US $1 Trillion Opportunity for Africa’s Agribusinesses Says Report

As the world’s population continues to grow – surpassing 9 billion people by 2050, the United Nations estimates – and more and more people move to urban areas, producing enough food to feed this population will be one of the biggest economic challenges and opportunities in the global South.

Africa, a continent undergoing significant economic change, has yet to fully realize its potential as a producer of agricultural products to feed itself and the world. Africa currently has a labour-intensive but very inefficient agriculture system. While many Africans either make their living in agriculture or engage in subsistence farming for survival, much of the continent’s farming is inefficient and fails to make the most of the continent’s rich resources and potential.

A new World Bank report, Growing Africa: Unlocking the Potential of Agribusiness (http://siteresources.worldbank.org/INTAFRICA/Resources/africa-agribusiness-report-2013.pdf), argues that Africa could have a trillion-dollar agriculture market by 2030.

What will need to change to make this happen? African farms will need greater access to capital, as well as more investment in infrastructure and better irrigation. All of these elements will need to dramatically improve if Africa is going to compete effectively in global markets.

The report urges greater cooperation between governments and agribusinesses, farmers and consumers and for all parties to recognize that the continent is being rapidly urbanized, changing the way food is grown, sourced and distributed.

It says Africa’s farmers and agribusinesses require more capital, steady supplies of electricity, better technology and irrigated land. All these resources then need to be applied to the growing of high-value, nutritious foods.

At present, agriculture, farmers and agribusinesses make up almost 50 per cent of Africa’s economic activity, and the continent’s food system is worth an estimated US $313 billion a year (World Bank). But the report believes this could triple if governments and business leaders adopted radically different policies.

“The time has come for making African agriculture and agribusiness a catalyst for ending poverty,” said Makhtar Diop, the World Bank Vice President for Africa. “We cannot overstate the importance of agriculture to Africa’s determination to maintain and boost its high growth rates, create more jobs, significantly reduce poverty, and grow enough cheap, nutritious food to feed its families, export its surplus crops, while safeguarding the continent’s environment.”

The report addresses the problems African agriculture is currently experiencing: slow yield growth for major food crops, slowing research spending, degraded land, water scarcity, and climate change. It looks at solutions to allow Africa to tackle these problems and seize the opportunity to significantly increase its food and agricultural exports.  Africa can more than meet its own needs and meet the world’s needs too, the report argues.

But what can be done? At present, 50 per cent of the world’s uncultivated land suitable for growing food resides in Africa. This works out to 450 million hectares of land that is neither forested, protected nor densely populated – all could be available for growing food.

The report also found Africa is using just 2 per cent of its renewable water resources while the rest of the world averages 5 per cent. African harvests currently do not yield anything close to what is possible. Another weakness is waste from post-harvest losses, averaging 15 to 20 per cent for cereals, and even more for perishable foods, because of poor storage and farm infrastructure.

Areas the report recommends farmers and agribusinesses should focus on include fast-growing markets for rice, maize, soybeans, sugar, palm oil, biofuel and feedstock. In sub-Saharan Africa, the focus should be on rice, feed grains, poultry, dairy, vegetable oils, horticulture and processed foods for the domestic market. And there are also good examples to follow by studying the ways Latin America and Southeast Asia used world markets to boost income and profits.

Agribusiness enterprises looking to purchase more land to expand the number of hectares under cultivation are urged to act ethically and not to threaten existing people’s livelihoods or violate local users’ rights. This includes consulting with locals and paying fair market price for land bought.

Rice is one crop that needs attention. Significant quantities of rice are imported and consumed in Africa. Half the rice eaten is imported, costing around US $3.5 billion a year (World Bank). Big importers include Ghana and Senegal – both countries singled out in the report for needing to improve their domestic rice production and quality.

Another food staple needing attention is maize (corn). A daily food staple for many Africans, it takes up 14 per cent of crop lands on the continent. While most Zambians get half their calories from maize, Zambia is currently unable to export maize at a cost comparable to market leader Thailand – Zambian maize costs one-third more. Zambia was singled out as needing to raise yields, reduce costs, and remove disincentives for the private sector in markets and trade.

