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Agricultural Infrastructure: A Guarantee to Job Creation, Poverty Reduction and Food Security

By Russell Duke & Michael Tichareva
01 July 2015   |   1:42 am
When we talk of infrastructure development, agricultural infrastructure is often the least mentioned, if mentioned at all! It’s not a surprise as people love to talk about power, roads, rail, airports, ports etc. It’s considered “sexy” to talk about these others, yet when we talk we forget that our tummies are full from agricultural produce! We forget, right?

Farmers---CopyThe Agricultural State of Affairs
When we talk of infrastructure development, agricultural infrastructure is often the least mentioned, if mentioned at all! It’s not a surprise as people love to talk about power, roads, rail, airports, ports etc. It’s considered “sexy” to talk about these others, yet when we talk we forget that our tummies are full from agricultural produce! We forget, right?

The agricultural industry is often viewed backwardly with most young men and women who often grow up in abject poverty in rural areas preferring to migrate to cities where life is viewed as better but only to find out that it is actually often tougher.

At least we know a few food specialists, chemical engineers, agricultural engineers, agricultural economists, farm managers and commercial farmers and we can attest to the amazing work they are achieving in this industry.

The agricultural value chain is actually much more complex than one may think, especially when it extents to value adding activities of agro processing or food processing.

It is the back bone of many other secondary industries in many economies, especially the beverages and food sectors, and large companies have been built with agriculture as a base. Even Aliko Dangote, Africa’s richest man estimated to be worth close to U.S.$20 billion, has sugar and flour divisions, both derivatives of agricultural products, as key revenue generators within the Dangote Group.

Even the international conglomerate, Anglo American, was built on the basis of agriculture and mining interests. In most of Europe, North America, Russia, China, Brazil and many other successful countries around the World, industrial revolution was preceded by agricultural revolution. It had to be in that order. Once again, we forget the importance of agriculture!

Africa has large tracts of land, most of it very fertile, under-utilised and with great potential to feed the whole World. What we need is enabling infrastructure to unlock that potential, and to get the infrastructure in place, we need an enabling environment.

Agriculture is already a major employer of many people in Africa, contributing up to 60 % of the labour force in some countries, and between 40% and 80% of the total population reliant on agriculture across various countries.

The problem is that large scale commercial farming is small in the bigger scheme of things and concentrated in a few areas, surrounded by many small scale farmers who often engage in subsistence farming, generally not professionalised and achieving very low yields and incomes.

If agriculture is professionalised, and small scale farmers assisted and commercialised so that they make more meaningful and decent earnings, a lot more can be achieved. It means real problems facing the sector can be dissected and investment in appropriate infrastructure to address such problems increased. It means sustainable cities and economies can be created within agricultural hubs and there won’t be need for migration to large cities. It means industrial hubs can be created and the service sector can be developed with more supporting infrastructure around agricultural hubs. It means unemployment can be reduced and poverty reduction can be accelerated. We need agricultural infrastructure to do that and someone must take the lead.

Innovative approach
When we say high impact investment, we really mean it! We are sophisticated institutional investors, but we do not forget the basics as they are the building blocks. The Africa operations of National Standard is doing exactly that in South Africa, developing a model to develop small scale farmers that must be supported by sophisticated agricultural infrastructure. For success, it has to be operated across the whole agricultural value chain, including agro-processing. If successful, the model can be replicated in virtually every country in Africa, including Nigeria, and across the World. We have had discussions with a number of DFIs and they have shown great interest in the model, but it’s still not proven on any large scale, and its work in progress.

We were inspired by the Jobs Fund of the Government of South Africa acting through their Technical Advisory Centre in the National Treasury Department. They essentially created an enabling environment by encouraging private sector participation through matched funding support that must be secured through a competitive application process. We are told only projects showing the best potential will succeed. The aim is to encourage innovative and sustainable solutions towards enterprise development, in this case the development of small scale farmers and ultimately creating sustainable jobs and reducing poverty.

In view of the Jobs Fund initiative, National Standard partnered with a local commercial farmer, Johan Tijssen of Dicla Farm & Seeds (“Dicla”), in 2014 to develop a model for the development of small scale farmers. This is underpinned by strong risk management and sustainable farming practices, including implementing green initiatives. As a start, we looked at problems facing small scale farmers across the agricultural value chain. These are widespread, including lack of farming skills, lack of business & financial skills, poor access to cheap inputs, poor access to finance, lack of infrastructure & skills to manage and maintain the infrastructure, and poor access to market among many other factors.

We went on to note that the largest investment was actually required in agricultural infrastructure including livestock handling facilities, green-house tunnels, irrigation facilities, pack-house & storage facilities and other supporting infrastructure such as power, logistics and houses for workers. This has to be done in a coordinated fashion. We chose Pinocchio Farm, operated by Dicla, as the centre to hold these assets centrally for the project to support small scale farmers.

The model aims to leverage the already well-established Pinocchio brand in the market in addressing the challenges across the value chain. Other partners will be brought in as required, especially when it comes to specialised activities such as constructing and operating an agro-processing plant as beneficiation is a key element of the project for sustainability.

Dicla, a very experienced and successful commercial farming operation in its own right, applied to the Jobs Fund, with National Standard support, for 40% of the funding for the U.S. $40 million project and the partners will provide 60% matched funding. If successful, this will be a catalyst to new ways of developing agriculture in Africa based on sustainable farming practices and partnerships that involve small scale farmers as sustainable business units. It is still early stages, but we work on the basis of a glass half full rather than half empty! Optimism breeds innovation!

National Standard has led the initiative with an initial funding pledge of U.S. $25 million for the 60% balance of the funding, subject to the Jobs Fund application succeeding and our other conditions being met. The Jobs Fund will do well in providing matched funding of U.S. $15 million, but as we must still have guarantees for the balance of the funding, we will partner with a local bank being engaged to potentially provide a letter of credit to secure our funding. We are also currently investigating various insurance guarantee solutions in the international market.

Given the high development impact that this initiative is likely to have, if we succeed with the Jobs Fund application, we anticipate great interest from many other players and potential funders who have already been engaged and who have indicated may want to participate with us so that we can scale up the operations and replicate across South Africa and hopefully the rest of Africa, of course Nigeria included,