Sunday, December 23, 2012

Farming, theory and reality

Farming, theory and reality

B. NAGA TRINADH


“About 100 young brilliant minds that chose to go the hard path come here, so what difference would you make after graduating from some well-known institute of rural management?”

This question from my professor always haunted me while studying rural management at IRMA.

By the time placement season arrived, I was very clear that I should have a career in the development sector and not go for greener pastures. So, I joined the Ministry of Rural Development with the Andhra Pradesh Government and worked on projects that included monitoring NREGS work to creating job opportunities for rural youth and assisting in policy briefs for policy makers.

Even though I felt the job was demanding, the bureaucrats did all the talking, leaving the professionals as mere rubber stamps. Drawing inspiration from Verghese Kurien, I resigned from the job. I packed my bags and set off to a village in Tuni, 100 km from Visakhapatnam to become a farmer.

Dwindling Numbers

Keen to make farmers aware of the power of cooperatives, I began work with a help of a school teacher and when the post master chipped in, we had about 40 farmers who came for my workshop. The only thing they enjoyed during the four hours spent at the workshop were the Karachi biscuits served with tea. What started off as a group of 32 farmers became 20 when I proposed that we go the organic way.

But after talking to some experienced professionals, I gained confidence that 20 is not at all a bad number to start a group that would do the farming and sell the produce directly to the big buyers, eliminating middlemen. We started off on the understanding that we would not borrow from middlemen or local money lenders. Instead, we would approach rural banks for our financing needs. But all too soon, 12 members of the group turned to local money lenders. By this time, I was so far into the venture that I staked all my savings — what the group of 12 did would determine my future. I too was now at the mercy of the monsoon and market prices.

The other proposal I made — that we go for crop insurance — too met with stiff resistance. The farmers saw it as unnecessary expense. Fearing more walkouts from the group, I did not muster the courage to stand by my proposal.

Cyclonic crash

These 12 farmers had land ranging from half an acre to two acres, they were all married and needed to support wife and children. All they had was a small home with basic things that included utensils, a TV, wooden cots, and a cell-phone. Their wives would at times join NREGS works and the farmers, during off season, would go to Hyderabad and Bangalore looking for construction jobs.

Finally, my dream of being a farmer in a group took off and we decided to cultivate paddy in about 20 acres (all put together). The seeds were sown, fertilisers sprayed and all seemed to work to plan. Neither moneylenders nor middlemen were involved. We were sure of having a good crop and as a rural management graduate, here came my moment to make a difference.

With my laptop, I put together a presentation and sought appointments with big buyers. Sure enough, one company promised to send its representative to the village. I dreamed of celebrating Pongal with the farmers marking the beginning of a new life.

My dream was shattered in a few hours. Cyclone Nilam destroyed everything. In the fields, all the paddy crops were bundled up. In those bundles lay the labour of the farmers who had been sweating it out for the past few months in the scorching heat. Those bundles were indeed gold for them at that moment.

There was a sudden and heavy downpour. What followed was a mad scramble to save the crop, but everything was swept away. The farmers’ faces mirrored it all — fear of debts, the grind of poverty, one-meal-a-day fate. I do not know whom to blame. Is it the farmers who still do not accept insurance, the financial service providers who never see these farmers as potential customers, or our policy makers who do not factor in natural calamities?

Forget the fields -- the farmers’ homes were washed away in the floods, children went missing. The only thing left is hope — hope that I’ll make it some day. Now I can understand what difference Verghese Kurien has wrought to rural India. Let us not define farmers as someone who dies to make us live.

(This article was published in the Business Line print edition dated November 23, 2012)

Monday, December 10, 2012

Thursday, June 07, 2012

The devil is in retail


The Devil is well known for his temptations. When you push your shopping cart through aisle after aisle, assailed by music that quickens your pulse and "buy me, buy me" enticements beckoning from every shelf - another pack of cookies to add to your bursting larder? another kilo of apples? another wicked jam, shirt or deodorant? - you are playing in the Big Retail Game.


The Devil is also sneaking up on the businessmen and women who build the mazes you lose yourself in, the people who stock those aisles and hope their merchandise will fly off those shelves. We may have become a consumer society, but we are the world's most pernickety customers. We want Value for our money.


Retail in India is a fiendishly complex business, as therecent sale of Pantaloons indicates. A few days after the purchase of the Future Group's flagship apparel brand and stores by Aditya Birla Nuvo Ltd(ABNL) was announced, Rakesh Jain, CEO of ABNL, started visiting Pantaloons stores in Mumbai and Pune. He described the store displays as 'crisp' but added that the space could be used better. This may be a hint of things to come after ABNL completes its takeover of the business from Pantaloon Retail India Ltd (PRIL), which also owns Big Bazaar, Food Bazaar, and a financial services and insurance business.

Young Industry
"The Indian experience in retail is only six or seven years," says Himanshu Chakrawarti, CEO of the Essar Group's MobileStore. "All of us have come in from other areas to retailing." Chakrawarti, former CEO of Landmark, the books and music arm of Tata Group retail company Trent Ltd, was also involved in the launches of Trent's Westside apparel stores and Star Bazaar supermarkets.


The earliest movers in modern Indian retail were Kishore Biyani of PRIL and Noel Tata of Trent. The industry has also been shaped by honchos such as the late Raghu Pillai, who worked with the Reliance Group and PRIL; B.S. Nagesh, former Managing Director of Shoppers Stop Ltd; and Pradipta Mohapatra, former Managing Director of Spencer's Retail. These pioneers learned on their feet in an industry in which being the first mover is not always a good thing. Noel Tata, then Managing Director of Trent, told Business Today in November 2009: "The last guy in has all the advantage."

In Biyani's case, while his retail business grew rapidly, he also got into financial services and real estate. Between 2007 and 2009, the retail business grew almost 2.5 times, from five million to 12 million sq ft. Biyani also set up a supply chain management joint venture with Hong Kong-based consumer goods solutions provider Li & Fung Ltd, and expanded into financial services by setting up Future Capital.

