Worldwide: Agribusiness In Africa, Status And Way Forward

Last Updated: 9 April 2019
Article by Leïla Hubeaut and Alexis Giroulet

Agribusiness is a broad concept which covers all actors and stakeholders involved in the agricultural value chain, from input suppliers to agro-processors but also traders, exporters and retailers. Hence, agribusiness encompasses both the farming and all other industries and services which constitute the supply chain from farm, through processing, wholesaling and retailing, to the consumer.

As disposable income, living standard, population, urbanization, foreign direct investment and food consumption are on the rise across the African continent, agriculture and agribusiness together are projected to be a US$ 1 trillion industry in Sub-Saharan Africa by 2030 – compared to US$ 313 billion in 2010.

Moreover, the political landscape is favorable to the development of agribusiness in Sub-Saharan Africa since most countries have made fighting hunger a priority in accordance with the 2003 Maputo Declaration. Although non-binding, this declaration fostered reform in the agricultural sector, setting broad targets of 6% annual growth in agricultural GDP and an allocation of at least 10% of public expenditures to the agricultural sector. As a result, on average, public agricultural expenditures have soared by more than 7% per year across Africa since 2003.

Investment opportunities also lie in the current untapped potential of African agribusiness, which has yet to know an agriculture revolution. Nearly 600 million hectares of uncultivated arable land can be found in Africa, which would allow tremendous development opportunities. Moreover, bringing African's agriculture to modern production standards represents a unique challenge. Mechanization, although an essential tool to improve productivity also remains very low, with West Africa featuring only 13 tractors/100km2 of arable land. This being said, in a global context where environment protection and climate change have become major issues, the development of Africa's agribusiness potential needs to be sustainably thought of to take into consideration today's imperatives of fighting climate change and preserving the environment.

The above figures highlight the paradox of investing in African agribusiness. On the one hand, the potential of agribusiness represents a multi-billion dollars market while, on the other hand, such figures provide an illustration of the structural complexities which could make it difficult for industry players to invest in Africa. Although appealing, these figures should not lead investors to follow an Africa-wide one-size-fits-all approach but rather a tailored country focused approach, taking into account regulatory, economic and infrastructure environments. Local markets greatly vary depending on geopolitics, infrastructures, supply-chain, land access and financial related matters.

This note summarizes the main legal challenges to agribusiness in Africa.

Developing key infrastructures through better PPPs and corporate PPAs

Between 2004 and 2018, more than 30 African countries have enacted laws governing PPPs. Such PPP frameworks are key to achieving infrastructure development which is paramount to unlocking Sub-Saharan Africa agriculture potential.

The lack of road, rail, port and airport infrastructures hinders the local and international marketing of agricultural products. The absence of a reliable electricity production and distribution network, and frequent electricity shortages, lessens the capacity to preserve fresh products, whether processed or not, and hence the ability of producers to meet the highest standards of hygiene and quality which are required to export such products.

Electricity generation and distribution capacities are key infrastructure to develop agribusiness in Africa and the lack of reliable access to affordable energy can be a significant impediment to investments in agribusiness. Such situation incentivizes stakeholders to explore alternative ways to secure access to power. In addition to PPPs and public utilities, other options can be explored to achieve reliable energy sources. Corporate PPAs are contracts under which a private entity purchases electricity directly from an energy producer. Hence, corporate PPAs differ from the traditional approach under which electricity is bought from licensed electricity suppliers. In Sub-Saharan Africa, corporate PPA are already used by large customers such as mines which have long been accustomed to generating their own power. Whether on grid or off grid, offsite or onsite corporate PPAs could be an innovative solution allowing agribusiness stakeholders to secure access to a reliable electricity source.

Towards a cooperative approach for developing agribusiness projects

Partnerships between the for-profit/non-for-profit private sector and public entities, although not technically PPPs, can be vectors of investment and opportunities in agribusiness. Such bipartite or multipartite agreements can offer useful mechanisms for risk sharing through which the barrier to market access for investors can be lowered. They can provide greater certainty for investors and can help overcoming the lack of an enabling regulatory environment, especially when a combination of market incentives and institutional mechanisms are merged into such agreements.

Such partnerships can be used to invest all along the agribusiness value chain and on a great variety of scales of investments in Africa. Recent examples ranged from US$200,000 to set up a laboratory for production of organic fertilizers in Kenya to US$156 million to increase domestic vegetable oil production in Uganda.

Securing access to land

Land registration in Africa is still at low levels which makes it cumbersome and expensive for investors to secure access to land. Only 10% of rural land are formally recorded which imply that the remaining 90% is held under customary law. Africa's land tenure instability results in high transaction costs and lack of transparency. Indeed, even for registered land, transferring it to investors is costly and slow. It takes twice as long and costs twice as much to transfer land in Sub-Saharan Africa than in OECD countries. Improving land policies is absolutely necessary to enable farmers to have access to land to for agribusinesses to acquire land for building purposed. Land can also be offered as collateral by landowners wishing to access financing.

