Feast and famine for Africa farm investment
African agriculture has a big investment problem: lots of private equity interest but few opportunities because most farms and companies are too small to absorb the cash or provide attractive returns.
With only a third of its 630 million hectares of arable land under cultivation and large quantities of water flowing untapped, Africa is the last great agricultural frontier, its soil coveted by Asian giants such as China and India.
Soaring grain prices and global food inflation are spurring investor interest in African farming, trends that are also eating into household income on the world's poorest continent and threatening food riots like those seen in 2008.
The stakes are high in a region where agriculture still accounts for about a third of gross domestic product but remains undeveloped and rain-fed, with most farms tilled by peasants for subsistence instead of sale.
"What Africa has going for itself is that it has the land availability and space to grow agricultural production in a much more significant manner," said Joseph Rohm, a portfolio manager at Investec Asset Management, which oversees some $3 billion in Africa.
African agriculture attracted $102 million worth of private equity investment in the first six months of 2012, compared with $54 million in the whole of 2011, according to the U.S.-based Emerging Markets Private Equity Association.
Some of that was by Standard Chartered, which spent $74 million earlier this year on a minority stake in grain and fertiliser trader Export Trading Group and another $20 million for an indirect stake in Zimbabwe's horticultural firm Ariston.
The targets are either too small or too early in their development, and are grappling with price and weather risks, said Peter Baird, Standard Chartered's head of private equity for Africa, making deals scarce.
"It's hard to either acquire existing assets or to cobble together investible opportunities," he said.
Many investors would rather put their money in the food chain rather than the actual farming, said Daniel Broby, chief investment officer at specialist frontier market investment manager Silk Invest.
The fund's private equity arm is looking at a second closing for its $150 million African Food Fund by 2013 and has already invested in an Ethiopian biscuit manufacturer and a Nigerian fast food chain.
Standard Bank's head of agriculture in Africa, Mohit Arora, said some seven economies with top agricultural potential need at least $25 billion in both public and private spending over the next three to eight years to grow the sector.