Burdened by debt of some Rs 8,000 crore - of which the non-banking finance business accounts for more than Rs 2,000 crore - he had to sell Pantaloons. PRIL's total store area is currently 16.5 million sq ft, of which Pantaloons accounts for two million sq ft. PRIL plans to add another two million sq ft this financial year.

In the value segment, where Big Bazaar and Food Bazaar operate, PRIL reported 3.2 per cent growth in its existing stores in the quarter ending in December 2011, and 2.7 per cent growth in the following quarter. Compare this with Reliance Industries's same-store growth of over 20 per cent in 2011/12.


So, did Biyani miss a trick or two? Did he not learn fast enough? In what is probably his first interview since the Pantaloon deal was announced, Biyani told Business Today editor Chaitanya Kalbag that he had made a mistake by spreading himself too thin. "Besides retail, we are into financial services, logistics, e-commerce, insurance," he says. "Whatever investment we have put into other businesses has not generated that much return, so all the burden is coming on retail."

The problem of knowhow
A number of challenges in the sector that formed the backdrop to Biyani's deal are also the reason Reliance Industries has been tinkering with its retail model. Several of its companies handled different formats, such as hypermarts, neighbourhood stores, and lifestyle stores. In December 2011, it merged nine companies into Reliance Fresh Ltd, a subsidiary of Reliance Retail Ltd. Companies that handled back-end operations were also merged into Reliance Fresh. Functions such as human resources and finance are handled by the parent, Reliance Industries.


In 2010, Reliance hired Gwyn Sundhagul, former head of the Thailand arm of British retailer Tesco. As CEO of Reliance Retail, he helped set up processes for retail operations. In 2011, Sundhagul moved to Reliance Industries, and Rob Cissell, former COO of Walmart China, took over the reins of Reliance Fresh's value formats. Brian Bade was brought in from Big Lots Stores, Inc to head Reliance Digital. Tesco has been in business for more than 90 years, and Walmart for 50.

Many changes followed. "The height of shelves at stores and number of bays were increased so more merchandise could go in," says Cissell. "Non-food FMCG products had to increase at Reliance Fresh outlets. All the hypermarts are being renovated." Trent has tied up with Tesco, and the Bharti Group with Walmart, for back-end processes and cash and carry .

In many aspects of business, Indian retailers are reinventing the wheel. Foreign direct investment (FDI), allowed in single-brand retail and cash and carry, could speed up the learning curve. Amitabh Mall, Partner and retail expert at Boston Consulting Group, says that foreign solutions may not work in India, but "what the foreign majors have invested in is the science of retailing".

So a Tesco can use its experience to benefit its Indian partner. For example, Indian stores typically place detergents and soap near the entrance, because these are among the highest-selling products in the value segment. A Tesco team reckoned that customers would seek out this section no matter where it was. So it was moved to the far end of a store, while other products were placed up front. The team found soap sales did not suffer, and other items benefited.

Tesco brought in a 40-member revenue maximisation team, and also one to focus on loss prevention. It used mapped traffic patterns in the country's top 20 cities to identify the best location for a store.

What Knowhow Can't Fix
Indian retail has some problems that perhaps cannot be addressed by retail science. Arvind Singhal, Chairman of Technopak Advisors, puts the distorted real estate market at the top of his list.

An industry veteran estimates that the ratio of rent cost to top line in an Indian mall for the apparel segment is around 10 to 12 per cent, compared with around seven per cent in developed markets such as the United States or Europe.

Gross margins - the selling price of goods minus their cost - are lower in India than in developed markets. So food and grocery retailers typically have a 14 per cent gross margin in India, compared with around 17 per cent in developed markets.


Another constraint is maximum retail price, which is the same for a product sold in a big city or a village. Then there is no goods and services tax, so companies have to build warehouses based on state boundaries rather than logistical need. Licences for various purposes are another hassle. For example, Reliance has 1,300 stores nationwide, for which it maintains 7,000 licences.

The quality of footfall in Indian malls is also a matter of concern. Biyani says that while demand for fastmoving consumer goods is good, it is inconsistent in the fashion and home segments. Hemant Kalbag, Partner at A.T. Kearney for retail and consumer goods, says: "The volume of consumption in India is not so high. Consumers are still not shopping enough at the malls."

The problem of cash
The Indian retail market is valued at $500 billion at present - $325 billion for the value format and $35 billion for apparel. Organised retail is valued at around $30 billion, and has plenty of potential to grow. Overall retail is expected to be worth $675 billion in 2016, and organised retail at $84 billion, according to Technopak's estimates.

"The retail opportunity will be beckoning Indian industry for the next 100 years; it is so huge," says Shoppers Stop's B.S. Nagesh, who has set up TRRAIN (Trust for Retailers and Retail Associates of India), an initiative to improve the lives of sales staff. He adds: "This sector is very capital-intensive. The problem is that enabling organisations like banks do not recognise this.... Therefore, price earning is stretched and entrepreneurs are stretched." He points out that India is trying to do in 10 years what western countries did in 40.


A new store takes time to stabilise and break even, so companies must balance the number of stable, profit-making stores and new ones. When a company tries to grow fast, especially in the low-margin value format, it ends up with more lossmaking stores, which would strain its cash flow. Cash burn is what did Subhiksha in. The no-frills retail chain, started by IIT and IIM grad R. Subramanian, set up 1,600 outlets in 12 years, and closed in 2008.

A stockpile of cash is a big advantage - one that Reliance Retail has, as its parent has $14 billion in cash on its balance sheet. ABNL and Trent, too, have cash-rich parents. Many say the government's refusal to permit FDI has limited the sector. "It could have given us some exits much earlier," says Biyani. "I have multiple formats, multiple businesses. Any business to hive off could have made me debt-free earlier."

He argues that FDI would help the wider Indian retail industry. "Any industry needs money and cannot grow only on domestic capital," he says. Domestic capital is expensive, he adds. "In business, it is like in the Mahabharata… you know how to enter… but there needs to be an exit option also."

