Agribusiness
Many individual farmers who understood the potential of a
business-like approach to agriculture chose to get involved in
their downstream value chains and built strong commercial
operations from small beginnings. The Itau Group in
Bloemfontein, Thuso Milling in Bothaville, Vryburg Abattoir in
Vryburg, Henwil Chickens in Lichtenburg, Umfolozi Sugar Mill
in Mtubatuba, and a number of fruit processing operations were
all founded and continue to be owned by farmers.
precision farming, which is underpinned by technology.
The irony, given the importance of agriculture to the national
economy, is that all of this success has been achieved in spite
of the lack of investment in the sector. The two major sources
of funding for the agribusiness sector are still senior commercial
bank debt and retained profits. But, the general lack of
traditional debt capital market funding actually constitutes an
opportunity for investors.
As the value chains become larger and more influential, so the
calibre of management and governance within them improves,
providing comfort for investors.
One objection to investment in agriculture has always been its
tendency to lower profit margins than those in other sectors.
This is changing steadily. Since 2014, we’ve seen equity
return close to 20%.
Technology at all points
Another apparent inhibitor of investment is the lack of
supporting infrastructure for agriculture, including water supply
and electricity. Again, however, this represents an opportunity
for investors to trigger expansion in the sector, especially in the
field of renewable energy and the relatively new methodology of
In fact, the introduction of technology at all points in the
value chain plays into the hands of astute investors. It enables
tighter integration of value chains, making them more efficient,
stable and resilient, thereby offering more attractive investment
vehicles. It also increases the value chain stakeholder base,
creating more linkages that can be profitably funded.
It’s also worth considering that America, China, and Europe are
in a race to gain a foothold in Africa agriculture, in the context
of it’s being the future food basket of the world. Can investors
afford not to participate in the race?
All the trends and signals for the agricultural sector indicate
a step change in its significance from that of an understated,
under managed, and under-performing area of economic
activity to one that will become a proactively dominant force in
world economics.
Agriculture will, therefore, be a space that investors cannot
ignore. Food will become an asset class its own right and one
that will directly affect humanity’s future. The role of investors in
what that future will look like will be profound.