African agriculture – a world-beating business within 20 years

African agriculture stands at a crossroads and it alone is responsible for taking the right path. The sector has the potential to become a world beater within two decades, but only with a shift in mindset, the right technology and better corporate governance, delegates heard at a closing session for the Fin4Ag conference in Nairobi.

Agriculture will transform Africa within our lifetimes, says Theo de Jager, vice-president of the Pan-African Farmers’ Organization, drawing parallels with Japan’s post-war resurrection and China’s recent rise.

The continent already has “the stuff that money can’t buy” - an ideal climate, vast expanses of agricultural land and the world’s biggest share of untapped groundwater.

“Can you imagine where we will be in 20 years if we employ better technology?” he asks. “Once we take agriculture on this continent from the social development arena to a business, the world won’t believe what we can produce.”

Improve record-keeping

Before it gets there though, farmers need to take concrete steps to mitigate the risks that make finance inaccessible and to start running themselves along business lines that bankers understand.

There will come a time when banks are ready to lend to agriculture on a bigger scale. To take advantage of that, farmers need to be prepared, says Joseph Tilado Minoungou, project officer at Coris Bank International.

First, they need to improve record-keeping, in terms of both finances and yields, he says. They also need to set production targets before they approach banks, and to have identified markets for their produce, preferably with a contract in place.

Rigorous records will also give farmers a clearer picture of their incomings, outgoings and cost of production, says Fred Kiteng’e, director of lending, East and Southern Africa at Root Capital. This will alert them quickly if they are producing at a loss.

The financial sector must of course also do its part. “We appreciate agricultural businesses are not easy,” he concedes. As partners, farmers and financers must therefore look for ways to derisk the sector, including credit guarantees and insurance.

While farmer organisations accept the need for better record-keeping, banks also need to be aware that agriculture can be harder to tabulate than other industries, notes James Nyoro, senior food security and climate change advisor to the presidency, Government of Kenya. “Don’t expect me to give you the data as if I am operating a factory – I am a farmer,” is a response that banks should be prepared sometimes to hear, he says.

Invest in corporate governance

Agribusinesses must also upskill their management, ensuring they know who to hire and what equipment to buy to achieve growth, says Kiteng’e. Technical assistance will meanwhile help improve agronomic practices to help farmers produce dramatically more from the same strip of land.

Root Capital has a small kitty of funds that it uses to train farmer organisations on how to prepare and understand financial statements, business cash flows and costing models, but also on general management skills and governance.

Governance and accountability certainly need to improve. A call by one delegate from Uganda’s Centenery Bank for legal crackdowns on leaders of farmer organisations when mismanagement or corruption occurs met with widespread audience approval.

A “nerve centre has been touched here,” noted de Jager. “Part of the reason why agriculture in Africa is not bankable is because of governance issues.”

Development partners should direct investment towards improving the quality of farmer organisation leaders, he argues. “The resources are not there to do it ourselves. There is no better investment than in human capital.”

Partners with the same fate

Ultimately, banks are there to make money, farms are there to make money, and corporate responsibility can form a bridge between them, concludes Nyoro.

Agriculture is poised to become the world’s most vibrant agricultural producer – a sector that banks can no longer afford to ignore. Getting all the above right is as much in financiers’ interests as in farmers’.

As de Jager says, “We are going to swim together or we are going to sink together… Our fate is in the same boat.”