How Innovative Farming Investment Models are Enriching African Soils

Published 2021년 5월 31일

Agricultural investment is a vital component needed to develop and organize the agricultural sector in Africa. Potential remains abundant in African agriculture, and the industry offers opportunities in production intensification and the structuring of agricultural value chains. However, agricultural investment in the continent remains weak. Most farming projects remain small-scale and lack the technological advancements necessary to result in sustainability, profitability, food security for the population, and an active agricultural sector well integrated into the economy of African countries. A growing trend of innovative investment models such as the investment fund advisory model and crowd farming models have arisen in recent years, penetrating the industry with much success.

*UFF’s Northern Cape Grape Farms. (Source: UFF)*

Investment fund advisory model

Tridge interviewed Philemon Sithole, a Sustainability Specialist at UFF African Agri Investments, to gain insight into the company’s investment strategy and agricultural operations. UFF has an investment and advisory model that differs depending on the needs of each project. Within South Africa, the company’s approach has been to purchase farmland and nominate a qualified operator for that farm and facilitate development. Following a given period, productivity on the farm is improved, and the farm is then leased to the appointed operator. UFF’s approach in other selected African countries, land tenure often takes the form of a lease. The company usually co-invests into the farming operations along with being the leaseholder. This approach allows for flexibility and enables UFF to generate profits from capital gain, lease income, and profit share. When the mandated fund term is completed, the farm may enter a new fund, be bought by the operator, or be sold to a third party.

“We are investment fund advisors. We advise over products that we are in custodianship on behalf of our investors. We handle projects from the due diligence phase into research and development and production phases and resell the project at the end of its life cycle. Usually, the investors would get a return on investment through the sale and the leasing of the property they’ve funded to develop. We advise on every agricultural asset on which steps should be taken, how to improve or mitigate certain risks that are presented along the way.” explained Sithole.

The investment fund advisory model enables all parties to benefit financially from the revenue received from exporting the agricultural produce from the farms during each marketing year.

“The revenue generated covers all the costs involved, involving the cost of purchasing the land or farm, the dividends for the fund are paid off, and UFF receives an advisory fee,” stated Sithole.

Crowd farming model

Crowdfarming is a growing agricultural investment trend in Africa, and it involves sourcing funds from several individuals to invest in smallholder agrarian enterprises. The large majority of African farmers are smallholder farmers who lack the necessary resources to grow sustainable farming enterprises, and crowd farming provides an easy, fast and realistic funding option compared to traditional fundraising. Crowdfarming agricultural models are gaining popularity in certain parts of West Africa. In Nigeria, crowdfunding platforms target financial investors who are mostly educated individuals living in urban areas or the diaspora. Farmcrowdy is a crowdfunding platform in Nigeria that assists rural farmers by providing them with improved seeds, inputs for farming, training on current farming techniques, and facilitating a market for the sale of their produce. This gives the farmers the capacity to farm more acres and, by extension, leads to increased food production and security in Africa.

Implications for the future

The COVID 19 pandemic presented new challenges to the agricultural industry. Adapting to challenges is part of the investment fund advisory model, which is achieved by a team of experts (internal and external) from different focuses, creating an expert base at every level of the operation.

“Adjusting to COVID-19 during the packing season was challenging but necessary. Thankfully the lockdown took effect towards the end of our summer fruit season. We have dedicated leadership and a team experienced in dealing with the ebbs and flows that come with the agricultural industry.” explained Sithole.

Innovative farming investment models address issues such as the lack of funding by smallholder farmers and other stakeholders across the value chain. The prevalence of crowd-farming platforms, funding growers, and finding new ways of supporting the whole value chain has positively affected farming in the continent. The outbreak of COVID-19 rattled the cage of global agriculture, with many farming enterprises incurring losses. However, farming investment models such as crowd farming offer better security, as the emphasis is on sustainable agricultural practices that are better suited for environmental and economic shifts. Contributors to models such as crowd farming and the investment fund advisory model are becoming increasingly aware of the inherent flaws of African agricultural systems. They are also aware of the effect of farming practices on climate change and the support needed to fund local foods grown sustainably in a way that provides added resilience to the impacts of climate change.