The slowdown in global economic growth, which fell to around 3% in 2015 and 2.5% in 2016 because of the serious recession that has struck the markets in the last decade, has not helped the development of the farming sector, negatively impacting on investments in developing regions. Nowadays this sector no longer appears to represent such a profitable use of financial resources. For this reason the flow of investment into geographical areas hardest hit by the years of crisis has reduced quite significantly.

In addition, the record harvests recorded in 2014 and in previous years have placed the prices of agricultural products under severe pressure. Conversely, demand has continued to fall also because of the unfavourable economic conditions at the start of the decade. Furthermore, the negative pressure on prices has been exerted by the large quantities of stored foods, a factor directly correlated with the abundant harvests recorded in the first half of the decade. In June 2017 prices began to rise again, reaching a two-year high because of the adverse weather conditions in Europe and North America in the first part of the year. A particularly dry spring accentuated the recovery in the prices of agricultural raw materials with the FAO index having risen by over 15% since January 2016 to reach a 24-month high.

Opportunities in Sub-Saharan Africa.

For agriculture, a sector that is now saturated in developed countries, the biggest source of the growth in demand is the increase in the population size. However, even in this area there have been major slowdowns stemming from the most developed areas with an expected increase in the global population of 11% by 2025. The growth in Sub-Saharan Africa is particularly accentuated, demographic development in the region well above average with an estimated growth rate of around 28%. Today the region is inhabited by 950 million people, around 13% of the world population, and by 2050 this figure is expected to rise to 22% with the region home to around 2.1 billion people.

The gap between developed and developing countries in terms of food consumption per capita should fall by 2025. Nevertheless, per capita consumption in Sub-Saharan Africa is expected to be 20% below the average. In fact, even if the percentage of undernourished people fell from 33% in 1990-92 to 23% in 2014-16, this figure is the highest among developing regions according to the FAO. Considering the previous data, the region has a great need, and therefore great potential, for investment, also driven by the rapid growth in production of 130% that the farming sector experienced between 1990 and 2013 which although significant is still not sufficient. This percentage is mainly associated with the extension of the farmed area in the region. Indeed, until now the goal has not been to fully exploit the potential of the land but rather to extend the size of the farmed area. However, what is needed now is an evolution of the strategy with the aim of reducing the percentage of undernourished people, still extremely high, and dealing with the substantial population increase that has been predicted. The increase in productivity through the use of new tools and specific products is not a direct consequence though. Investments in the region have a high level of risk linked with the strong disparity in the policies adopted in the various countries and, to an even greater extent, the uncertainty deriving from the persistent political instability and ongoing civil wars.

In recent times there has been an increase in the presence of medium-sized producers. These players are crucial for the development of the sector as they foster the creation of integrated value chains composed of small- and medium-sized producers. In this way it is possible to facilitate access to credit and therefore to new technologies, and improve the efficiency of production over the next decade. The importance of promoting parallel investments in associated sectors, such as infrastructure and transport, also plays a key role in stimulating the necessary flows of capital into the farming sector. To this end, what is required is a commingling of public investment in major infrastructure and private investment for the importing of more efficient production technologies. As a result, this area may be of particular interest to both construction and transport companies and companies connected with the agri-food world, and could represent an interesting opportunity for operators in the fertiliser market.

Graph: Change in area and yield for cereals in Sub-Saharan Africa, annual growth between 2016 and 2025

In fact, a lack of advanced knowledge and technology leads to the over-exploitation of the land, which becomes depleted particularly in terms of carbon. Densely populated areas still see continuous cropping on the same plots of land; it is therefore necessary to enrich and replenish it with the substances that have already been exploited using both rotation techniques and fertilisers and soil amendment practices, thereby maintaining the levels of production necessary to feed the population. The development of public investment, as mentioned, is therefore necessary in order to provide the transport and infrastructure that make it possible to access energy sources and irrigation systems. It is also necessary to create a structure that favours private investments – specifically in terms of the technology required to improve the efficiency of production activities – which offer the possibility of high yields and foster the development of the African agri-food sector with the ultimate goal of drastically reducing the percentage of undernourished people.

OECD – FAO, Agricultural Outlook 2016-2025. Special Focus on Sub-Saharan Africa (2016)

Graphs: Tendercapital elaboration on outlook’s data.