Agri-Africa 2018-19: Farmland investment opportunities in Africa

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Knight Frank | December 2018

Agri-Africa 2018-19: Farmland investment opportunities in Africa

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A GROWING OPPORTUNITY
 
Knight Frank’s Head of Rural Research Andrew Shirley looks at the case for investing in African agriculture

I had a farm in Africa. This simple yet evocative sentence opens Out of Africa, the memoir of Karen Blixen (immortalised by Meryl Streep in the film of the same name) that charts her life in Kenya between the two world wars. Blixen’s coffee farm in Karen, now an affluent suburb of Nairobi, failed to prosper due to poor planning and basic agronomic mismanagement.

Today, the allure of African agriculture remains strong, attracting private, institutional and sovereign capital from around the world, but the lessons of Out of Africa remain as salient as ever. Expert advice and preparation are key to success for those who want to benefit from the myriad opportunities offered across this vast continent. This report highlights briefly some of those opportunities and illustrates how Knight Frank can help investors to make the most of them.

So why choose African farmland? Demographics are an obvious starting point. The world’s population is growing and, by and large, becoming more affluent. By 2050 it is predicted that there will be over two billion more people on the planet than there were in 2015. However, this growth will be far from uniformly spread. The population of Europe, for example, is set to decrease. Africa, by contrast, is forecast to account for over half of the rise with 1.3 billion new mouths to feed over the next 30 or so years.

In addition to this significant rise, a far higher proportion of people will be living in cities and unable to grow their own food. The annual retail value of food and beverages consumed in Sub-Saharan Africa is set to rise to one trillion dollars by 2030, up from around 300 billion in 2010, according to figures from the World Bank. Of that total, well over 50% will be spent in urban areas. In 2010 it was around a third.

Not only are higher-value food stuffs like meat set to see the biggest rise in demand as living standards increase, but consumers are increasingly looking for value-added and branded products across all food categories. As illustrated on page 9, this trend offers opportunities for investors across the entire food chain, not just primary crop or livestock production.

“Sovereign and family office investors are attracted to African agricultural and food chain assets as rising standards of living and population growth are driving a 5%-8%
CAGR in domestic demand for food, whereas growth in most of the developed economies is quite flat at 0%-2% CAGR.” says Tim Pollock, CEO of agribusiness investment advisor, AgCap.

Africa certainly has the resources to deliver the food required to feed its growing population – the continent has more uncultivated land suitable for crop and livestock production than any other region of the world and utilises only 2.5% of its renewable water sources, compared with 5% worldwide – but agricultural productivity has largely been flat-lining and food selfsufficiency has declined with food imports rising. This, despite the Maputo Declaration of 2003 and the Malabo Declaration of 2014 when African nations pledged to commit 10% of national spending to agriculture.

Few countries have come close to achieving this target and a number are increasingly looking at overseas investors to drive the required increase in food production and reduce their reliance on imports. A number, as shown on page 6, offer tax and other incentives to promote inward investment.

Despite accusations of land grabbing from some quarters, Willem Janssen, a Lead Agricultural Economist for the World Bank, says private investment into Africa, if done in conjunction with local farmers, should be encouraged. “The bank in general believes that the private sector is key to overall development. A thriving private sector creates jobs and goods.”
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