“Improving Africa’s agriculture and agribusiness sectors means higher incomes and more jobs. It also allows Africa to compete globally. Today, Brazil, Indonesia and Thailand each export more food products than all of sub-Saharan Africa combined.  This must change,” said Jamal Saghir, the World Bank’s Director for Sustainable Development in the Africa Region.

How to make the most of this opportunity?

One innovative idea coming out of Africa comes from the mega-brewer SABMiller (sabmiller.com). As a sign of confidence in the continent’s growing economies, the brewer has pledged to slash its beer prices and use more African-grown grains – a boost to local farmers – and to start a campaign of opening new breweries for the next three years. Countries targeted include Ghana, Nigeria, Mozambique and Zambia.

“African farmers and businesses must be empowered through good policies, increased public and private investments and strong public-private partnerships,” according to Gaiv Tata, World Bank director for Financial and Private Sector Development in Africa.  “A strong agribusiness sector is vital for Africa’s economic future.”

By David South, Development Challenges, South-South Solutions

Published: May 2013

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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Brazil’s Agricultural Success Teaches South How to Grow

Inflation, environmental stresses and population and economic growth are testing the world’s food supply systems. There is a strong need to boost yields and improve the quality of food.

Between now and 2050 the world’s population will rise from 7 billion to 9 billion. Urban populations will probably double and incomes will rise. City dwellers tend to eat more meat and this will boost demand.

The UN’s Food and Agriculture Organization (FAO) reckons grain output will have to rise by around half but meat output will have to double by 2050 to meet demand.

Two pioneering approaches to growing food in Brazil offer valuable lessons to countries looking to increase their food production.

One is taking place in Bahia state in north-eastern Brazil. On Brazil’s cerrado (savannah) (http://en.wikipedia.org/wiki/Cerrado), enormous farms grow cotton, soybeans and maize. One of them, Jatoba farm, has 24,000 hectares of land: vastly larger than comparable farms in the United States.

On the Cremaq farm in the north of the country in Piaui state, a transformation has taken place. Once a failed cashew farm, it is now a highly modern operation. Owned by BrasilAgro, it is benefiting from clever agricultural innovation that gets results.

BrasilAgro’s approach is to buy derelict or neglected farms and give them a high-tech makeover. The ‘makeover’ includes radio transmitters tracking the weather, SAP software (http://en.wikipedia.org/wiki/SAP_AG), a well-organized work force under a gaucho (http://en.wikipedia.org/wiki/Gaucho), new roads criss-crossing the fields, and a transport network of trucks to quickly get the food to ports for export. Piaui is an isolated place with few services: it can take half a day to get to a health clinic. Dependence on state welfare payments for survival is the norm for many residents.

Brazil, over 30 years, transformed itself from a food importer to one of the world’s major food exporters. It is now considered alongside the ‘Big Five’ top grain exporters of America, Canada, Australia, Argentina and the European Union. Importantly, it is the first tropical nation to do this.

The value of Brazil’s crops rose from US $23 billion in 1996, to US $62 bn in 2006. It is the world’s largest exporter of poultry, sugar cane and ethanol, and there has been a tenfold increase in beef exports in a decade.

Brazil made these impressive achievements with few government subsidies. According to the Organization for Economic Co-operation and Development (OECD), state support accounted for just 5.7 percent of total farm income in Brazil from 2005-07. In the US it was 12 percent, while the OECD average is 26 percent and the level in the European Union is 29 percent.

And despite frequent alarming reports, much of the farming expansion has not happened at the expense of the Amazon forests.

The agricultural success is down to Embrapa (http://www.embrapa.br/english) – short for Empresa Brasileira de Pesquisa Agropecuária, or the Brazilian Agricultural Research Corporation. A public company set up in 1973, it has turned itself into the world’s leading tropical research institution. It breeds new seeds and cattle and has developed innovations from ultra-thin edible wrapping paper for foodstuffs that turns colour when the food goes off to a nano-tech lab creating biodegradable ultra-strong fabrics and wound dressings.

