Africa Insights - Investments in agri-production and cold chain logistics to reshape the future

Africa by right should be one of the great bread baskets of the world, but despite boasting roughly 60% of the arable land on the planet, barely a fraction is being fully utilised. The continent's tradition of small-scale subsistence farming is, however, rapidly changing and enjoying an unprecedented boom in foreign agricultural investment over the past two decades as global firms diversified into emerging markets. At the same time, improvements in digital technology have made it easier for rural operations to function and for a growing class of wealthier farmers to access financial, insurance and advisory services. As Africa's population continues to grow and urbanise, food production and processing will take centre stage along with opportunities in other auxiliary industries, such as cold chain storage and food processing. These developments are all evolving against the backdrop of depleting water resources, skills deficits, and tough political and legislative environments. With these in mind, understanding the investment climate of Africa's agriculture sector will prove imperative going forward.

1. Developments and Innovations: A new dawn for agri-production and efficiency

Liberalised markets create a boom for Africa's cash crop agriculture

Africa's traditionally ambivalent stance to the global agricultural industry has shifted significantly since the start of the millennium, prompting a pivot away from food self-sufficiency towards a greater share of the world's cash crop production. This change has been further accelerated by more systemic shifts in African society, as local populations have become larger, wealthier and more urbanised. Between 2007 and 2017, the continent received US$48 million in foreign direct investment in its agricultural space, half of which in turn went to the development of supply inputs like fertilisers and pesticides to the greater benefit of the industry as a whole. More than 420 agreements comprising 10 million hectares were completed between 2000 and 2016, with one of the largest investments in Africa to date from Indian firm Siva, which invested US$2 billion in Cameroonian palm oil plantations in 2011. Another source of growth has been the expansion into Africa of supermarket conglomerates, such as Carrefour, Lulu and Shoprite, and fast food chains, including KFC, McDonald's and Nando's, which have promoted the development of the local agriculture space through local supplier networks and out-grower schemes.

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The stronger emphasis on food production and agro-processing over cash crops is a deliberate move. Though Africa now plays a vital role in many global commodities markets, and has created enormous profits for certain industries, it is still debatable whether this has been worthwhile for producers on the ground. Self-sufficiency in terms of food production had gradually been abandoned as a continental policy since the 1980s, with the focus instead shifting towards highly marketable commodities. The problem observed in crafting this strategy was that African countries funded their industrialisation efforts and were prevented from investing in infrastructure through excessive debts, leading to an overdependence on a few key cash crop industries. By 2019, half of Africa's agricultural industry comprised cash crops like cotton, cocoa, palm oil and soybeans. The case of cocoa in West Africa is one such area, with Cote d'Ivoire and Ghana being the dominant suppliers to the multi-billion dollar international confectionery industry, however, it has also resulted in a heavy cost in terms of environmental degradation, widespread use of child labour and the impoverishment of local farmers. West African governments, cocoa industry bodies and the European Union (EU) are actively pushing for legislation that will see wide scale regulations implemented to curb systemic issues like labour exploitation and deforestation, but many experts and industry insiders agree that the best solution is for local cash crop production to dramatically decrease in favour of diversified food crops.

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Sources: Science Direct, Copernicus Organisation, CG Trader; 2017-2020

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