With the cash crunch in focus, Spencer's Retail, part of the RP-Sanjiv Goenka Group, which plans to add 200,000 sq ft a year, will proceed with caution, says Goenka.

Trent raised about Rs 250 crore by selling a stake of almost 10 per cent through qualified institutional placement in March 2012. Azim Premji's investment firm, PremjiInvest, bought some 4.9 per cent.

Shoppers Stop has cut prices to stem declining sales. "The volume growth challenge came because of high price rise in apparel," says Managing Director Govind Shrikhande. "This season, the price rise is half of last year. We have dropped prices of exclusive brands to gain back volume growth."

High interest rates and a cautious approach by banks to retail are like salt in a wound. "From a financier's perspective, long gestation periods, profitability dependent on achievement of economies of scale requiring large capital commitment, low long-term asset creation and evolving formats are major concerns," says an Axis Bank spokesperson. Axis Bank is one of the lenders to PRIL.

Kishore Biyani's response to his cash problem was to sell Pantaloons. He has said earlier that he was considering 18 deals. The Pantaloons deal will cut the group's debt of nearly Rs 8,000 crore by Rs 1,600 crore. Biyani is satisfied. "That's 14 to 16 per cent of our business, and we are still managing it," he says of Pantaloons. "As a promoter we'll have a 25 per cent stake." The sale of Future Capital would cut debt by another Rs 2,000 crore.

"The sale of Pantaloons will reduce margins as it was a high margin business," says Bharat Chhoda, analyst with ICICI Securities. "The transaction will be revenue-neutral, as the savings on interest and drop in sales will compensate each other." Biyani disagrees with this analysis, made by several others besides Chhoda. He says: "The shareholder is getting a vertical demerger... Like I am getting a stake, all the shareholders get a stake." He adds that the demerged entity will be listed independently.


"This will be valued far more than the consolidated value of the business I head," he says. He stresses that after the sale of Pantaloons and Future Capital, PRIL will become debt-free. "The only debt that will remain will be in value retail business," he says. At present, PRIL's debt situation is scary, with an interest coverage ratio (interest payments to operating income before interest and other income) of over 90 per cent. This means almost all of its operating profit goes towards interest payments. The ratio of interest payment to EBITDA is in the low 60s, which means that while the company is making little profit, its cash flow situation is a little better.

Room for Optimism
Biyani is sanguine. He plans to add 1,000 outlets to KB's Fair Price - his kirana store brand - over the next 18 months. He is set to open his first food park - a production facility where other manufacturers will set up units - in Bangalore. His aim is to create an ecosystem that produces food for sale at KB's Fair Price. He had a slow start on supply chain management, but today he provides warehousing and logistics services to others. Biyani is still in expansion mode. Hence the need for money.

He has roped in Lawson, Japan's second-largest retailer, which is likely to be his partner if FDI is allowed in retail. Mitsubishi Corporation, too, has shown interest. "Biyani is good at setting up businesses, but running a business successfully is another matter," says an industry insider.

"He is a man with an instinctive feel for the Indian consumer," says the CEO of a retail company who does not want to be identified. He says he spent time in a Biyani-owned store, observing design flaws. "I took my lessons, and when we opened at a nearby location, we had much better facilities," he adds.

The Indian retail industry still has some way to go on the learning curve. A fat pile of cash will make the ride shorter and smoother.


Contributed by: Suman Layak (www.businesstoday.intoday.in)

Additional reporting by Geetanjali Shukla

Wednesday, June 06, 2012

Can We Measure The Best Place to Start a Business in Sub Saharan Africa?

Can We Measure The Best Place to Start a Business in Sub Saharan Africa?

The GlobalPost does a nice job taking the data from the World Bank's 2011 survey on the easiest and most difficult countries to do business and putting it into an easily viewed and searched interactive infographic.

According to the data, Mauritius holds the rights to say it is the best place for an entrepreneur to do business in Sub Saharan Africa. The bottom of the list is composed of some of the usual suspects who it seems are often found at the bottom of SSA rank lists: Chad, the Central African Republic and the Democratic Republic of Congo.

On a quick glance of the rankings by category, the fact that trading across borders does not seem to really matter is quite striking. Mauritius has a #1 ranking in this category, but the next three on the overall rank list are in the twenties or higher on the measure. Getting electricity is another one where some with a high rank still make it to the top while others with a better rank in the category do not score as well overall. Naturally, all is not going to be equal, but I would have expected access to electricity and neighboring markets to be pretty important. It is possible that the range is rather close when looking at the actual measured data and the rank does not show the proximity of some nations. This is where inforgraphics tend to fall short.

As is the case with any rank list, one has to ask if it is possible to adequately measure how friendly a given country is to entrepreneurs.

In this case, the focus of the data on cities and established business makes it a bit hard to make the full leap to saying anything with absolute certainty. Even if accepted at face value, the World Bank data tells us the best place to be a middle sized business in an African city. Being that cities do not have a monopoly on entrepreneurship, there are some examples that will be missed in the data. Further, smaller business that can eventually develop into the middle sized group that would make the survey in future years are entirely neglected.

Understandably it is hard to measure these businesses on the scale that is necessary for comparison and it becomes tricky when determining what businesses make the cut, but it would be interesting to see some rough data on start-ups in general. They will face an entirely different set of challenges, (for example accessing capital) that will have a greater or lesser impact as compared to medium and large businesses.

With all that said, the data presented in the link above is worth checking out.