Its biggest achievement has been turning the vast expanses of the cerrado green for agriculture. Norman Borlaug, an American plant scientist often called the father of the Green Revolution, told the New York Times that “nobody thought these soils were ever going to be productive.” They seemed too acidic and too poor in nutrients.

Embrapa uses what its scientists call a “system approach”: all the interventions work together. Improving the soil and developing new tropical soybeans were both needed for farming the cerrado. The two together also made possible the changes in farm techniques which have boosted yields further.

Many believe this approach can be applied to Africa as well. There are several reasons to think it can. Brazilian land is like Africa’s: tropical and nutrient-poor. The big difference is that the cerrado gets a decent amount of rain and most of Africa’s savannah does not (the exception is the swathe of southern Africa between Angola and Mozambique).

Another approach that Brazil has been pioneering is making small, family farms sustainable and productive for the 21st century.

There has long been a tension between those who believe in very large farms, agribusiness and mono-crops (http://en.wikipedia.org/wiki/Mono-cropping), and those who believe in having a large number of smaller farms with a wide variety of crops and animals.

But small farms have endured. The livelihoods of more than 2 billion people depend on the 450 million smallholder farms across the world. With their families, they account for a third of the world’s population.

Family farms are critical to weathering economic crises and ensuring a steady and secure food supply. The International Fund for Agricultural Development (IFAD) (www.ifad.org) called in 2008 for small family farms to be put at the heart of the global response to high food prices and uncertain food security.

In Brazil, this call is being answered by a bold initiative to create what is termed a “social technology”, combining a house building programme with diverse family farms.

The Brazilian farmers’ cooperative Cooperhaf: Cooperativa de Habitacao dos Agricultores Familiares (http://www.cooperhaf.org.br) – a World Habitat Awards winner – combines housing and farm diversification to support family farmers.

“Family farming is very important for the country – 70 percent of food for Brazilians comes from family farming,” said Adriana Paola Paredes Penafiel, a projects adviser with the Cooperhaf. “The government wants to keep people in rural areas.”

“We see the house as the core issue,” she continued.  “The farmers can improve their productivity but the starting point is the house.”

Started in 2001 by a federation of farmers unions, the Cooperhaf works in 14 Brazilian states with family farmers. In Brazil farmers have a right to a house in the law and the cooperative was formed to make sure this happened.

“We promote diversification to make farmers less vulnerable: if they lose a crop in macro farming, they lose everything. We encourage diversification and self-consumption to guarantee the family has food everyday. We help to set up a garden.”

The concept is simple: a good quality home acts as an anchor to the family farm, making them more productive as farmers. The farmers receive up to 6,000 reais (US $2,290) for a house, and can choose designs from a portfolio of options from the Cooperhaf.

As in other countries, the Cooperhaf and other co-ops encourage markets and certification programmes to promote family farmed food and raise awareness. Penafiel says promoting the fact that the food is family farmed is critical: to the consumer it is healthier, fresher and contains fewer chemicals than imported produce.

“Most agri business is for export,” said Penafiel. “If we don’t have food in the country, food for poor communities would not be available. This enables farmers to be more autonomous, not having to buy fertilizers and equipment and take on too much debt. That approach is not sustainable as we saw with the so-called Green Revolution.”

By David South, Development Challenges, South-South Solutions

Published: September 2010

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

Follow @SouthSouth1

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Bio-ethanol From Sturdy and Once-Unwanted Indian Plant

 

With awareness of global warming at an all-time high – and governments seeking real-world solutions to solve this enormous problem – bioethanol fuel has risen up the agenda as a replacement for conventional fuel sources. At present, most bioethanol fuel is produced from either corn or sugar but a less known plant jatropha could be the real solution. Brazil has been a pioneer in producing bioethanol fuel from sugar, while the United States has focused on its substantial corn crop as a source, and both contribute more than half the world’s supply. Brazil alone made US $5.4 billion from biofuels (ethanol and biodiesel combined) in 2005, while global production is estimated at 48 billion litres (Biofuel Market Worldwide (2007-2010) www.canbiotech.com).

