FEATURE-Investors try new tactic with African agriculture

* TFA Fund seeks mid-teen returns in sub-Saharan Africa

* Investor money flowing into land improvement, seeds

* U.S. government encouraging more private capital inflow

By Carey Gillam

BOSTON, Dec 1 (BestGrowthStock) – Africa as has long been a target
for wealthy philanthropists who donate money in a fight against
the continent’s poverty, disease epidemics and food shortages.

Now, taking a cue from the nonprofit world, profit-hungry
investors are eying Africa in a new way, putting a charitable
spin on their pursuit of double-digit returns.

Whether it’s making loans for refrigeration trucks serving
a fishery in Sierra Leone, or financing an organic cotton
undertaking in Uganda, more investment groups are following in
the footsteps of grant-making philanthropists as they put their
money to work on projects in some of the world’s poorest
countries.

“It is the decade of agriculture in Africa. Food security
will become the next tradable commodity,” said Soros Economic
Development Fund President Stewart Paperin. “You don’t have to
swoop in and say I’m going to take all of your crops.

“You can operate in a responsible way and still make
money,” he said. “This is just basic blocking and tackling –
how you build an economy.”

A number of charitable foundations, including the
Rockefeller Foundation and the Bill & Melinda Gates Foundation,
have targeted the continent for years with programs to help
improve food production through agricultural upgrades.

As profit-seeking investors grow more interested in Africa,
the two sides are starting to team up.

One of the newest such efforts is the “TransFarm Africa
Transformation Fund (TFA Fund),” a private equity investment
vehicle aiming for 15 percent returns by investing in
“growth-oriented, mid-scale commercial farms and
agri-businesses whose business models incorporate small farmers
and small and medium-sized agricultural enterprises.”

The fund, managed by Lion’s Head Global Partners, a London
investment bank, was the brainchild of the Menlo Park,
California-based William and Flora Hewlett Foundation. The
foundation has $6.7 billion in assets and a long history of
funding anti-poverty programs around the world.

“Basically, millions of small holder farmers have to go
through a transformation from being subsistence to commercial
producers,,, and by doing so, help maintain Africa’s march
toward economic growth,” said TransFarm Africa Director Kurt
Hoffman in an interview from Johannesburg where he was meeting
with investors.

Hoffman said the TFA investment fund has commitments of
nearly $20 million so far. It is focused on aiding mid-sized
commercial farmers and agribusinesses in processing and
distribution that include small farmers in their operations.
One of the first such investments was made in southern
Tanzania.

The investments are generally seen having a life of seven
to 10 years, ranging in equity stakes from $2 million to $5
million.

In addition to the fund, TransFarm backers have established
a public policy program working with African governments and
regional economic officials to promote more investments.

Smita Singh, the Hewlett Foundation’s global development
program director, said she hoped TransFarm Africa would
demonstrate to investors around the world that money could be
made outside the large-scale plantations that attract the most
capital.

Some investors as well as foreign government entities have
been criticized for “land grabbing” — buying up large swaths
of African farmland. Critics say this practice does little to
alleviate poverty or empower farmers, and sometimes creates
strife as Africans lose control of key resources.

“With the land grabs, the motivation is to push people off
the land. What we’re talking about is how you incorporate small
holder farms into the commercial food chain,” Singh said.

“The challenge has been to demonstrate to capital markets
that this is worth the risk. We’re hoping to demonstrate there
is both social impact as well as commercial viability.”

IMPACT INVESTING TAKES ROOT

TransFarm is only one example of many “impact investing”
groups targeting Africa now. The new breed hopes to avoid the
stigma and opposition associated with land grabbing by
partnering with local business development groups. The aim is
to boost production and trade for Africans while producing
profits for investors.

“There is an increased recognition that good governance,
respect for indigenous/worker rights, education, social
services, environment, etc., are good business sense…
providing the foundation for high rates of return,” said Diana
Glassman, a partner in EBG Capital, an advisory spinoff of
Credit Suisse.

African agriculture has long been plagued by low
productivity and poor market access for small, subsistence
farmers, a failure of commercial agriculture to find a critical
mass that meets domestic needs, poor infrastructure, trade
barriers and a lack of supportive government policies.

But with world population rising substantially and incomes
in Asia and elsewhere also up, demand has grown for food,
especially more sophisticated and higher-priced food products.

Investors say Africa offers an expanse of low-cost
agricultural land with the potential for big gains in
production and profitability. These can be achieved through use
of new agricultural practices, including improved seeds,
fertilizers, and modern machinery.

Among some recent deals, investors led by Boston-based Root
Capital recently approved a $700,000 loan to back the launch of
organic cotton production operations in Uganda’s northern
district of Gulu, a center of such violence less than a decade
ago that many farmers are only now back from refugee camps.

Also, in Burkina Faso, $300,000 in trade finance funds from
Root helped prop up a mango exporting group that represents
more than 1,800 African farmers.

For Soros Economic Development Funds, investments include
refrigerated transportation that supports local fisheries,
milling operations, and investments in projects that support
rice production and improved use of soil nutrients to increase
crop production.

AN “EMERGING PRIORITY”

Ann Tutwiler, coordinator for global food security at the
United States Department of Agriculture, calls Africa an
“emerging priority,” and said the U.S. government wants to
encourage private investment into food and agriculture projects
there.

The U.S. government and wealthy foundations have numerous
programs underway to help African farmers, boost food
production and trade, and improve infrastructure. Still,
Tutwiler said, private investors are critical.

“Even with the amount of money the U.S. government and the
other donors are putting in… it is small potatoes compared to
the level of investment we need,” she said.

“That investment has to come from the private sector.”
(Reporting by Carey Gillam; Editing by David Gregorio)

FEATURE-Investors try new tactic with African agriculture