Harry Trick
Posted on 18 Feb 2020

Impact Investing in Agriculture: how can Africa sustainably unlock its growth potential?

How is agriculture pivotal to the success of the UN Sustainable Development Goals?

The United Nations 2030 Agenda for Sustainable Development, including the 17 Sustainable Development Goals (SDGs), are global objectives that succeeded the Millennium Development Goals on 1 January 2016. The SDGs will shape national development plans over the next 15 years. From ending poverty and hunger to responding to climate change and sustaining our natural resources, food and agriculture lies at the heart of the 2030 Agenda.

In particular, a focus on rural development and investment in agriculture (crops, livestock, forestry, fisheries and aquaculture) are powerful tools to end poverty and hunger by 2030 and bring about sustainable development. Agriculture also has a major role to play in combating climate change.

Central to achieving the SDGs are businesses and the investors that finance them. The Food and Agricultural Organization of the United Nations (FAO) considers the private sector to be a "key ally" in eradicating hunger, stating: "in recent decades, the governance of food and agriculture has been increasingly transformed on a global level by new technological, knowledge-based, financial and managerial resources and innovation."

Why is Africa so important from an agricultural perspective?

FAO statistics from 2016 highlight why Africa has such an important role in the success of the SDGs from an agricultural point of view. The table below shows some key data:


Population Growth (2005-2016) (%)

Employment in agriculture (%)

Rural population (%)

Prevalence of undernourishment (%)




















[Data not provided]



[Data not provided]




Of course, it is over-simplistic to generalise across the African continent; there are significant variations in the above statistics between countries. Nonetheless, with the population of Sub-Saharan Africa projected to double by 2050, it is clear to see that a sustainable supply of food will be critical over the coming decades to avert a widespread food crisis. Balancing this alongside reducing CO2 emissions from agriculture is just one of the many challenges governments are grappling with worldwide (and not just in Africa).

Where will agricultural growth in Africa come from?

McKinsey suggest, in their recent article, "Winning in Africa's agricultural market", that the answer lies in significant investment. "Sub-Saharan Africa will need eight times more fertilizer, six times more improved seed, at least $8 billion of investment in basic storage (not including cold-chain investments for horticulture or animal products), and as much as $65 billion in irrigation to fulfil its agricultural promise. Much investment will also be needed in basic infrastructure, such as roads, ports, and electricity, plus improvements in policies and regional trade flows."

The article also stresses that the biggest growth driver is likely to come from increased smallholder productivity. Most land is managed by farmers with less than five hectares (approximately five football pitches). If these farmers are to boost productivity, economic conditions in many regions must improve significantly. Smallholder farmers often lack the risk mitigations that would make investments a safer bet. These include crop insurance, government welfare plans, guaranteed offtake, and even access to low-cost food for purchase that would allow them to focus on growing higher-value, non-food crops versus crops for their own subsistence.

Some governments are therefore trying to consolidate some of the smallholder-farmer activity to increase productivity, provide market access and reduce risk.

Further, if African agriculture is to play a greater role in supplying local food demand (and even global food demand), McKinsey notes that it will be important to improve cost competitiveness for food crops compared with major trading partners in South America and Asia. Sub-Saharan Africa has already demonstrated a competitive advantage in select "cash crops", such as cashews, coffee, processed horticulture, and tea in East Africa and cocoa in West Africa. For some of these crops, such as cocoa, Africa has the lowest cost of production in the world. The same is not necessarily true for "food crops" (such as grains, edible oils and sugar), for which yield improvements alone are often not enough to improve cost competitiveness.

The McKinsey report also analyses potential for agricultural growth across 44 countries in Sub-Saharan Africa, showing that nine countries make up 60 percent of the total potential, with three countries - Ethiopia, Nigeria and Tanzania – comprising half of that. Prioritizing geographical areas rather than fragmenting resources (especially given the significant variation in agricultural development and policy between countries) may therefore be preferable.

Growth and inequality

Nonetheless, as a Business Daily Africa report points out, GDP growth does not capture the reality of poverty and inequality, neither is it a reflection of the status of food security and nutrition at household level. Some African countries that have recently experienced high levels of economic growth also have the highest levels of inequality.

A 2019 study by Oxfam reported that inequality has reached a critical and alarming level. African billionaires now have more wealth than the poorest 50% of the continent.

The Oxfam report adds that "climate change and its associated recurrent shocks have brought a whole new set of challenges that make the task of transforming agriculture into an engine for pro-poor growth and poverty reduction even more daunting. For example, a study in Malawi found that extreme droughts cause average GDP losses of 10.4% and increase poverty by 17%, which is equivalent to an additional 2.1 million people falling below the poverty line."

Unfortunately, despite agriculture's importance in Africa's future, public investment in this sector is still low in many parts of the continent. According to the 2017 African Union Biennium Review Report on the progress toward the Malabo commitment of allocating at least 10 percent of annual public expenditure to agriculture, only 10 member states have met the target for the period 2015-2016.

In the absence of significant government intervention, the role of other sponsors such as development finance institutions, private equity houses and social impact funds will continue to be crucial in providing the required investment.

Above: Superfert Fertilizer is manufactured by Ferts, Seed & Grain (a Meridian group company) at its processing plant in Bindura, Zimbabwe.

How do impact investors view the African market?

In an interview for How We Made it in Africa, Duncan Owen, Deputy Chairman of Phatisa (a sector-specific fund manager with over $400 million of assets under management), recently identified investment in agricultural-focused technology as an untapped opportunity for private equity investors in Africa. Owen commented "for Africa to leapfrog further into the future we need aggressive investment in innovation and technology aimed at agriculture and financial products."

Stuart Bradley, Managing Partner of Phatisa, shares this view.  In his recent interview with Michelmores, he highlighted that Phatisa's African Agriculture Fund and Food Fund 2 have attracted a range of investors (DFIs, impact investors, funds of funds, family offices, banks and strategic investors) who not only wish to make a financial return but also wish to generate a measurable social or environmental impact.

On the balance between profit and positive impact, Bradley's view is that "one cannot happen without the other; we firmly believe that doing good is better business."

Meanwhile, Rosanne Whalley (Chief Executive Officer of AHL Venture Partners, a leading impact investment firm in East Africa) commented to us that "technologies such as the internet of things, improved inputs and diagnostic services, coupled with the right type of patient private capital is key to unlocking Africa's potential agricultural growth."

DOB Equity, a co-investor with AHL Venture Partners in their recent investment into Cropnuts, similarly cites technology and innovation as a key factor. "Agriculture is the backbone of African economies and contributes to over 26% of GDP in Kenya… For agriculture to be fully capitalized on, quality agronomy services should be available, scalable and affordable for all." The investment will help Cropnuts capitalise on the fast-growing demand for quality lab testing and agronomy services and help farmers "grow more, with less" across Sub-Saharan Africa.

How are innovation and technology improving farming yields?

Bradley describes Phatisa's agricultural-inputs business, Meridian, as a particularly good example of how investment has improved innovation. Phatisa's Technical Assistance Facility has promoted soil testing through a new unit established at Meridian. This unit provides data-driven recommendations for fertiliser blends, tailored to specific soil nutrient requirements, and created six bespoke fertilisers for smallholders. This has helped increase yields by between 18 to 30% at zero additional cost and has assisted to triple the company's EBITDA. In 2019 Phatisa exited Meridian in one of the largest private agribusiness deals done in Africa, delivering more than 2x multiple on invested capital and a 20 percent internal rate of return – an example of how "doing good is better business".