Global prices for crude oil, under pressure from a number of sources, are volatile and far above 1990s levels. This hurts the poorest countries most (Human Development Report 2005). Expensive fuel means the world’s poor are denied affordable access to machinery and appliances that can make life more comfortable. Poorer nations are often more dependent on oil imports than richer countries. As well, most of their industries are energy intensive, and their cars and homes are less energy efficient. This means low-income countries spend twice as much of their national income on imported oil than do developed countries (World Bank). A US $10 per barrel increase in the cost of crude oil shaves half a percentage point from economic growth in the West; in the poorest countries, it is nearly three times higher.

The two common sources of bioethanol fuel – corn and cane sugar – have a major drawback: they are diverting food sources into fuel for vehicles. Already, the massive US diversion of corn into the bioethanol fuel market has sent the price of corn skyrocketing, making this hardy food staple in countries like Mexico more expensive for the poor. Some estimates claim ethanol plants will burn up to half of the United States’ domestic corn supplies within a few years (Foreign Affairs). To fill the fuel tank of a sports utility vehicle (SUV) with pure ethanol requires 450 pounds of corn – enough calories to feed one person for a year.

And this is why many are now advocating a non-edible Indian fruit bush called jatropha as a better solution. It is like a grapefruit, with each fruit containing three plum-sized seeds. Each seed contains 35 percent oil which can be converted into biodiesel. A shrub from the family euphorbiaceae, jatropha’s lifespan is 50 years. It bears fruit several times a year, and each bunch is five to eight fruits. Being unedible, the oil is mostly used for soap and varnishes.

Cultivation of the jatropha was prioritised a year ago by the Indian Railway Minister, Lalu Prasad Yadav. Disused railways lands were to be put aside for growing the crop. Brazil’s biodiesel company, Biomasa, plans to plant two million hectares with jatropha this year, and it is believed jatropha will surpass sugar cane as the principal source for bioethanol in Brazil.

The advantages of jatropha include its hardy nature: it does not require pesticide, manure, or irrigation to grow and it is drought resistant. A single jatropha plant will yield one litre of biodiesel per year for 40 years, and it yields 1,300 kg of seeds per hectare per year. Its advocates hope to see jatropha bushes planted alongside existing crops, with an acre producing 100 litres of fuel per year.

The downsides of cultivating jatropha as a fuel source would need to be overcome. At present, jatropha’s high acidity means its seeds degrade quickly in humid environments (much of the global South) when exposed to air. Steel tanks used for storage require a nitrogen blanket to prevent water absorption. During the processing stage (something called transesterification), the large quantities of glycerine are produced as a byproduct. Demand is low for this byproduct and disposal is a problem. A cake is also produced that has no real value or use. To make it economically worthwhile to grow in India for example, farmers would need to receive four rupees per kg of seed. This would produce a biofuel costing 50 rupees per litre – considered too expensive at present. Jatropha advocates are urging government subsidies to kick-start production and make the price competitive.

In Ghana, smallholder farmers have already rebelled against growing jatropha. They say that since the oil is inedible, and growing the crop leaves them at the mercy of price-setting by the refineries, they do not want to run the risk.

“What may encourage farmers to venture into jatropha,” said Wisdom Yao Adjah-Cudjoe, a cereal farmers’ representative, “would be a guaranteed price arrangement, as is the case with cocoa.”

In Africa, research by the South African Biodiversity Institute has estimated that 50 percent of the landmass of the continent is suitable for jatropha cultivation (a total of 1,080 million hectares). It could be a huge opportunity for African farmers and a big cost saving for poor countries, but if farmers are to be encouraged to grow jatropha, they will need the right price incentives and guarantees.

