Finding value in land and crops

Private equity used to stay away from anything to do with agriculture,

put off by the uncontrollable risks of bad climate and natural

disasters. And yet in the last three years some big funds have been

launched in the agribusiness space, and they are busy trying different

ways of mitigating the risks. Some want to buy land, while others look

to add value to agricultural output.

The private-equity firms buying land work from the bottom up. “We’re buying tractors, buying pivots, building a proper business,” said Paul Christie, marketing director at Emergent Asset Management, which has bought 43,000 ha of land in South Africa, Zambia, Mozambique and Botswana through its African Agricultural Land Fund. It aims to produce staples such as wheat, maize and soya beans, to rear livestock and make animal feed. It has an asset management arm to hedge its soft commodities on global markets.

Agri-Vie, a South African fund run by Sanlam Private Equity, has chosen to steer clear of primary production. It recently secured a $15m investment from the African Development Bank to add to its first close of $43m. “If one focuses on the value-added part of the chain, on processing, marketing, distribution and logistics, then the blend of risks are becoming comparable with most other processing and service businesses,” says Herman Marais, the fund’s managing director.

African agribusiness is well suited to the private equity model of scaling-up for sale back to shareholders or to strategic buyers wanting to secure regional supply chains. Patrick Oketa, chief investment officer at Kampala-based African Agricultural Capital, calls it “patient capital” with little, if anything, to show in the short term, but better returns in the long run.

Some firms that got in early have achieved good returns. Emerging Capital Partners recently doubled its initial investment in SOMDIAA, a sugar, flour and animal-feed producer operating in Cameroon, Chad and Democratic Republic of Congo, by selling the company back to shareholders for $26m.

Targeting food output for the local market can be a useful bargaining tool with governments when securing land. UK-based Africa-Agri Asset Management plans to launch a $60m new fund at the end of March to expand on a successful pilot project in Malawi. Its next project involves commercial farms supporting out-grower networks in Mozambique, Sierra Leone and Rwanda. US-based Golden Mean Capital is closing a $10m investment in Ghanaian Cheetah palm oil, providing work for 30,000 out-growers; its co-managing director, William Salva, said local banks were “very eager” to contribute to the debt component.