Contributed by :- www.aviewfromthecave.com

Friday, June 01, 2012

India to give major boost to Africa's cotton output

Accra, June 1 (IANS) India has set in motion a $4.66 million programme to develop the cotton industry across the African continent, which has faced a combination of problems over the years.
The plan will initially cover seven countries across the continent, S.K. Makhijani, economic counsellor in the Indian High Commission in Abuja, Nigeria, told IANS.
The seven countries are Benin, Nigeria, Chad, Burkina Faso, Mali, Malawi and Uganda, Makhijani said in an email message, adding: "The entire project is valued at $4.66 million and it covers the three-year period from January 2012 to December 2014."
Experts claim African producers have not been able to improve their production over the past few decades. Alejandro Plastin, an economist of the International Cotton Advisory Council (ICAC), said African cotton production declined from a peak of two million tonnes in 2004-05 to just a million tonnes in the three seasons up to last year.
"African cotton accounted for seven percent of world cotton production at its peak, while it accounts for only five percent now," Plastin added.
Notwithstanding the low production, he said, "African cotton is perceived to be of higher quality than cotton from many competing origins and to have fewer neps because of hand picking. However, African cotton has a strongly negative perception for contamination and delays in delivery linked to poor roads, railroads and ports."
"Furthermore, most African cotton is still hand-classed, while competing exporters make full use of high volume instruments (HVI). However, the greatest challenge for African cotton is its declining international competitiveness due to declining yields," Plastin said.
"World cotton production increased from 13.8 million tonnes in 1980-81 to 24.9 million tonnes in 2010-11 and is expected to reach 26.8 million tonnes in the current season, as a reaction to the record prices observed last season."
Despite the increase in production observed over the last three decades, the total area under production globally always fluctuated around 33 million hectares.
"Consequently, increase in production was driven by increase in yields. In particular, increases in yields from the 1990s to the 2000s were driven by the adoption of better production practices around the globe, but mainly by the adoption of biotechnology in major producing countries. This is what kept Africa's production very low because it had not been able to keep up with the changes in the sector," Plastin added.
Last year, Payhounni Bebnone, vice president of the African Producers of Cotton Association (AProCA), told a meeting of the Africa cotton producers in Cotonou, Benin, that the industry across the continent was "facing many different challenges. Efforts in some countries to find solutions have rather contributed to worsening of the situation."
He identified access to land for production as one of the main problems.
"Most of the land was leased and there was insecurity to tenure. This has affected programmes to promote better farming practices," Bebnone said.
He said return to yield has also been greatly affected. "There has been a steady decrease in average yield. Whilst it peaked around 1,150 kilograms per hectare some 10 years ago, it hovers around 900 kilograms per hectare today."
It is against this background that the Indian initiative has been formulated.
"This is an Indian initiative under the aegis of the second India-Africa Forum Summit aimed at strengthening the competitiveness of the cotton sector," Makhijani said. This is to be done through training, transfer of technology and ICT-based interventions in production.
In addition, "training in extension technology, training in post-harvest management as well as pilot projects on crop residue-based industries" will be conducted.
It is also expected there would be the establishment of skill schools, exposure visits, advisory support for policy framework and investment promotion.
"It is hoped that these initiatives would change the face of an industry that has suffered a myriad of problems over the years," Makhijani said.
Over the last 20 years, the world cotton yield has climbed from 600 kg of lint per hectare to 750 kg per hectare, while the yield in Africa has declined from about 400 kg per hectare to 315 kg per hectare now. The keys to increasing yields are strong regulatory systems to ensure credit recovery and prevent pirate buying and increased research and extension.
At current prices, African cotton production is valued at approximately $3 billion. As a general guide, $1 spent in research and extension yields $6 in increased productivity.
"If Africa is to double production by 2020, investments of $500 million need to be made. This is an achievable increase in investment in the cotton sector when spread over a number of years and across several African countries," Plastina said.
With world cotton yields rising slowly during the 2010s and competition for land with biofuels limiting the area for cotton, the ICAC expects nominal cotton prices to be higher this decade than was the case in previous decades.
Some experts say Africa has the potential to raise production to three million tonnes by 2020. Thus, there will be opportunities for income growth in the African cotton sector if yields and logistics can be improved.

Courtesy : www.agriwireglobal.com

Supply Chains on Horticultural Products - S. Sivakumar, Chief Executive - Agri Businesses, ITC

Supply Chains for Horticultural Products

Monday, May 28, 2012

More than $3 billion in Private Sector Investment for the New Alliance for Food Security and Nutrition

The New Alliance is a shared commitment to achieve sustained and inclusive agricultural growth in sub-Saharan Africa. New Alliance efforts will help lift 50 million people out of poverty over the next 10 years by aligning the commitments of Africa’s leadership to drive effective country-led plans and policies for food security and nutrition; the intentions of private sector partners to increase investments where the conditions are right; and the commitments of G-8 members to expand Africa’s potential for rapid and sustained agricultural growth. All parties recognize that achieving transformational and sustainable economic growth and impacting smallholder livelihoods requires attracting significant and socially responsible private investments.

Africa's economic growth, with agriculture as a strong driver, is creating substantial new business opportunities, and the rate of return on foreign investment in Africa is higher than in any other developing region. Responsible private sector investment is a critical component in the development of all economies and thus a vital driver of human development. The private sector can increase food availability by not only increasing investment in production, but also by linking smallholder farmers to broader markets and creating incentives for innovation that improve productivity. This, in turn, can improve access to food and employment opportunities that raise smallholder farmer incomes.

Private Sector Commitments
In order to boost responsible private sector investment and facilitate greater partnership between African governments, the private sector, and development organizations, the G-8 is launching the New Alliance for Food Security and Nutrition which will catalyze private sector investment in African agriculture. Leveraging the work of Grow Africa – a public-private partnership platform co-led by the African Union, NEPAD, and World Economic Forum – the New Alliance is already underway. First wave private sector investment pledges across the agricultural value chain, including irrigation, processing, trading, financing and infrastructure already stand at over $3 billion and could potentially impact millions of smallholders.

Highlights of the 21 African and 27 multinational companies that are signing Letters of Intent include:

• Yara International intends to invest up to US$2 billion to build a world-class fertilizer production facility—among the first of its kind in sub-Saharan Africa—and develop regional fertilizer distribution hubs; • Rabobank intends to launch a lending facility in West Africa that would provide up to US$135 million in loans over five years to small and medium-size companies in the region which participate in the agricultural value chain, ranging from production, processing and logistics to services and technology; • Vodafone intends to establish the Connected Farmer Alliance in Tanzania, Mozambique and Kenya to increase the productivity, incomes and resilience of over 500,000 smallholder farmers by strengthening the linkages and feedback loops between smallholder farmers and large agribusinesses, thereby decreasing the cost of doing business with smallholder farmers and helping improve their productivity. • Tanseed, a private seed company in Tanzania, is committed to training contract growers in certified seed production – leading to an estimated $11 million in additional sourcing from local certified seed contract growers – and seed processing using innovative smaller 0.25 to 2kg seed packs to meet needs of smallholder farmers with low purchasing power.
Additionally, more than 60 companies are signing the “Private Sector Declaration of Support for African Agricultural Development” outlining their commitment to support African agriculture through responsible public-private partnerships.