By David South, Development Challenges, South-South Solutions

Published: June 2007

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

Follow @SouthSouth1

Like this story? Here is a dirty secret: this website is packed with stories about global South innovators. We spent 7 years researching and documenting these stories around the world. We interviewed the innovators to learn from them and we visited them to see how they did it. Why not use the Search bar at the top and tap in a topic and see what stories come up? As for my work, I have been involved with start-ups and media ventures since the early 1990s. While most tech entrepreneurs were either still in their nappies in the 1990s (or just a drunken night away from being conceived in the 2000s), I was developing content for this new thing they called the "Internet". In the years since I have learned a great deal about innovation and digital and have shared these insights in the stories on this website as well as in the 5 issues of Southern Innovator magazine. So, stick around and read some more!    

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US $1 Trillion Opportunity for Africa’s Agribusinesses Says Report

As the world’s population continues to grow – surpassing 9 billion people by 2050, the United Nations estimates – and more and more people move to urban areas, producing enough food to feed this population will be one of the biggest economic challenges and opportunities in the global South.

Africa, a continent undergoing significant economic change, has yet to fully realize its potential as a producer of agricultural products to feed itself and the world. Africa currently has a labour-intensive but very inefficient agriculture system. While many Africans either make their living in agriculture or engage in subsistence farming for survival, much of the continent’s farming is inefficient and fails to make the most of the continent’s rich resources and potential.

A new World Bank report, Growing Africa: Unlocking the Potential of Agribusiness (http://siteresources.worldbank.org/INTAFRICA/Resources/africa-agribusiness-report-2013.pdf), argues that Africa could have a trillion-dollar agriculture market by 2030.

What will need to change to make this happen? African farms will need greater access to capital, as well as more investment in infrastructure and better irrigation. All of these elements will need to dramatically improve if Africa is going to compete effectively in global markets.

The report urges greater cooperation between governments and agribusinesses, farmers and consumers and for all parties to recognize that the continent is being rapidly urbanized, changing the way food is grown, sourced and distributed.

It says Africa’s farmers and agribusinesses require more capital, steady supplies of electricity, better technology and irrigated land. All these resources then need to be applied to the growing of high-value, nutritious foods.

At present, agriculture, farmers and agribusinesses make up almost 50 per cent of Africa’s economic activity, and the continent’s food system is worth an estimated US $313 billion a year (World Bank). But the report believes this could triple if governments and business leaders adopted radically different policies.

“The time has come for making African agriculture and agribusiness a catalyst for ending poverty,” said Makhtar Diop, the World Bank Vice President for Africa. “We cannot overstate the importance of agriculture to Africa’s determination to maintain and boost its high growth rates, create more jobs, significantly reduce poverty, and grow enough cheap, nutritious food to feed its families, export its surplus crops, while safeguarding the continent’s environment.”

The report addresses the problems African agriculture is currently experiencing: slow yield growth for major food crops, slowing research spending, degraded land, water scarcity, and climate change. It looks at solutions to allow Africa to tackle these problems and seize the opportunity to significantly increase its food and agricultural exports.  Africa can more than meet its own needs and meet the world’s needs too, the report argues.

But what can be done? At present, 50 per cent of the world’s uncultivated land suitable for growing food resides in Africa. This works out to 450 million hectares of land that is neither forested, protected nor densely populated – all could be available for growing food.

The report also found Africa is using just 2 per cent of its renewable water resources while the rest of the world averages 5 per cent. African harvests currently do not yield anything close to what is possible. Another weakness is waste from post-harvest losses, averaging 15 to 20 per cent for cereals, and even more for perishable foods, because of poor storage and farm infrastructure.

Areas the report recommends farmers and agribusinesses should focus on include fast-growing markets for rice, maize, soybeans, sugar, palm oil, biofuel and feedstock. In sub-Saharan Africa, the focus should be on rice, feed grains, poultry, dairy, vegetable oils, horticulture and processed foods for the domestic market. And there are also good examples to follow by studying the ways Latin America and Southeast Asia used world markets to boost income and profits.

Agribusiness enterprises looking to purchase more land to expand the number of hectares under cultivation are urged to act ethically and not to threaten existing people’s livelihoods or violate local users’ rights. This includes consulting with locals and paying fair market price for land bought.

