Presentation on theme: "Threats and Opportunities for African Agro-Food Companies"— Presentation transcript:
1Threats and Opportunities for African Agro-Food Companies ByCharles AnuduManaging DirectorThe Candel Company LimitedAtThe Mazungumzo RoundtableBrussels, June 26th, 2012
2The Global Agro-Food Context The Global Economic Crisis tipped more people into poverty and hunger than could be measured.It became apparent that the world was facing a new era of uncertainty.The positive outcome is that more than ever, governments around the world are finally focusing on agriculture and taking the first steps towards long-term solutions.
3The Global Agro-Food Context (contd.) The roots of today’s food insecurity go back 30 years, when investment in agriculture started to decline.In 1979, aid to agriculture was 18% of total assistance. By 2008, it was just 4.3%.In developing countries, government investment in agriculture also fell in this period, by one third in Africa and by as much as two thirds in Asia and Latin America.In many developing countries, decreased investment was accompanied by a policy vacuum.Governments dismantled older, costly instruments that had supported agriculture, but did not replace them with new, more effective ones.
4The Global Agro-Food Context (contd.) The trend of declining world market prices has ended.Since 2000, world market prices for agricultural goods have been increasing and are projected to do so going forward as the need for food and the production capacity globally is materially distorted.Of the 20 highest increases in commodity prices between 2000 and 2009, 12 were agricultural commodities .All agricultural commodity prices will be higher on the average, in the next decade (EIU, 2010) .It is also projected that the per capita food consumption will increase significantly - especially in countries such as India and China.Lack of arable land for food production would further create food inflation .
6The Global Agro-Food Context (contd.) The trend towards bio-fuel will divert more agricultural land and other inputs away from food production.Increasing water scarcity will be a constraint to production growthThe final conclusion is that the supply and demand curve for agricultural products would be out of kilter, placing agricultural producers in a stronger position to attain higher prices for their products going forward.Agribusinesses worldwide should benefit from this trend.
7African Agro-Food context: Exciting demographics & Market Opportunities UN population statics projects the world’s population at 9.1 billion by 2050, with most of the growth in developing countries.Africa and Asia are projected to experience the largest growth in their urban populations1.2 billion more African citizens by 2050Between 2010 and 2025, 16 of the fastest growing cities in the world will be in Africa.Half Of Africa's Population Will Be Living In Cities By 2050Increasing population sizes create more demand for food, water and land at a time when agricultural land is being increasingly used for bio-fuel production.At the same time, climate change is expected to put millions more people at risk of hunger in the coming years. Half the population on every continent will be living in cities by 2050
8African Agro-Food context: Exciting demographics & Market Opportunities The rate of global urbanisation is expected to increase to 70% by 2050.Urbanisation brings major changes in demand for agricultural and food products.Urban expansion requires more food to be transported and distributed within cities and increases demand for water.Increased urbanisation implies increased demand for convenience and fast foods.
9African Agro-Food context: Exciting demographics & Market Opportunities (contd.) GDP per capita has been growing steadily since 2000.Purchasing power has increased since 1990:in 2000 about 59 million of Africa's households earned at least $5,000 -the point at which families begin to spend half their income on non-food items.With increasing numbers of Africans living in urban areas, the number of households with discretionary income is projected to increase by 50% to 128 million over the next decade.
10African Agro-Food context: Exciting demographics & Market Opportunities (contd.) By 2030, 18 African cities could have a combined spending power of $1.3 trillionIncreased wealth and purchasing power implies increased demand for meat, chicken, fruit and vegetables.Africa will have the largest working age population in the world by 2040Africa imports approximately 28% of its calorie requirementsThe major imports are wheat (58%), rice (41%) and oils (54%)Over 67% of African countries are net importers of agricultural products leading to an average deficit of $6.6 billion.
11African Agro-Food context: Exciting demographics & Market Opportunities (contd.) African agro-food opportunities extend also to providers of collateral services like finance, logistics, technology, etc.According to FAO estimates, over the period 2006 to 2050, the cumulative global investments required in Sub-Saharan Africa agriculture and downstream support services will amount to US$940 billion [in 2009 US$].
