Food production beyond exploitation

South African private equity fund Agri Vie has been alert to these opportunities. The fund, developed by investment firms Sanlam Private Equity and SP Actif, makes investments in agri-processing businesses. It has made five investments in sub-Saharan Africa in as many months.

“The sector has been neglected,” says Agri-Vie director Izak Strauss “It came under the spotlight as the world woke to the possibility of food shortages. Now companies from London, the US, actually everywhere, are looking at the sector.”

Agri-Vie has invested R73m in two businesses in East Africa; acquired a stake in Fairfield Dairy in KwaZulu Natal; and is concluding investments in two other East African operations. “All of these businesses are high-quality agribusinesses with strong potential for growth,” Strauss says.

The fund will not typically invest directly in primary farming operations, preferring to leave this to entrepreneurs. But farming could be one component in an investment.

Forestry growth

For instance, Agri-Vie has invested US$6,7m in New Forests Company (NFC), a forestry and timber products group with operations in Uganda, Tanzania, Rwanda and Mozambique. The opportunity is attractive because East African countries, which are expanding and developing their infrastructures, are net importers of sawn timber and electrical poles.

Uganda has 20000ha of forestry land available. With its year-round rainfall it is an ideal area for forestry. NFC is already one of the biggest tree planters in the region with 7500ha. The company is developing sawmills and other processing facilities.

The second East African investment is in africaJuice, which wants a slice of the European and Middle Eastern juice market. “European companies source from South American producers, but supply and quality can be irregular,” says Strauss. Its first operation is in Ethiopia, growing passion fruit, mango and papaya. Again, farming is a key part of production at the company, which employs about 2500 people, depending on the season. But its activities extend to processing, export and marketing from its base in Ethiopia.

The fund is in the final stages of the fundraising process and should raise $100m through investors. Initial funding came from Sanlam, the Development Bank of Southern Africa, the Industrial Development Corp and the US-based Kellogg Foundation. Other development finance institutions are also invested.

“Our investments must lead to socioeconomic development. We usually work with local partners and definitely do not see ourselves as corporate raiders,” says Strauss.

Greed

The same cannot be said for all other governments and investors, many of which are engaged in what seems to be a huge land-grab in Africa and other parts of the developing world.

While some of the deals will help redevelop previously productive areas — US-based Dole Foods is in talks in Angola to help rebuild the once prosperous banana industry — others appear patently self-serving. One of these is South-Korean multinational Daewoo's attempt to lease 1,3mha in Madagascar — more than half of the country's farmland — for 99 years. In exchange Daewoo promises to create jobs and infrastructure. This particular deal has had a devastating effect on public opinion, eventually leading to Madagascar president Marc Ravalomanana's ousting.

Threats

Jeanne Zoundjihékpon of international non-governmental organisation Grain says the consequences of these sales for the areas affected are many. “Land is a fundamental part of life in Africa. If farmers sell their lands, traditional values will disappear with them and the society as a whole will suffer. Food security is also threatened. Local farmers will depend on what the new owners produce and the prices they impose.”

The trend is being driven, she says, as developed countries try to combat their dependency on food imports by expanding their domestic food production through colonisation. This is achieved by gaining control of large tracts of farmland, generally in underdeveloped foreign countries.

Returns

Agri-Vie is aiming to deliver market returns of 20% to 30% in rand terms, according to Strauss. But it also has a strong developmental mandate. “Agri business is an important contributor to growth in the region,” he says.

This is the only investment fund of its kind in SA. The 10-year fund has $78m in unallocated funds remaining. “We are running ahead of our programme,” says Strauss. “The first five years are earmarked for investment and the next five for realising our investments.”

Though it has a different business model, JSE-listed speciality finance company Zeder is also firmly focused on investment in the agricultural sector.

Both sets of management have identified agriculture and agri-processing as a lucrative and essential sector as the global population grows and climate change bites.

Source: Financial Mail

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