Rice is one crop that needs attention. Significant quantities of rice are imported and consumed in Africa. Half the rice eaten is imported, costing around US $3.5 billion a year (World Bank). Big importers include Ghana and Senegal – both countries singled out in the report for needing to improve their domestic rice production and quality.

Another food staple needing attention is maize (corn). A daily food staple for many Africans, it takes up 14 per cent of crop lands on the continent. While most Zambians get half their calories from maize, Zambia is currently unable to export maize at a cost comparable to market leader Thailand – Zambian maize costs one-third more. Zambia was singled out as needing to raise yields, reduce costs, and remove disincentives for the private sector in markets and trade.

“Improving Africa’s agriculture and agribusiness sectors means higher incomes and more jobs. It also allows Africa to compete globally. Today, Brazil, Indonesia and Thailand each export more food products than all of sub-Saharan Africa combined.  This must change,” said Jamal Saghir, the World Bank’s Director for Sustainable Development in the Africa Region.

How to make the most of this opportunity?

One innovative idea coming out of Africa comes from the mega-brewer SABMiller (sabmiller.com). As a sign of confidence in the continent’s growing economies, the brewer has pledged to slash its beer prices and use more African-grown grains – a boost to local farmers – and to start a campaign of opening new breweries for the next three years. Countries targeted include Ghana, Nigeria, Mozambique and Zambia.

“African farmers and businesses must be empowered through good policies, increased public and private investments and strong public-private partnerships,” according to Gaiv Tata, World Bank director for Financial and Private Sector Development in Africa.  “A strong agribusiness sector is vital for Africa’s economic future.”

By David South, Development Challenges, South-South Solutions

Published: May 2013

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

Follow @SouthSouth1

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Growing a Southern Brand to Global Success: The Olam Story

Most people haven’t heard of Olam International, but they know the brands they work for and they more than likely eat their produce. The story of Olam (http://www.olamonline.com) – a global food supply company in ‘agri-products’ that got its start in Nigeria – shows how a Southern brand can grow and go global, and overcome the difficulties of cross-border trade.

Olam supplies well-known global food brands including Cadbury (chocolate), Nestle, Lavazza (coffee), Mars (chocolate), Tchibo and Planters (peanuts).

Olam not only survived its startup in Nigeria, it has thrived, trading around Africa and across the globe, becoming a major supplier to the world’s top food brands.

The quantity of agri-products harvested in the world is 5.2 billion metric tonnes. In that market, Olam is a significant producer of cashews, peanuts, spices, beans, coffee, cocoa, sheanuts, packaged foods, rice, wheat, barley, sugar, cotton, wood, and rubber. It is already the world’s largest supplier of cashew nuts and sesame nuts and in the top three for peanuts. Olam’s cashew business in Africa provides work for 17,000 people, 95 percent of whom are women.

Olam also uses its success to play a critical role in securing the world’s food supply and has specialized in meeting the food needs of the world’s rapidly growing population, especially in China and India. Between 2001 and 2007, annual increases in the global consumption of agricultural commodities were larger than during the 1980s and 1990s. Higher incomes are leading to higher consumption of proteins like meat. And as meat demand rises, so does the demand for grain and protein feeds to produce the meat. It takes two kilograms of grain to produce one kilogram of chicken, four kilograms of produce for one kilogram of pork, and eight kilograms of produce for one kilogram of beef.

Chris Brett, Olam’s senior vice president and head of corporate social responsibility and sustainability, said the company tries to blend business success with wider social goals.

“We are one of the few businesses investing in rural environments and am tackling the problem of urbanization,” said Brett in Olam’s London office – the company’s global headquarters is in Singapore.

In 2008, it won the World Business Development Award for its contribution to achieving the Millennium Development Goals (MDGs) (http://www.un.org/millenniumgoals/).

Olam also has been recognized for its contribution to global food security. By providing farmers with credit to help build their communities, it has also been able to revive declining rural economies and help stem the outflow of farmers to the big cities and urban slums.