12African AgricultureAgriculture is essential for Africa’s growth and for achieving the Millennium Development Goal of halving poverty.Employs 65 percent of Africa’s labor force and accounts for 32 percent of gross domestic product.Performance has improved since 2000, but growth is not yet fast enough.Agricultural GDP growth in sub Saharan Africa has accelerated from 2.3 percent per year in the 1980s to 3.8 percent per year from 2000 to 2005.Growth has been mostly based on area expansion, but land is scarce and many countries are facing limits to further expansion.Land and agricultural productivity must increase because African farm yields are among the lowest in the world.Small or micro-scale farming is the primary source of livelihood for over ⅔ of Africans80% of smallholders in Africa own less than two hectares of landSmall-scale farmers contribute over 90% of Africa’s agricultural production
13African Agriculture: Abundant Resources - Land Africa is a continent with one of the largest proportions of arable land available in the world.16% of Africa’s land is arable, the largest share in the world79% of Africa’s arable land remains uncultivatedGiven the current production potential - many nations are looking at Africa for the production of food. Countries like and companies in China, India, UAE, Switzerland, etc have already started the acquisition of land in various African countries to plan for future shortages.However, more than 90% of African land remains outside the formal legal system
14African Agriculture: Abundant Resources - Labour Youth make up 60% of all employment in African agriculture-By 2040 Africa will be home to one in five of the world’s young, and will have the largest working age population.Women represent over 50% of the agricultural labour force in sub-SaharaIn sub-Saharan Africa, women grow 80-90% of the food but receive less than 10% of all credit going to small farmersThey also have access to only 5% of the resources provided through extension services.
15African Agro-Food context: The Biofuel Opportunity - The global biofuel sector has grown considerably since 2000, driven primarily by concerns about fossil fuel prices and availability, a renewed quest by many countries for energy independence and widespread awareness of the need to reduce greenhouse gas emissions.By 2030, growth in biofuel production will require 35 million hectares of land, approximately equal to the combined areas of France and Spain.The bioenergy market puts increasing pressure on land, water, food stocks and, subsequently, food security. The shift in land use away from food production poses a dilemma: food production versus monetary gains from bioenergy/biofuels.
17The African Agro-Food Companies According the Africa report 2011, Africa’s top 20 Agro-food companies generated $21.6bn turnover in 2010, accounted for 180,000 direct employments and operated in diverse as milling, confectioneries, edible oils, cereals, juice products, sugar, animal feed, poultry, dairy and fishing.But given the dominance of the informal sector of the economies in this region, experts estimate that the Agro-food sector accounts for approximately one fifth of GDP for sub-Saharan Africa and just under half of the region’s value added in manufacturing and services (Jaffee et al. 2003, p.2).
18African Agro-food businesses face peculiar challenges Political stabilityVaried legal systems and application,Dislocated agricultural value chains,Shallow financial markets,Shortage of management talent,Lack of appropriate technology ,Weak and uncoordinated agricultural policy and institutions, andInsufficient investment in public infrastructure & research
19Navigating the terrain: Market Access In most African countries data relating to markets and consumers are lacking. Many markets are informal and not secure in driving investment decisions.Intra-African trade remains low at approximately 12% of Africa’s total exports and imports. This is less than half of the level in other emerging market regions.Over half of Africa’s intra-regional trade occurs within SADC.European CAP has unintended consequences for AfricaThe surplus goods that are a production outcome of the Common Agricultural Policy (CAP) are preventing local farmers in some African countries from selling their own goods because European produce is sold at a lower price.Thousands of tonnes of surplus milk from the EU are dumped in West African countries at a cheaper price than local cattle owners can sell for.Chicken farmers in Senegal and Ghana which previously supplied most of their country’s demand saw their market share shrink to 11% in because subsidised imports were 50% cheaper.Mozambique loses more than £70 million a year due to restrictions on importing into Europe and with cheap European exports being dumped in the country. A reported 12,000 workers in Swaziland have lost their jobs because of the inability of local industry to compete.
20African Agro-Food Companies: Attractive Success Enablers The availability of significant portions of arable land in Sub Sahara Africa• The availability of extensive water resources in Central and Western Africa• The low levels of technological sophistication in Agriculture means there is scope for productivity levels to increase significantly• The relatively low labour base• Geographically closer access to markets in the European Union, India, China and the Middle East
21African Agro-Food Companies: Attractive Success Enablers • An increasing awareness amongst African governments to assist with inward investmentThe economic cost benefits for African countries would drive more positive socio-economic actions going forwardRural and small holder development is becoming an increasing priority for African countries.Can we creatively harness the latent opportunity in bringing this segment into the formal value chain?
22There is no better time and place to be in Agro-food business!