Africa: The Bread Basket of the World

Africa well poised to emerge as the the future breadbasket of the world...

IWith rising world population and an imminent danger of food shortages in the future, Africa is well poised to become the global breadbasket and emerging as a major supplier of food.
Africa undoubtedly holds large chunks of open, arable land that is being seen as a source of future food supplies for the rising population of the world.

Over the few years, private investors and foreign governments have acquired thousands of acres of farmland in Africa in a bid to protect their countries against future food shortages.
Investors from Saudi Arabian investors have leased large tracts of farmland in Ethiopia. China, on the other hand, has invested $800 million in the production of rice in Mozambique. Even Jordan has leased many hectares of land in Sudan for rearing livestock and growing crops. South Korea plans to develop 100,000 hectares of farmland in Tanzania, at least half of which will go for raising grains and producing processed food such as cooking oil and starch.

India too has joined the bandwagon – more than 80 Indian companies have invested more than $2.4 billion in buying or leasing huge plantations in Ethiopia, Kenya, Madagascar, Senegal and Mozambique to grow food grains and other cash crops for the Indian market.
Africa has about 60 per cent of the world’s unused cropland that can be used for farming and can create upto 8 million new jobs between now and 2020.

However, in Africa, land has been a root cause of many social and political upheavals. Zimbabwe, for instance, was considered the bread basket of Africa – with one of the most fertile lands on the African continent – exporting wheat, tobacco, and corn to the rest of the continent and beyond. However, most of the farming till a few years back was in the hands of white farmers – 4,000 of whom owned almost 70 per cent of the fertile land in Zimbabwe.

All that changed in 2000 as President Mugabe blamed the white farmers for social and economic inequality and undertook fast-track land reforms, which literally meant confiscating the farms and redistributing them among the rural peasant population. Mugabe justified the redistribution of land by saying that white settlers had stolen the land from blacks, so they were simply taking back what was rightfully theirs.

The African Green Revolution Forum (AGRF), which was held in Arusha in October 2012, was also in favour of providing support to the smallholder farmers who grow 80 per cent of food consumed in Africa. The conference ended with a pledge to devise a concrete plan to transform Africa’s agricultural sector – which provides livelihoods to 70 per cent of Africa’s population – through the active involvement of the private sector in crop production to support Africa’s smallholder farmers.

“More and more, the world will look to Africa to be its breadbasket, and I hope that when the world looks… it is Africans and African farmers who will profit from becoming the world’s breadbasket,” said Hillary Clinton during her recent visit to Africa.

African Advantage
So what drives the interest and action in acquiring land in Africa? The answers are many – the primary being the sudden rise in foodstuff in 2008, particularly the soaring cost of foodgrain and edible oil. When that happened, several food-exporting countries, in an effort to prevent inflation in food prices and wide spread public unrest, imposed bans on food exports. These bans took large amounts of grain and edible oil off the global market, worsening the food insecurity of food-importing nations dependent on such staples and also damaging the business models of agri-business companies and intermediaries that are active in agri-commodities trading. Today, while prices are seen to have stabilised (albeit at higher levels), food costs are still high and commodities markets remain unpredictable.  

Developing countries also face other factors such as topsoil loss, water shortages, new crop diseases and pests brought on by climate change. That’s why, in order to avoid the high costs, supply shortages and general volatility that plagues global food imports, countries and their agri-business proxies are bypassing world food markets and instead seeking land overseas to use for agriculture. According to the plan, crops harvested on this land will be sent home for consumption, or processed and re-exported to other countries.

Investment Schemes
CRU, a small fund management firm, recently launched a Malawi-based fund called Africa Invest. The retail-orientated fund can be accessed for as little as £4,000. The fund made an initial investment of £2 million in 2,000 hectares of land that’s producing paprika for western supermarkets. With land prices starting at £800 per hectare it’s relatively easy to amass large farms that can be upgraded with new technology, mechanisation and better production methods. Annual returns on capital are expected to exceed 30 to 40 per cent.

A much larger version of this scheme is being marketed by hedge fund Emergent. It’s targeting a total return of 400 per cent over the next five years, partly due to the phenomenal rising land values, investment in better technology to improve productivity and the introduction of a new form of farming called no till agriculture.

Why farm in Africa
There are various factors driving the ‘outsourcing’ of domestic food production to Africa. Among these are stagnation or drop in crop yield due to “green revolution fatigue”, government’s concerns related to long term food security besides the allure of much cheaper land and more abundant water resources in African countries.

The subsidies being offered by governments of African countries is another enticement. In many cases, companies have been offered special incentives, including the offer to lease massive tracts of arable land at very generous terms with access to water and the ability to fully repatriate the profits. On the other hand, the rising cost of farming in other parts of the world is also driving many companies to Africa.

“The cost of agricultural production in Africa is almost half that in India. There is less need for fertiliser and pesticides, labour is cheap and overall output is higher,” said one farm owner from India.
Recent offers by African governments allow foreign farmers to acquire much larger tracts of contiguous land on lease for 50 years, and in some cases even up to 99 years at throwaway prices. “The land lease rate in India’s state of Punjab is a minimum of $760 per acre,” said a report in an Indian newspaper. In contrast, in most African nations, the land lease rate works out to a mere $13.30 per acre. This means that for every one acre in Punjab, Indian investors can own 60 acre in Africa,” concluded the report.

Land in Africa
Many governments in Africa are offering excellent incentives and tax exemptions in an effort to attract foreign investors in the agricaultural sector:

Sudan: The new policy explained by Dr Samson Kwaje, Minister of Agriculture and Forestry of the Government of Southern Sudan, involves leasing (for 8-32 years) a minimum 60,000 acres of land to foreign farmers at a lease fee of amount 25 US cents/year/acre. There is no upper limit. There would be no taxes or duties on inputs and no profit tax for at least four years.

Senegal: In Senegal, land could be acquired under two different procedures namely (i) allocation of land for agricultural use and (ii) regularisation through lease (long lease). Acquisition of land through procedure (ii) would entail financial expenditure including payment of annual rents which could amount to around FCFA 20,000 per hectare (around US$ 40 per hectare per year). The minimal period for lease is 20 years extendable to 30 years and renewable to 50 years (long lease).” 

Tunisia: The foreign investor can own up to 66% of the capital. The arable land is leased and cannot be capitalised. Agricultural investments do not require a preliminary authorisation. They must be declared with the Agency for the Promotion of Agricultural Investment. Two fiscal regimes can be adopted: a partially-exporting regime and wholly-exporting regime.

Wholly-exporting entities are those that export at least 70% of their production, with the option to sell the remainder on the local market.

Full and permanent exemption from customs duty, auxiliary customs duty, value-added tax and customs tax are also available to prospective investors. The Agency for the Promotion of Agricultural Investment in Tunisia has offered about 3,000 hectares of land for commercial farming and for setting up agro-processing projects in Tunisia.”