Ag Funder News | 5 Feb 2024
African Agriculture talks alfalfa farming and boosting food security in the continent’s Sahel region
Food insecurity is a perennial problem for the Sahel region in West Africa.
The area is highly vulnerable to climate change, with temperatures increasing 1.5 times faster than the global average and intense periods of rainfall and drought growing more extreme. Armed conflict and economic shocks have also risen, making both development and peace some of the region’s biggest challenges.
African Agriculture, Inc. (AAGR) aims to address these issues by transforming the Sahel’s beef and dairy industries through the production of animal feed, specifically alfalfa. A 2,000-year-old crop, alfalfa is also one of the highest yielding vegetation-based protein crops.
“We are on a mission to provide food security by ensuring access to feedstock, dairy and animal protein,” Alan Kessler, AAGR CEO, tells AgFunderNews.
AAGR owns extensive farmland in Senegal totaling 25,000 hectares and is already utilizing about 750 acres in the production of alfalfa. Currently, the firm has a production capacity of about 1,000 tons a month; it aims to reach 2,500 tons by mid-2024 and grow substantially in 2025.
‘The Nasdaq listing will be instrumental’
In future, AAGR plans to scale up production and expand to Mauritania and Niger. These two places are key to capturing a meaningful share of the global alfalfa market projected to reach $35 billion in 2028.
To do so, AAGR reckons that it needs substantial financial resources. The firm merged in late 2023 with 10X Capital Venture Acquisition Corp. II, a publicly traded special purpose acquisition company (SPAC). The merger culminated in AAGR listing on the Nasdaq, unlocking $7 million in new capital.
The amount, however, was significantly short of the $40 million the firm was seeking to raise.
Going to the market was the better option for AAGR owing to the fact that rising interest rates, high inflation and other macroeconomic upheavals have brought about challenges in raising capital, particularly from venture capitalists and private equity.
“Financing has been a big challenge for us,” says Kessler. He notes that the Nasdaq listing will be instrumental in exposing the firm to institutional investors, something that has been under-indexed for most countries in Africa (excluding South Africa).
The new capital will enable AAGR to focus on growth in a region where demand for alfalfa is huge. The firm estimates that Sahel is home to about 200 million herds of cattle, which offers a vast market. AAGR also has plans for exports, with a keen eye on North America with about 90 million cattle.
‘Sustainable management of water is part of our long term goals’
AAGR chose Senegal as its first location, zeroing in on a spot where the 1,086 kilometer Senegal River outlets into the Atlantic Ocean. The country’s dry conditions make it ideal for alfalfa production, which is a critical input for livestock in the country and cheaper than in other global markets.
Alfalfa cultivation also requires large volumes of water, another reason for starting with Senegal. Currently, AAGR requires about 1,900 millimeters (mm) of water per annum. While it gets about 400mm from rainfall, 1,500 mm comes from the Senegal River through irrigation.
Notably, AAGR carried out extensive feasibility studies, some of which have involved sustainable management of the river’s water resources, which are also the lifeline of local communities. From these studies, the firm determined that the water it would need would not exceed 3% of the flow of the river.
“Sustainable management of water is part of our long term goals,” states Kessler.
This is even more critical considering that local herders and pastoralists communities are contesting the ownership of at least 20,000 hectares located at AAGR’s Les Fermes de la Teranga (LFT) farm. The land, formerly part of the Ndiaël nature reserve, was declassified in 2012 and has been stuck in controversy since then.
According to the listing prospectus filed with the U.S. Securities and Exchange Commission in August, 2022, AAGR’s right to utilize the land is granted pursuant to a presidential decree controlled by its wholly owned subsidiary, Agro Industries.
While AAGR has no reason to believe that Senegal will terminate the decree, the country has the right to modify, curtail or terminate it without prior notice, an eventuality that could result in the loss of anticipated future revenues.
“In the event of any such termination or modification, we may not be entitled to recover any of our incurred or committed costs relating to the development of the LFT Farm,” disclosed AAGR in the prospectus.
‘Farmers are getting good returns’
Preparing the land in Senegal for commercial operations also included conducting soil analysis and considerable investments in infrastructure, machinery, seeds and inputs.
AAGR has been keen to utilize technology like data management tools to enhance efficiency, something that has been central in optimizing yields. These investments were necessary in guaranteeing farming and production of alfalfa with the highest degree of yields and nutrients.
Having launched commercial production in 2022, AAGR is already having a huge impact among dairy farmers in Senegal in terms of the cost benefits of the product.
Though when taken in isolation cattle feed is expensive, the firm contends that for every dollar spent on alfalfa, farmers add 22 liters of milk productivity per cow daily. This roughly equates to $6-7 of incremental revenue at a local pricing for milk.
“Farmers are getting good returns,” says Kessler, adding the ripple effects are evident in terms of economic empowerment of the local community and increases in dairy and beef exports.
AAGR reckons that it has managed to develop a highly efficient and scalable operation that is poised to capture a meaningful share of the global alfalfa market driven by increasing production on the existing farmland in the medium term.
“Agriculture creates jobs, has a multiplier effect on the economy, brings food security and drives many other industries,” explains Kessler.
This understanding has enabled AAGR to work in close collaboration with the government and local communities in areas like sustainable land development, employment, health programs, educational support among others.
The firm is not only an active employer but is also a big supporter of social programs including sports, maternal health programs and schools where if funds repairs and donates computers.
Going forward, AAGR believes that, owing to its close working with local communities, its model is bound to evolve from being a solely private sector commercial entity to becoming much more of a private, public and community collaboration.
“Our Nasdaq listing means we have to work to create and drive value for our shareholders,” says Kessler.
The success of AAGR operation in Senegal is already attracting competition, with more companies venturing into commercial alfalfa farming. Unperturbed by this, the firm believes its strong foundation gives it an edge.