“Many countries are afraid to lend to farmers,” Brett said. “We gather the farmers together in groups of 500 and Olam manages the loan while a local bank receives the money. Defaults have been low and farmers are building up a credit rating. In this way, farming becomes a business not just a subsistence existence.”

The dramatic changes taking place in African countries – especially rapid urbanization that has made the continent home to 25 of the world’s fastest growing cities (International Institute for Environment and Development) – means there is an urgent need to increase food production and stabilize rural economies to support farming.

Olam International, started in 1989 in Nigeria by its India-born CEO Sonny George Verghese has many lessons for any Southern entrepreneurs who have their sights set high.

After developing its skills in exporting cashew nuts from Nigeria, Olam moved into cotton, cocoa and sheanuts. From 1993 to 1995, the company explored ways of taking their skills into other countries and different products. It was a period of rapid expansion into other African countries including Benin, Togo, Ghana, Cote d’Ivoire, Burkina Faso and Senegal.

Olam now operates in 26 African countries.

There has been a renaissance in South-South trade in recent years before the current economic crisis, growing by an average of 13 percent per year between 1995 and 2007. By 2007, South-South trade made up 20 percent of world trade.

Olam started with one product, got its supply right, and then started looking around and seeing what other products and services it could offer, applying already-tested expertise and supply skills – what the company calls the ‘Olam DNA’.

Olam claims its success has come from building strong relationships with farmers to guarantee high standards for the food products. The company does this by tightly tracking its stock and its quality. Olam then uses the information to analyze risks to the supply network. The company also keeps both warehouses and field managers close to the farmers. Olam estimates 65 percent of its profit comes from managing the journey from farmer’s field to factory gate.

Its selling point to customers is the ability to guarantee the entire journey from farmer’s field to factory gate, taking on all the risk and stress for ensuring the product is of the right standard and delivered on time.

Its niche is to provide the food products required by some of the world’s top food brands. The company has grown from just one product in Nigeria and two employees in 1989, to directly employing over 10,000 people worldwide and supplying 20 products in 60 countries, according to Brett. He says the company, which had a total 2008 turnover of US $5.75 billion, was “born out of Africa.”

Brett says the company is now “investing heavily in Africa in processing and distribution centres” – proof that a success story feeds back into more success and investment. It has been able to use its profits to go back and buy up failing businesses and former state-run enterprises, and modernize them. Olam now grows the food, processes it, and transports it to market.

Olam actively works with international donors, global NGOs like Technoserve (farmer business development), WWF (environmental impact of supply chain), and the Bill and Melinda Gates Foundation (cocoa and cashew farmers).

Olam, however, has received criticisms for its past practices. The global environmental group Greenpeace attacked its logging in the Democratic Republic of Congo (DRC) (http://www.greenpeace.org.uk/tags/olam), and the International Finance Corporation (IFC) divested its holdings from Olam for it trading illegally cut timber.

Olam and the Gates Foundation project are working with 200,000 cocoa farmers in West Africa to double their incomes. In Ghana, cocoa farming has become synonymous with poverty and perceived as an occupation of last resort. The work force is rapidly aging and the industry will die out if it doesn’t become more profitable and attractive to young people.

“We want the farmers to be profitable, the transporters to be profitable,” Brett said. “We believe a supply chain does not work if one player takes too much.”

And what advice does Olam have for budding food producers and growers? “Catchy, simple brands work. Our Mama Mia pasta caught the wave of the Abba revival.”

“Our Tasty Tom brand became very popular in Africa so we extended the brand into other products than just tomato paste. You reduce the cost of advertising by extending the brand name.”

“We feel SMEs (small, medium enterprises) growth is critical because it would give us more support. If more people invested in SMEs, we would have more people to do business with. We want to be able to make deals: they could be entrepreneurs.

“If you can add extra value it costs nothing but time.”

Brett advises budding SMEs: “It’s all about quality: trust and shared business ethics like formal contracts. When you have those, the bigger brands will give you support.”

By David South, Development Challenges, South-South Solutions

Published: October 2009

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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