Several examples across the continent highlight that some African countries are using their best endeavors to address land registration issues. Following the completion of their national land certification programs, Rwanda and Mauritius have computerized their land administration systems to improve efficiency in land transactions including land transfers and mortgages. As a result, in 2015 it took 32 days to transfer land in Rwanda and 14 days in Mauritius compared to 57 days for Sub-Saharan Africa and 22 days for OECD countries.

A growing population coupled with increased incomes places more pressure on available land for agricultural production. Land conversion can result in significant environmental damage, and it also raises human rights issues. Agribusiness investments might involve expropriation of local communities and resettlement of such populations. In addition to applicable legal frameworks in each jurisdiction, investors may also abide by expropriation and resettlement guidelines issued by the World Bank.

Enhancing added value through the value chain

Agriculture amounts to nearly 16% of Sub-Saharan Africa's GDP, with 51 million farms of which 80% are smaller than 2 hectares. Nonetheless, far from fully exploiting this potential, Africa continues to be highly dependent on food imports. Such imports amount in aggregate to around US$35 billion and this figure is expected to increase to US$110 billion by 2025. Similarly to what can be observed in the oil and gas or the mining industry, it is striking to notice that Africa exports raw agricultural material on the one hand but, on the other hand, imports transformed or refined food products. Hence, the entire agricultural value chain needs to be transformed for the sector to reach its full potential in Africa.

At the end of the value chain, exporting mainly raw products instead of more valuable processed products is refraining the development of a prosperous and inclusive agriculture sector although several local impediments can explain this situation such as the lack of transformation equipment, infrastructures and financial resources.

For Sub-Saharan African countries to be able to derive more added value from their agribusiness industry, the development a chain of stakeholders able to transform and process raw products locally is required. Several key industry players have already pledge to take their parts in this process. For instance, in 2014 Sodexo committed US$1 billion in spending to bring more micro-, small-, medium-sized enterprises, into its global supply chain, and in 2011 Heineken committed to locally sources 60% of the raw materials used in its African beer brands by 2020.

Local transformation of raw products would strengthen the network of stakeholders involved all along the agribusiness value chain and would benefit the greater African economy, through job and businesses creation and greater tax, wider economic impact and tax benefits for host States.

Access to inputs and fertilizers

The lack of productivity-enhancing inputs severely impedes African's agriculture from reaching its full potential. Increasing access to and use of efficient inputs, either seeds or fertilizer, by local farmers requires initiatives at several levels. Once more, this needs to be balanced with today's global imperatives of environment protection and human health. Enhancing productivity should hence be done as sustainably as possible.

Access to financing is also key as small farmers may not have access to the financial resources needed to buy such inputs. For instance, the IFC and the FAO proposed innovative financing solutions. Crop receipts are pre-harvest financing instruments issued by farmers and which are collateralized against the crops under production. The IFC and FAO have launched feasibility studies for the using of such crop receipt financing in Zambia and Uganda.

Regulating input markets is also important to ensure minimum quality and safety standards, especially given that compliance with American or European standards will impacts producer's ability to export their products to foreign markets. Additionally, to preserve the environment, certain types of inputs need to be used wisely and require a clear regulatory environment.

Agribusiness and Human Rights

Human rights are often at risks along the agriculture supply chain. In an environment where the way how companies and investors are dealing with human rights is subject to high scrutiny, the impact of an investment on human rights should be thoroughly assessed.

The agriculture supply chain is labor-intensive and often occurs in seasonal cycles, during which temporary and migrant workers are required. Temporary workers are often employed with short-term contracts which do not always include protections or benefits provided to full-time workers. Moreover, according to estimates from the International Labor Organization, 70% of child labor (around 108 million children) is concentrated in the agricultural sector.

Women's formal and informal work plays a crucial role in the economic development of Sub-Saharan African countries. With more than 64% of women working in the agricultural sector women are the backbone of African rural agriculture. It is estimated that they produce 80% of food resources. This high level of participation by African women in the labor market comes with challenging working conditions. In 2008, only 15.5% of women of active working age were employed. Not only are they discriminated against in the labor market, but their access to land is limited.

Whether it is about gender equality or child labor, investors should be cautious and run a human right due diligence over the development phase of the project and work with their counterparts to mitigate the risks, for instance in partnering with local partners or non for profit to create programs ensuring that children attend school instead of working in the fields.

Agribusiness' environmental impact

Agribusiness value chain is a significant producer of greenhouse gases and an important consumer of chemical inputs and of natural resources. For instance, accounting for approximately 70% of the world's water use, agriculture's impact on the availability of clean water is significant. Agriculture-based economies are completely dependent on water resources for economic production. Hence, in such context, the social, economic, financial, regulatory and reputational risks associated with a deteriorating environment are significant and should be taken into account by investors prior to any investment decision.

When considering where to invest, stakeholders should consider carefully the environmental impact of their contemplated investment, whether on water resources or on other aspects such as the use of primary forests or natural areas. Additionally, many lenders will require compliance with their environmental requirements. For instance, a number of commercial banks require compliance with the Equator Principles.

Finally, taking into account the fact that agriculture and land-use change are today's major emitter of greenhouse gases and hence significant contributors to global warming, the development of agribusiness needs to be balanced with the imperative of reducing the agriculture's sector carbon footprint.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions