Africa Invest
Making the
investment Case

The investment case for commercial agriculture in Africa is strong. Food production is an obvious global imperative and as investors, rather than just farmers, we take a more holistic view on how best to profit from the food industry. Put simply, if you could own the entire process from crop production, processing and all the way to final sale in a shop to a consumer you would have a very valuable business. Even if you can only go part of the way, provided you started from the actual crop production it is hard to go wrong. You definitely don’t want to be caught between the farmer on one hand and the supermarket on the other; being squeezed from both ends is an unpleasant experience.

Outlook for food and farmland prices

With food prices on a firm upward trend it is clear that the land that produces the food will enjoy a similar revaluation.

Food prices are rising because of the following:

•
farm land is being redirected to produce bio-fuels, not food. This reduces supply.
•
demand for meat is rising globally, particularly in the developing nations where increasing wealth results in demand for meat rising rapidly. Meat production requires animal feed from grain and some 50% of grain output is now related to meat (source: USDA, Goldman Sachs, 2007). Demand is therefore increasing rapidly
•
climate change is having a negative impact on major food producers, such as drought in Australia that has decimated the wheat harvest
•
long-term trends in global population expansion create a long-term upward trend in demand for food. People are living longer, whilst increasing birth rates and reducing infant mortality in the emerging countries puts the world on target to increase its population from the current 6.4 billion to over 9 billion by 2050.

With supply falling and demand rising there is realistically only one long-term outlook for food prices; up they will go. As we are food producers this increase in price is highly positive to future profits.

 Farmland in Malawi and much of Africa typically costs £800 per hectare. This compares with £10,000 per hectare in the UK. With access to irrigation and an outstanding climate for year round crop growth it is a positive sign that farmland, certainly in Malawi, has considerable scope to increase in value.