Private Sector Entities Signing Letters of Intent

GLOBAL COMPANIES
AGCO
Armajaro
Cargill
Diageo
DuPont
Jain Irrigation
Monsanto
Netafim
Rabobank
SABMiller
Swiss Re
Syngenta
Unilever
United Phosphorus Limited
Vodafone
Yara

LOCAL/REGIONAL AFRICAN COMPANIES
ACT
Agrica/KPL
Agriserv
Agro EcoEnergy
Bank of Abyssinia
Ecobank
Finatrade
Ghana Nuts
Guts Agro Industries
Hilina Enriched Foods
Mullege
Omega Farms
Premium Foods
Selous Farming
SFMC
Shambani Graduates Enterprises
TAHA
Tanseed
TASTA
Tatepa
Zemen Bank

GLOBAL COMPANY VALUE CHAIN INITIATIVES
AFRICA CASHEW INITIATIVE
Kraft
Intersnack
Olam
Oltremare
SAP
Trade and Development Group

WORLD COCOA FOUNDATION
Armajaro
Kraft
Hershey’s
Mars

COMPETITIVE AFRICAN COTTON INITIATIVE
Cargill
Dunavant
Industrial Promotion Services – West Africa
Plexus

Key Facts: The New Alliance for Food Security and Nutrition

The New Alliance for Food Security and Nutrition is a commitment by G-8 nations, African countries and private sector partners to lift 50 million people out of poverty over the next 10 years through inclusive and sustained agricultural growth. It responds to strong African commitments to promote and protect food security and nutrition – articulated in multiple settings since 2003 and validated by tremendous progress made in Africa since 2009. The New Alliance builds upon and will continue the progress made by G-8 nations since 2009 at the L’Aquila Summit, and offers a broad, inclusive and innovative path to strengthen food security and nutrition.

The New Alliance supports the accelerated implementation of the African-developed and led agricultural plans (known as CAADPs), through assistance and by catalyzing private sector investment in African agriculture. It embraces the commitments made a L’Aquila and combines assistance with effective policies driven by African governments, increased private sector investment, new tools to scale innovation, and a focus on managing risk.

Initially launching in Tanzania, Ghana, and Ethiopia at the G-8 Camp David Summit, the New Alliance will expand rapidly to other African countries, including Mozambique, Cote d’Ivoire, Burkina Faso and other African nations that are participating in the Grow Africa Partnership. Over time, the New Alliance will expand to all African countries prepared to join.

Specific commitments in the New Alliance are from:

African leaders to refine policies in order to improve investment opportunities and accelerate the implementation of their country-led plans on food security;
Private sector partners who have already committed more than $3 billion to increase investments; and,
G-8 members who will support Africa’s potential for rapid and sustained agricultural growth with assistance and other development tools, and ensure accountability for the New Alliance.

THE NEW ALLIANCE IS ALREADY UNDERWAY
G-8 and African partners have designed country cooperation frameworks in Ethiopia, Ghana and Tanzania. More will follow across Africa. Over 45 multinational and African companies have committed to specific agricultural investments that total more than $3 billion and span all areas of the agricultural value chain, including irrigation, crop protection, financing and infrastructure.

G-8 members are following through on L’Aquila commitments and continuing to make a down-payment of over $3 billion to kick-start this new approach. G-8 members are also taking joint actions to bring agricultural innovations to scale, support effective finance, reduce risk for vulnerable communities and economies, improve nutrition and reduce child stunting—focusing, in particular on smallholder farmers especially women, including:

INNOVATION: G-8 members are supporting the launch of new partnerships to identify key productivity technologies, set 10-year adoption and yield improvement targets, and promote commercialization and adoption of key technologies, including improved seeds and post-harvest management systems.

FINANCE: G8 members are supporting the Global Agriculture and Food Security Program (GAFSP), with a pledge target of $1.2 billion over three years in pledges from existing and new donors for the public and private sector windows. G-8 members are also and supporting the preparation and financing of bankable agricultural infrastructure projects including through a new Fast Track Facility for Agriculture Infrastructure.

RISK MANAGEMENT: G-8 members support national risk assessment to help African governments formulate strategies for managing risks to women and men smallholder farmers, such as drought.

NUTRITION: G-8 members will actively support the Scaling Up Nutrition movement and welcome the commitment of African partners to improve the nutritional well-being of their populations, especially during the critical 1,000 days window from pregnancy to a child’s second birthday.
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Monday, May 21, 2012

Ahead of G-8 Summit, Development Experts Outline Roadmap to Better Food Security in Africa

Ahead of G-8 Summit, Development Experts Outline Roadmap to Better Food Security in Africa


