Wednesday
April 11
2012

Amon Anderson

Mapping the Agriculture Sector

Editors note: This post was originally published on the Acumen Fund blog.

The agriculture sector in Sub-Saharan Africa and South Asia is expanding as population continues to grow and demand for food increases in-step. In Sub-Saharan Africa, relatively large tracts of arable land are attracting investors seeking to establish large-scale mechanized primary agriculture production while smallholders’ productivity remains relatively low. In many cases, smallholder farmers are under increasing land pressure as they subdivide small properties among their family. But as these plots are subdivided, many young would-be farmers find agriculture to be a decreasingly compelling value proposition and look to urban communities for other opportunities.

Against this backdrop, there is real innovation that is accelerating smallholder farmers’ ability to close the production gap and improve their ability to achieve real market returns for that which they produce. Acumen is committed to making investments that improve smallholders’ productivity and their access to markets which, we believe in turn, will help to address issues of local food security for farmers and their families, and issues of national food security that affect these rapidly growing geographies.

Acumen’s work in the agriculture sector is led by deep on-the-ground experience in West Africa, East Africa, Pakistan and India. Working together, this sector team began to first focus on the issue of agricultural inputs. Our first investments in the agriculture sector — Jassar Farms and Western Seed — reflected this focus. Maize farmers in Kenya are five times less productive than their fellow farmers in Iowa, and dairy farmers in Pakistan produce over six times less milk than their counterparts in the US. Lack of access to inputs is one key driver behind this, and Western Seed, Jassar Farms and others are working to innovate on product development and distribution to help bridge the productivity gap.

As we built out our work in agricultural inputs, we came to understand that farmers do not necessarily adopt productivity improving inputs just because appropriate technology exists and is available. Farmers are often reluctant to make an investment in a new technology due to a skepticism that fair markets will purchase the agricultural goods that they produce. Many farmers sell to middlemen, and for years unscrupulous brokers have taken advantage of farmers — sometimes offering a price to farmers at their farm-gate that is three times lower than that being offered at the market center. These middlemen use the advantage of transportation and market pricing knowledge to put farmers in a price-taking situation. Farmers are in need of the cash, and they understand the risk of leaving crops and produce on the farm, so dominant logic often forces them to sell. Reflecting on this, our agriculture team began to explore how investments in innovative and responsible agricultural processors could help change the way markets work in rural communities. With investments in Gulu Agricultural Development Company in Uganda and GADCO in Ghana, we are seeing the potential to dramatically change the lives of thousands of smallholder farmers.

In addition to agricultural inputs and agricultural markets, there are important cross-cutting business models that help to stitch together an effective agricultural value chain. Chief among these are access to finance and access to information. Acumen has also explored business models that provide farmers with the information to chose the right agricultural strategy, the financing to purchase inputs and agricultural assets, so that they can close the productivity gap and access responsible markets for their produce. Acumen has made investments in Juhudi Kilimo (Kenya) and NRSP (Pakistan) that are helping to change the way that farmers access capital and assets, and we are seeking to explore investments in the agricultural extension space as well.

Moving forward, Acumen will continue to seek investment opportunities in the agricultural inputs, agricultural processing, and livestock value chains, as well as other cross-cutting technologies such as financial services at agriculturally oriented IT business models. Agriculture has been one of Acumen’s fastest growing portfolios in recent years, and we are excited to continue this growth in the years to come.

Categories
Agriculture, Entrepreneurship
Tags
Acumen Fund, agribusiness, farmers, SME