Why impact investors should bet on agriculture

The shock to the global food system sparked by the war in Ukraine is hitting sub-Saharan Africa especially hard. That’s because the region’s imports of commodities like wheat, maize and rice and finished food products have soared over the last few decades, reaching some $35 billion by 2020. This weakness can be transformed into a source of strength if investors recognize the enormous opportunity for domestic agribusiness companies to capitalize on Africa’s rapidly growing consumer food markets.

It’s one of those rare moments where investors can do well by doing good. They can generate significant financial returns across an agribusiness sector likely to be worth $1 trillion by 2030 while supporting domestic companies that can reduce Africa’s exposure to price volatility in global markets. Seeking out business opportunities that also provide social benefits is sometimes referred to as “impact investing”— and right now the African agribusiness sector is a bonanza for impact investors.

Photo credits: Heifer International

Donor countries and development banks have long understood that agriculture is essential for reducing poverty and hunger across the continent. Up to 98% of rural households in many countries in sub-Saharan Africa engage in farming, which accounts for at least two-thirds of their income. The sector is key for driving food security and employment. But where donors see opportunity, equity investors have frequently seen risk. In the short-term, agribusinesses require more start-up capital for new equipment, seeds and inputs. Even once the business is off the ground, unpredictable weather cycles can impact crop yields, which can mean less money coming back into the business.

This is where bold new partnerships and smart risk-taking come in. With the right mix of financial support, donors and investors can ensure agribusiness entrepreneurs in Africa can thrive and contribute to a sustainable food future across the continent. Despite solid business concepts with great impact potential, many agribusinesses in Africa lack the appropriate funding amounting to an annual financing gap of around $65 billion. Photo by Jacques Nkinzingabo/Heifer International.

Photo credits: Heifer International

If donors shoulder the risk of up-front investment, they will have a catalytic role in mobilizing longer-term financing from impact investors. For example, here at Heifer International, we’ve committed $17.2 million in impact capital to farmer-owned agribusinesses globally over the past three years, which is generating more than $69 million from external investors. Take the example of Nigerian company Kaptain Foods Limited: CEO Onyekachi Ekezie saw an opportunity. The number of middle-class Africans has tripled over the last 30 years to 313 million people or more than 34 percent of the continent’s population. Among this group, there is an ongoing shift from cooking at home to buying prepared foods and eating out – much of which remains imported foods.

Onyekachi quit his blue-collar job working offshore as a drilling engineer in the United States to move into the food processing and packaging sector. In 2015, he developed a concept to produce a blend of pre-cooked and packaged food products sourced from local farmers and producers – paying an above-market rate for their harvests. Despite a solid business concept with great impact potential, financing options were somewhere between limited and nonexistent. The annual financing gap facing agribusinesses in Africa is estimated to be $65 billion for those seeking investments between $25,000 and $1.5 million. This is where donor funds can be catalytic. Onyekachi received grant capital from USAID and Heifer International, which helped him scale operations, expand production capacity, test the market and generate revenue at scale.

Photo credits: Heifer International

Onyekachi quickly landed his name as one of the five Nigerians on Forbes’ 2017 list of 30 Promising Young African Entrepreneurs, and the company is well-positioned for commercial investment to accelerate its expansion strategy.

Today, entrepreneurs like Onyekachi are distributing wealth across the agricultural value chain. Kaptain Foods Limited is sourcing from local farmers, and it’s supporting local jobs related to processing, packaging, transporting, marketing and distribution of products. Impact investors who are seeking both positive financial returns and social impact should find African agriculture a natural fit. Working together with entrepreneurs, they can help Africa become the food basket for the world while creating well-paid, sustainable jobs for millions.

Article originally published on Heifer International.