WASHINGTON (April 18, 2012) -- A new report released today addresses the gap between high-level political commitments to food security and their implementation as G-8 leaders prepare to address the situation in Africa in May. The G-8 nations represent the bulk of development aid, trade, and investment flowing to Africa and, in conjunction with African nations, have the best ability to affect development on the African continent.
Transformational Partnerships in Food Security in Sub-Saharan Africa, written by a Transatlantic Experts Group, calls for a new vision for development based on partnerships among Africans, Americans, and Europeans from both the public and private sectors to accelerate African development, starting with food security. Recommendations are directed at Africans, Americans, and Europeans alike.
The group is led by former U.S. Congressman Jim Kolbe and Jean-Michel Severino, the former head of the French Development Agency. The German Marshall Fund of the United States, for which both Kolbe and Severino are senior fellows, organized the group and published the report. Support for the project comes from the Swedish Ministry for Foreign Affairs and the William and Flora Hewlett Foundation.
“There is a confluence of factors which make this issue both critical and timely”, said Kolbe.  “We are seeing a leveling of agriculture productivity even while world population continues to grow.  But no amount of humanitarian aid can solve the problem in the long run.  There has to be greater investment, and that means transformational partnerships among donors and with the private sector to assure access to food and proper nutrition in sub-Saharan Africa.”
Key Takeaways:
  • One billion people globally suffer from chronic hunger. The world’s population will jump from seven to nine billion by 2050, increasing pressure on natural resources and fragile societies, which will be exacerbated by food insecurity. Nowhere will these forces be more acutely felt than in Sub-Saharan Africa.
  • 2012 represents the final year of the G-8 L’Aquila commitments, where world leaders pledged $22 billion to address food insecurity. Budget austerity leaves policymakers fewer resources in a time of increased need.
  • The report outlines how cross-sectoral and donor-to-donor partnerships can help solve food security problems. Effective partnerships can alleviate hunger, build institutions, and foster sustainable economic growth, mutually benefiting transatlantic and African actors.
  • The report identifies key principles and recommendations that should be embraced when entering into a partnership that increase the chances of shared success.  These include recognizing the necessity of long-term, systemic change in order to effect transformation; the importance of leadership; engaging the private sector on manageable, concrete issues with a shared vocabulary and metrics; and adapting a holistic approach that promotes sustainability and participation and does not shy away from experimentation.
Principles and Lessons Learned Agricultural transformation is a long-term process that requires sustained commitment to systemic change by several involved parties working together. Partners must define concrete, iterative steps aimed at clear and common goals with these broader impacts in mind and indicators of progress. It is equally important to establish a culture of learning and adaptation, and a certain level of risk tolerance. Institutionalization of vision is as important as vision itself. Third-party actors such as NGOs, emerging countries, international research institutions, and diaspora communities can often serve as neutral brokers. Early successes can build momentum and gain credibility. Partnerships can generate positive spillover effects for the wider economy, society, or governance.
Recommendations for Transatlantic Policymakers The United States should use its G-8 presidency to raise the profile of “transformational partnerships.” The United States and Europe should also include more countries and sectors in their dialogues on food security.  In partnership with African stakeholders, transatlantic partners can help governments streamline regulations, expand entrepreneurship, and build trust between the public and private sectors. The United States and Europe should sponsor programs that build African expertise in agriculture and nutrition. Domestically, the United States and Europe should allow for flexibility in agriculture programming and reconcile conflicting trade and development policies.
Recommendations for African Policymakers It is ultimately the responsibility of Africans to enact policies that will increase food security.  Improvements must be made to the business climate in order to increase investment in the agriculture sector. Safety net programs must be implemented or strengthened to complement these efforts and address the needs of high-risk populations. Effective grain stock management must be utilized to not only help with food emergencies and shortages, but also to alleviate pressures to employ trade restrictions. The urban population must be incorporated into any food security strategy, especially given the acceleration of the urbanization that accompanies agricultural transformation.  Nutrition should be more integrated into food security strategies because food quality matters. Regional groupings such as the East African Community (EAC) need to fulfill commitments to unlocking regional markets and trade through the alignment of standards and improved cross-border infrastructure.
Recommendations for Joint Action Collective, coordinated action amplifies the impact of any one actor’s efforts. Joint action should be concentrated on helping small-scale farmers become medium-sized farmers and develop profitable business enterprises at every stage of the agricultural value chain. Partnerships can help advance models like “hub and out-grower” schemes that connect smallholders to more sustainable business-oriented activities. Formal partnerships between these farmers and larger-scale commercial farmers working through producers’ associations and other platforms must be facilitated. Women play a critical role in African agriculture, so policies must pay particular attention to that group. African and transatlantic partners should enable South-South exchanges, with countries like Brazil, China, and India, to share knowledge and proven practices. Joint action to improve African financial and banking practices can unlock access to capital to farmers, agri-business, and small- and medium-sized enterprises across the continent.
Recommendations to Build Knowledge, Foster Learning, and Sustain Partnerships Investments should be made to build strong agricultural and socio-economic statistical systems to inform evidence-based decision-making and monitoring of progress.  Development partners should increase the capacity of African-based think tanks, business associations, and other African-owned partnership platforms. In addition to building government capacity at the national and federal level, efforts should also be made to ensure that local government officials have the resources to implement policies and programs. Development agencies need to foster a culture of learning that incentivizes innovation and allows for change and adjustment.  Lessons from public-private partnerships in other sectors should be leveraged to help build this capacity in the agriculture sector.
Published by The German Marshall Fund of the United States
Contact: Anne McGinn, amcginn@gmfus.org, +1 202 683 2676

