Africa’s share of global agrifoodtech funding remains modest, highlighting the significant room for increased investment in the continent’s agricultural technology sector.
The region’s high-risk perception is often justified, admits Hossam Allam, the founder and managing partner of Climate Resilient Africa Fund (CRAF) a venture capital fund that invests in early-stage agri-food start-ups in the continent.
Speaking with AgTechNavigator at the recent World Agri-Tech Innovation Summit in Dubai he touched on the problems unique to Africa. “We woefully underproduce our soils potential and that’s most often because the farms size is sub-viable,” he said. “If you’re a one, two or three-acre farm you’re not the sort of size that can invest in sophisticated farm technologies like automation, machinery and data. The farmer just doesn’t have any power in any trading relationship.”
CRAF is en route to closing its first $50 million fund. It has also so far invested in six companies – three in Egypt (Vias, Sea Gardner, Khitosan), and one in Ghana (Legendary Foods), Nigeria (Winich Farms) and Morocco (Terraa) – that are a good representation of the five trends on its radar: digital farmer platforms and marketplaces; novel farming technologies; new foods and biotechnology; supply chain innovations and nature and carbon data.
Farmland fragmentation and food loss
All these areas have potential to fix Africa’s unique and urgent problem of farm fragmentation, believes Allam, in which a household operates more than one separate parcel of land. Solutions are needed, he believes, that might allow large numbers of small farms to pool together to increase their collective buying and selling power.
“One opportunity is to pool or cluster large numbers of small farms together to give them some kind of collective buying and selling power or give them opportunities to extract economies of scale from their size,” he explained. “That could be through lending to them, supplying them with inputs and making them more significant in total when it comes to selling to customers.”
Another feature of Africa is the very high rate of loss of food in the supply chain. “From farm to fork there is between 20 and 40% loss depending on who you ask,” Allam estimated. “If you were to bring that loss to the plate, that would be a couple of extra countries you could feed.”
But Africa’s ag supply chain is notoriously unsophisticated and plagued with poor infrastructure, bad roads, and unstable power in many countries. These are problems that agtech alone cannot fix, but Allam makes the point there are simple solutions at the ready that can digitise the supply chain to reduce losses and bring more food to market.
“Adoption is the primary challenge because the technology that’s needed is generally not rocket science,” he explained. “But there are very clever business models needed to unlock adoption. Adoption is not a question of ‘will they’. But finding the right way to present the product to users has not been found yet.”
The global fundraising slump
Traversing the current fundraising climate is however a more difficult challenge, he tells us. Fund managers around the world are all too familiar with the “soul destroying process” of raising funds, he said with a rueful smile. “It’s long, it’s difficult.” And given Africa’s myriad of economic and political troubles, early-stage investing comes with an even greater sweep of risks.
“The vast majority of investors would not want to touch this space,” he said. “Africa is a few years slower than more developed VC markets so whereas returns might be achievable in six or seven years in more sophisticated markets, it might take 10-12 years in an African market.”
So why is he doing it? “Because I think you can make money in it,” he responded. “We think that on the timeline that it can deliver, it can still return the sorts of returns that are interesting. But there’s a belief that it will take a few generations and business cycles to get to its full potential. If you consider a five-seven-year period as being a business cycle, it might take three or four business cycles for agtech to reach its full potential. But there are still opportunities that can be found and commercialised between now and then.”
He is optimistic, for example, that carbon nature data will play a bigger role in the future than it does now, and that Africa can eventually use nature and biodiversity credits to turn its rich carbon stores into hard cash. “Funds like mine need to deliver the goods,” he stressed. “We need to find the opportunities and grow and exit them to prove that this is an investible sector in an investable geography. When we have done that more funds will pile in, and more investible founders will come out of the woodwork.”
Policy problems
But you can’t innovate yourself out of a bad policy environment. Policies are often top-down and neglect critical issues for smallholder farmers, such as biodiversity loss, environmental degradation, and soil health. Many African countries lack adequate digital infrastructure. Government-imposed internet shutdowns certainly don’t help. The lack of comprehensive policies addressing financial inclusion and rural development also limits smallholder farmers' ability to invest in modern agricultural practices.
“Africa is 54 countries and many of them have distinctly unhelpful policies and governmental models of intervention that hamper adoption of technology and crowd out the innovators,” he complained. “That needs to be addressed as well. The fragmentation of farmers and these millions of sub-viable farms are often a direct result of bad decisions by government.”
Africa, he points out, has the largest youth population and the largest number of farmers in the world. Add to the mix the largest land mass, largest coast, and largest biodiversity and it could be – more likely should be – the next global breadbasket.
But it has to feed itself first, Allam makes clear. “It has many of the ingredients to become an agri powerhouse,” he said. “But it won’t get there with the current policies and with current capacity. Something has to unlock it and it’s probably technology and policy.”
