Old Mutual Investment Group on African Agriculture as an Investment

BEARING FRUIT: INVESTING IN AFRICAN AGRICULTURE TO HELP CLOSE THE FOOD GAP

Agriculture is fast becoming a sought-after asset class for investors. This momentum is driven by a number of compelling factors. The most pressing of these is food security.

AGRICULTURE TO HELP

By 2050 the global population is estimated to reach 9.7 billion, and the United Nations (UN) has found that a 70%¹ increase in global agricultural production is needed to ward off increased challenges to food security, which is already under pressure in the developing world

The opportunity scale  

The UN estimates that agriculture’s investment gap for the 15 years to 2030 is

US$260 billion² annually in the developing world. In Africa, which will account for 25%³ of the 2050 population and where agriculture currently employs around 65%⁴ the workforce, the theme is already in play, and eight of the 10 countries that have most grown their food sector globally, are African⁵.  

If you consider that only 7% of Africa’s 39 million⁶ hectares of arable land is under irrigation, and the potential for agriculture to alleviate both poverty and unemployment, the investment growth and impact opportunities inherent in the African agricultural sector are clear.

The good news for investors is the availability of low-valued, premium farmland and agribusinesses on the African continent, plus a shortage of locally available capital and skills. Adding to these attractions are comments by private sector Agri investors who attended the 2015 Grow Africa Investment Forum that there is significant improvement in the enabling environment, such as government policy, access to finance, and the availability of transportation and telecommunications infrastructure.

Agri as an asset class

Agriculture is an attractive option for including in a well-diversified investment portfolio and offers investors with a long-term view the following characteristics:

• capital preservation
• inflation hedging
• low to negative correlation with traditional asset classes.
• stability
• good risk-adjusted returns

So, in this low-return, low-interest rate world, agriculture could play an important role in the asset mix of a portfolio that is diversified with both risk and opportunity in mind.

Proven track record  

This graph compiled by UFF Agri Asset Management shows that over 15 years from 1999 - 2014, agricultural investments in South Africa consistently yielded a higher and less volatile return than local and international equity indices, the local bond index, and local real estate.  

Socio-economic benefit

The World Bank shows that agricultural investments have a two- to four-times⁷ greater impact on poverty reduction than investments in any other sector in terms of gross domestic product (GDP). Further, the FOA finds a positive correlation between levels of investment in agriculture, increased food security and poverty reduction in developing countries. Additionally it finds that in Sub-Saharan Africa, growth in agricultural employment accounted for half of all employment growth between 1999 and 2009⁸.

Unearthing Africa’s possibilities

Countries such as Ghana, Ethiopia and Burkina Faso have experienced rapid agricultural growth. In Ethiopia poverty has declined by 33%⁹, with agricultural growth cited as a main driver. Mali stopped importing cereal crops over the last five years and is rather planning to export 500 000 tonnes of maize to its neighbours this year¹⁰.

These cases are just the tip of the iceberg and along with the availability of arable land and rivers for irrigation, they illustrate that Africa not only has the potential to feed itself, but to also become a major food supplier for the rest of the world.

Old Mutual Investment Group, Africa’s largest private sector infrastructure investor, in conjunction with UFF Agri Asset Management has considerable expertise in unlocking the potential investment opportunity and local socio-economic benefits of African agriculture.  

Interested? For more information please visit www.oldmutualinvest.com

1. United Nations Food and Agriculture Organisation, 2009
2. The role of smallholder farmers in sustainable commodities production and trade United Nations Conference on Trade and Development 2015
3. United Nations World Population Prospects: The 2015 Revision
4. Fact Sheet World Bank and Agriculture in Africa, http://web.worldbank.org/
5.  World Bank data 2004-2012
6. World Bank/ African Development Bank’s Africa Infrastructure Country Diagnostic
7. World Bank’s Agriculture: Sector Results Profile 2014
8. United Nations Food and Agriculture Organisation
9. World Bank 2015 Poverty Assessment
10. Alliance for the Green Revolution In Africa (AGRA), Dr Agnes Kalibata, (speaking at the EU Development Days 2015)