March 2013: Volatility in the agricultural sector is expected to continue, but despite the challenges ahead, Agribusiness experts are optimistic that 2013 will prove to be a hurdle that can be overcome.
This is according to Professor Mohammad Karaan, Dean of the AgriSciences faculty at Stellenbosch University, that despite recent volatility in the commodities arena the outlook is more positive than before as agriculture in Africa will surge to take advantage of market opportunities.
“Volatility in certain commodities and a relatively short supply of basic commodities can be expected, along with labour unrests and demands, but lower yet above long-term average prices will be driven by more favourable markets and supply expansion.
“Big food producers are being encouraged to produce more so supply will be up and stock levels will be sustained. However, the trick is for states and markets to synergise efforts for greater impact and prosperity.”
Karaan says that the challenges remain in investment, developing infrastructure, advancing ecological sustainability practices while increasing production, stabilising transaction costs and recovering farm profitability, improving labour relations and overcoming political and policy difficulties.
Herman Marais, managing partner at Agri-Vie, the Sub-Saharan private equity fund investing in food and agribusiness, agrees, stating that the key lies in investor confidence based on a positive investor climate. “Investments into food and agribusiness prove that disciplines of private equity investments address rural development challenges and food security.
“With the challenges in the global food situation, the need to invest in Africa’s agriculture sector has become more imperative than ever as it contributes to creating jobs, improving the state of food security, reducing poverty, improving skills and generating income. Private equity investments in agribusiness also support infrastructure developments,” Marias adds.
Karaan says that governments must take the lead with policy transparency and consistency as well as effective incentives. “A more favourable trade regime that supports growing industries coupled with various other support mechanisms that promote labour intensive industrialisation, tax relief and lower costs for doing business are needed to help overcome the challenges.”
He continues that agribusiness leaders also need to play a more prominent role in fostering Africa’s agricultural potential. This includes positively engaging with government, being more vigilant and aware of commodity price fluctuations and global supply conditions.
“Additionally, they also need to employ smarter use of risk mitigation measures in agriculture while exercising greater influence over the value chain, which focus on value propositions in more developed markets, like South Africa, while consolidating more industrialised African locations with meaningful markets. This will lead to greater improvements in infrastructure and develop a sustainable agricultural sector.”
Karaan says that Africa can rise to the challenge. “The production potential is undoubted and expansions are already evident. The growth may be slower than expected, however, given the steep learning curve, political and infrastructure challenges.”
“Africa has more than 60% of unutilised arable land globally. Investing in vertically integrated food and sustainable agribusinesses that offers off-take opportunities to contract farmers and outgrowers goes hand in hand with technical assistance that empowers emerging farmers with know-how on good agronomic and business practices,” Marais concludes.