Saturday, May 05, 2012

We Already Grow Enough Food For 10 Billion People -- and Still Can't End Hunger

A new a study from McGill University and the University of Minnesota published in the journalNature compared organic and conventional yields from 66 studies and over 300 trials. Researchers found that on average, conventional systems out-yielded organic farms by 25 percent -- mostly for grains, and depending on conditions.
Embracing the current conventional wisdom, the authors argue for a combination of conventional and organic farming to meet "the twin challenge of feeding a growing population, with rising demand for meat and high-calorie diets, while simultaneously minimizing its global environmental impacts."
Unfortunately, neither the study nor the conventional wisdom addresses the real cause of hunger.
Hunger is caused by poverty and inequality, not scarcity. For the past two decades, the rate of global food production has increased faster than the rate of global population growth. The world already produces more than 1 ½ times enough food to feed everyone on the planet. That's enough to feed 10 billion people, the population peak we expect by 2050. But the people making less than $2 a day -- most of whom are resource-poor farmers cultivating unviably small plots of land -- can't afford to buy this food.
In reality, the bulk of industrially-produced grain crops goes to biofuels and confined animal feedlots rather than food for the 1 billion hungry. The call to double food production by 2050 only applies if we continue to prioritize the growing population of livestock and automobiles over hungry people.
But what about the contentious "yield gap" between conventional and organic farming?
Actually, what this new study does tell us is how much smaller the yield gap is between organic and conventional farming than what critics of organic agriculture have assumed. In fact, for many crops and in many instances, it is minimal. With new advances in seed breeding for organic systems, and with the transition of commercial organic farms to diversified farming systems that have been shown to "overyield," this yield gap will close even further.
Rodale, the longest-running side-by-side study comparing conventional chemical agriculture with organic methods (now 47 years), found organic yields match conventional in good years and outperform them under drought conditions and environmental distress -- a critical property as climate change increasingly serves up extreme weather conditions. Moreover, agroecological practices (basically, farming like a diversified ecosystem) render a higher resistance to extreme climate events which translate into lower vulnerability and higher long-term farm sustainability.
The Nature article examined yields in terms of tons per acre and did not address efficiency ( i.e. yields per units of water or energy) nor environmental externalities (i.e. the environmental costs of production in terms of greenhouse gas emissions, soil erosion, biodiversity loss, etc) and fails to mention that conventional agricultural research enjoyed 60 years of massive private and public sector support for crop genetic improvement, dwarfing funding for organic agriculture by 99 to 1.
The higher performance of conventional over organic methods may hold between what are essentially both mono-cultural commodity farms. This misleading comparison sets organic agriculture as a straw man to be knocked down by its conventional counterpart. While it is rarely acknowledged, half the food in the world is produced by 1.5 billion farmers working small plots for which monocultures of any kind are unsustainable. Non-commercial poly-cultures are better for balancing diets and reducing risk, and can thrive without agrochemicals. Agroecological methods that emphasize rich crop diversity in time and space conserve soils and water and have proven to produce the most rapid, recognizable and sustainable results. In areas in which soils have already been degraded by conventional agriculture's chemical "packages", agroecological methods can increase productivity by 100-300 percent.
This is why the U.N. Special Rapporteur on the Right to Food released a report advocating for structural reforms and a shift to agroecology. It is why the 400 experts commissioned for the four-year International Assessment on Agriculture, Science and Knowledge for Development (IAASTD 2008) also concluded that agroecology and locally-based food economies (rather than the global market) where the best strategies for combating poverty and hunger.
Raising productivity for resource-poor farmers is one piece of ending hunger, but how this is done -- and whether these farmers can gain access to more land -- will make a big difference in combating poverty and ensuring sustainable livelihoods. The conventional methods already employed for decades by poor farmers have a poor track record in this regard.
Can conventional agriculture provide the yields we need to feed 10 billion people by 2050? Given climate change, the answer is an unsustainable "maybe." The question is, at what social and environmental cost? To end hunger we must end poverty and inequality. For this challenge, agroecological approaches and structural reforms that ensure that resource-poor farmers have the land and resources they need for sustainable livelihoods are the best way forward.
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Tuesday, April 03, 2012

