a sister company, InfraCo, which operates a similar business model in 'hard' infrastructure, such as irrigation and power generation projects. AgDevCo's approach, however, is to create profitable agriculture ventures, and over 25 opportunities for potential investment have already been identified across five countries in eastern and southern Africa.

Irrigation potential

Chanyanya's irrigation system draws water from the nearby Kafue river (Kevin Thompson)
Chanyanya's irrigation system draws water from the nearby Kafue river
Kevin Thompson

Zambia, for example, has enormous potential for prosperous agricultural production. Highlighted by its Minister of Agriculture, Bradford Machila, at the launch of AgDevCo, his country has 40 per cent of the water resources available in southern Africa, yet only a fraction (100,000 hectares) of the 75 million ha of agricultural land in Zambia, is currently irrigated, and most of this is large-scale commercial farming.

Small-scale farmers lack the means to buy capital intensive irrigation equipment. As a result, yields are low and farmers remain in poverty, never able to raise their productivity beyond subsistence. In the past few years, erratic climatic conditions have compounded smallholders' struggle to survive: in Kafue district, south of Lusaka, for instance, farmers have lost their crops to drought or flooding in seven of the last eight years. Farmers typically rely on maize to feed their families, but failed harvests have led to chronic food shortages and a need for government support.

In the village of Chanyanya, however, change is in the air. With assistance from InfraCo, over 120 farming families have pooled their land into one large block of 554 ha. In return for leasing all the farmers' unutilised land (80 per cent of the total area), a commercial farming company will invest in irrigation equipment to draw water from the local Kafue area. Irrigation services are already being provided to Chanyanya's farmers to grow maize and vegetables, on the remaining 20 per cent of the farmers' land. With crop support also provided by the commercial farming company, crop yields are expected to increase three to five-fold.

A profitable business

The cooperative members are shareholders in the entire farming business at Chanyanya. (Kevin Thompson)
The cooperative members are shareholders in the entire farming business at Chanyanya.
Kevin Thompson

But, emphasises Keith Palmer, chief executive of AgDevCo, the farmers are not receiving handouts; they are participating in a profitable business enterprise. The venture is a commercial business in which the farmers each own a stake. "The farmers have become equity owners in the development of their land, thereby securing their future," says Palmer.

Now that this initial pilot project has proved the concept of this business model and achieved the support of the local population, there are plans to extend the approach across a much larger area. Success will show that it is possible to use land owned by smallholder farmers to produce commercial crops, while retaining the direct involvement of the communities. AgDevCo is now seeking funding to deploy the approach, as proven at Chanyanya, to a portfolio of agricultural opportunities across sub-Saharan Africa.

Maurice Hikapulwe, councillor for Chikupi ward in Kafue district and a driving force for getting the involvement of Chanyanya's farmers, believes that the project can be replicated elsewhere. "Despite being small-scale farmers, we have learnt to do agriculture in a commercial way. Over the next ten years, when our partners have left, we shall be able to run this project ourselves. Not only that, but we expect benefits for the community; we can build a school, improve our healthcare. The rest of the money will go in our pockets."

Date published: July 2009

 

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