The New Business of Africa: Markets and People Transforming the Continent

International CEOs who have not recently revised their appraisal of Africa would be well served to do so, and quickly. There is an unprecedented transformation occurring across the continent rendering years of economic assessment all but obsolete. This was evident at a recent New York Stock Exchange African investment conference, which boasted representatives of Africa’s 29 stock exchanges, panels on private equity, IPO announcements, investment outlooks by senior Wall Street analysts, and presentations on Africa’s tech industry -- now outpacing mobile banking innovations in the U.S. Such news, part of a growing library of hard data on Africa's economies, has corporations worldwide revising dusty business plans or assigning teams to create new ones in order to capitalize on recent growth trends. The IMF recently projected economic growth in Africa will reach 5.5 percent in 2012, well above that of most western economies. Sub-Saharan Africa is expected to grow at a faster clip than Brazil and India and claim seven of the world’s 10 fastest growing economies by 2015. Conjecture on Africa as the new emerging market is also challenging long held perceptions on governance, foreign aid, and development. What is happening in African business? How is recent buzz different from past flashes in the pan? Sampling data and speaking to business experts several categorical trends emerge. Africa’s economic transformation is coalescing around developments in five key areas: • Investment • Growth • Market Demographics • Modernization; and • The diaspora INVESTMENT Record levels of capital are flowing into Africa. From the years 2000 to 2010 annual foreign direct investment (FDI) increased from less than $10 billion to between $50 and $80 billion. FDI is expected to increase to $150 billion by 2015, according Ernst & Young’s 2011 Africa report, which surveyed 562 global executives, 42 percent of whom indicated they would increase their companies’ investment in Africa over the next decade. The Chinese are investing significantly in Africa, including China’s highest outward amount - $316 billion from 2005 - 2010. Chinese investment is expected to increase 70 percent to $50 billion by 2015, according to Bloomberg. With Africa registering the highest returns on foreign investment in the world, American multinational companies are also making strategic moves. Over the last two years Wal-Mart completed a $2.4 billion acquisition of South African retailer Massmart, GE’s Immelt named Africa as a priority growth region, and IBM announced a $1.5 billion investment in African focused technology company Bharti Airtel. U.S. private equity giant The Carlyle Group launched a Sub-Saharan Africa investment group, adding to overall private equity investments on the continent of $3 billion in 2011. The Economist Intelligence Unit reported that private equity and infrastructure are expected to outpace commodities as the most lucrative investment class in the next three years. GROWTH In 2010 and 2011 two publications on Africa aroused serious attention in senior business circles. The first was McKinsey & Company’s bullish 2010 “Lions on The Move...” Then in 2011 The Economist published a feature highlighting joint Economist/IMF statistics on African GDP growth. From New York to Davos, statistical data from these documents resonate in just about every major speech, panel, and article on African business today. Indeed, McKinsey noted Sub-Saharan Africa’s 2008 GDP of $1.6 trillion equaled that of Brazil and Russia and that Africa’s collective GDP was expected to rise to $2.6 trillion by 2020. The Economist highlighted Africa’s six of ten fastest growing economies in the world over the decade to 2010 and projected the continent to have seven of the ten fastest growing economies over the period to 2015, outpacing the entire Asian region. While commodities sectors and increases in commodity prices have certainly played a significant role in growth of the past decade, around 32 percent, McKinsey emphasized the continent’s economic upsurge is more than a resource boom: “Two-thirds [of Africa’s GDP growth] came from other sectors, including wholesale and retail, transportation, telecommunications, and manufacturing.” To top off expansionary highlights, The IMF forecast Sub-Saharan Africa as a whole to grow 5.5 percent in 2012, nearly two percent above the global average. MARKET DEMOGRAPHICS Global consultancy Accenture released its own report on Africa in late 2011 focused on the consumer market. It projected spending by African consumers to rival Russia or India, reaching nearly $1 trillion by 2020. With 1 billion people now, Africa’s population is forecast to double to 2 billion by 2050, 66 percent of whom are expected to live in cities and be of working age. Accenture projects poverty levels of Africa’s population to decline to 20 percent by 2020, from around 43 percent in 1995. Collectively, Sub-Saharan Africa’s growing population, urbanization, new middle class, and rising purchasing power are creating opportunities in new sectors and sub-sectors and garnering new investment from global firms. Proctor and Gamble’s CEO Bob McDonald described Africa as the company’s “next frontier.” More investment is flowing into African start up media and technology ventures and estimates predict over a billion mobile phones users by 2020. One of the continent’s overlooked and potentially influential consumer sectors, retail banking, holds tremendous opportunity. Most sources estimate that over 80 percent of Sub-Saharan Africa’s adult population is unbanked. Bain & Company released a report in 2011 projecting double digit growth in Africa’s financial services sector, including retail banking growth of 40 percent by 2020. There are many experts, including economist Dambisa Moyo, who suggest empowered consumer classes in Africa can influence private and public sector reform. “You have an emerging middle class of consumers that are going to demand growth from their governments,” said Standard Bank's Regional Director for Corporate and Investment Banking (East Africa) Victor Williams. “When you couple that with ongoing political liberalization then you are likely to have governments that respond to the demands of this emerging middle class by continuing to foster pro growth policies.” MODERNIZATION Components of Africa’s “doing business” framework are modernizing. The infrastructure sector presents the greatest necessity and opportunity, representing a $1 trillion prospect over the next 10-11 years. According to Alain Ebobisse, Chief Investment Officer for Global Infrastructure at The International Finance Corporation, “Around $45 billion a year is already being spent on infrastructure, about half of the $93 billion needed annually to meet Africa’s growth and development goals.” The continent is mobilizing resources in finance and public private partnerships to modernize infrastructure. At the recent African Union Summit heads of state endorsed the multi-billion dollar Program for Infrastructure Development in Africa (PIDA), a joint initiative of The African Union (AU), The African Development Bank, and New Partnership for African Development. Ironically, infrastructure gaps have spurred tremendous innovation in mobile phone networks. With overall subscribers growing approximately 20 percent annually, Africa has now overtaken Europe in the number of mobile phone connections and the US in number of mobile phone users. Mobile telecommunications in Africa has led to some of the world’s most advanced applications. In financial services, Kenya has become a global leader in mobile banking. Safaricom’s M-Pesa service redefined retail banking by making mobile phones all-in-one credit cards, ATMs, money transfer offices, and branches. Mobile innovation in Africa has fostered a new generation of technology entrepreneurs. Kenya now hosts *iHub, a digital and physical open source center providing community resources to tech entrepreneurs to develop ideas and connect to investors. Silicon Valley venture capital funds are eying African investment opportunities in what is now being called Silicon Savannah. Finally, in an example of how radically Africa’s modernization pendulum can swing, after concerted commitment and reform, Rwanda ranks eighth in the world in the “Starting a Business” category of the global “Ease of Doing Business” index, creating a new narrative away from war and “one of the poorest countries” clich├ęs that often accompany press on the country. THE DIASPORA Throughout the world Africa’s diaspora is thriving and channeling its success back home. In the U.S. Africans went from being the highest educated immigrant group in America to having the highest educational attainment of any demographic in the entire nation. In terms of capital, Kenyans now send home over $1billion a year, Nigerians $10 billion, and estimates project diaspora remittances rival FDI in many countries and now exceed foreign aid for the entire continent by 50 percent. A new class of diaspora entrepreneurs is emerging, including many professionals who attended elite universities in the U.S. and Europe, leaving top jobs to launch businesses in Africa or take leadership positions in existing firms. These entrepreneurs are bringing both financial and intellectual capital and many see Africa’s repatriate business class driving private and public sector reform. “In Africa reforming the private sector can lead to changes in the public sector and that’s the additional potential of FDI, private equity, and entrepreneurs,” said Nigerian financier Nnamdi Cheikwu, who passed up jobs in New York and London to form his own private equity advisory firm. “If I own a successful African company, I can set the culture and standards, build professional capacities, and empower individuals. That can become a building block to a robust, transparent, private sector that can permeate to influence government,” said Chiekwu. BUSINESS AND BEYOND There is overwhelming evidence something historic is shaping up around African business. There are unprecedented amounts of foreign capital flowing into the continent, mass mobilization of resources toward modernization of infrastructure, greater commitment and investment by a wider range of global businesses than has ever existed, and a growing population of entrepreneurial and economically empowered Africans. It’s important to note Sub-Saharan Africa’s challenges related to governance and dismal socio-economic indicators still exist. Unfortunately there remain many “poorest” and “worst” indicators connected to the continent. Additionally, as the financial crisis demonstrated, markets without proper macro-economic frameworks are no panacea. Still, there is a possibility Africa has turned a corner, with the momentum and magnitude of business developments intersecting with other factors to permanently transform the continent. This includes governance, overturning perception and aid paradigms, significantly improving living standards, and a new generation of Africa’s best and brightest driving private and public sectors. It’s definitely an exciting era for the continent with much remaining to be seen. In the meantime, more smart money and smart minds in business continue to go long on Africa. The author of this article, Jake Bright is a Whitehead Fellow of the Foreign Policy Association. This piece originally appeared on the website of the FPA.