Falling crude oil prices has put several economies across Africa at risk. And has once again shown how critical the agricultural sector is to any economy, particularly that of Africa.
Oil-dependent economies like Nigeria, Africa’s largest economy, are increasingly appreciating the importance of the agricultural sector; the West African country is transforming its agric sector to ensure it becomes another important foreign exchange earner for the country.
With 65 percent arable land capable of feeding the whole world, Africa holds the global food market’s future in its hands, should it decide to fully harness its rich potentials. The sector, which has hitherto not received the needed attention, following the discovery of oil in many states, is responsible for more than 52 percent of jobs on the continent and contributes about 40 percent to total GDP. This can even be better if modern agricultural practices are employed.
AGCO, a global leader in the design, manufacture and distribution of agricultural equipment, is bringing such practices closer to Africans.
Ventures Africa recently spoke with Nuradin Osman, AGCO’s Managing Director for Africa & Middle East. He spoke on the company’s activities in Africa and how this is helping the continent grow its crucial agricultural sector.
Ventures Africa (VA)– Can you please introduce yourself?
Nuradin Osman (NO) –My name is Nuradin Osman, AGCO’s Managing Director for Africa & Middle East.
VA – In the just released quarterly report of AGCO, I noticed that margins have reduced, largely due to falling crop prices. I also noticed that sales have gone down in North America, South America and Europe. How has sales been in Africa?
NO – Just to give you two things on that, Africa and Middle East is part of Europe. For our financial reports, we do not separate our revenue from Africa and Middle East. What I can tell you is that for Africa and Middle East, we are expecting a 50 percent growth compared to last year. Today, Africa & Middle East is the only region today where AGCO is recording significant growth.
VA – What would you say is responsible for the impressive growth in Africa and Middle East compared to other markets?
NO -There are two main reasons for this. First, over the last five years, food security has risen to become the top agenda item for a lot of African governments. If you remember the Arab spring, which was more of an Africa spring, was somehow related to commodity prices. As you know in 2008, agricultural commodity prices went up significantly which meant that many people in the middle class in Africa could not afford more than the basic crops. From that point of view, we have seen a shift from African Governments as well as the donor countries, especially the donor countries emphasizing that food security is greatly impacted by the crop growth security of the country. So, we are now seeing many countries which are focusing on improving crop security, and ensuring food security. That is one thing that is driving our growth.
The second one which is driving our growth is that AGCO has focused on implementing its strategy as a win-win situation for the African farmers. AGCO has expertise which we are now putting to use. Our brands history combined represents 226 years of accumulated agricultural knowledge; we are now bringing this knowledge closer to the African farmer. So, our customers are now able to take advantage of the latest technology developed by AGCO, representing best practice in the science of farming. This translates to significant growth coming from sales of high tech equipment. Thus, the demand for tech is growing rapidly. So these are the two key drivers for us as the growth in Africa and Middle East.
VA – Do you think these growths will be affected, as the OECD says, in the next two years we are going to continue seeing crop prices fall. Do you think it is going to affect Africa?
NO – No, because in Africa, the crop production is very low. So, if you look at the yield directly in Africa, average yield directly for the basic main crops like maize, soya and cereals, is a fraction of what it is in developed countries. So, for an African farmer, increases in productivity will still result in increased income, hence he will still be able to afford to buy mechanisation.
So AGCO is applying its knowledge and expertise in Africa via initiatives aimed at educating and empowering African farmers to allow them to move from say one ton or less than a ton, to up to 8 tons/hectare, which is the standard in developed farming nations. Take maize for example: on AGCO’s Future Farm in Zambia, we have already demonstrated that you can grow more than 8 tons per hectare of maize in Africa. In fact, with adequate hydration or irrigation systems in place, it is possible to achieve yields of 9 tons per hectare or more of wheat and some winter crops. These increased yields mean increased income for our farmers, hence providing the catalyst for investments in mechanization. So, even with declining commodity prices worldwide, the impetus is still there for African farmers to still invest to catch up in yield levels that will allow the farmer to have and maintain more income.
The demand for trading in Africa is also growing quicker if you look at the poultry consumption, eggs today, 40% global trade of poultry takes place in Africa and Middle East and we have seen that the increased demand for poultry production will allow us to increase productivity for the feeds. So the demand for feed for animal will continue to grow in Africa. We believe that in the years up to 2020 Africa will grow on average up to 25% – 50% every year.
VA – How is your $100 million investment drive in Africa going?
NO – It’s progressing according to our plans. If you look at our strategy, announced 3years ago in January 2012, announced a plan to invest $100million in Africa. We have now already invested more than 50%of this investment in African projects. We established our first office, a head office for Southern Africa in Cape Town. We have employees based in Cape Town operating for the southern part of Africa. We have the second investment which is the only manufacturing location producing tractors in Africa, it is located in Algeria. It is a technically, vertically integrated factory, which started production at the end of 2012, and which has significantly increased production levels at the end of 2013. Compared to 2012, production in 2013 has been doubled. A significant investment was made to develop this manufacturing capability, and will significantly increase the amount of tractors that we market in Africa.. We also invested in Zambia, in a project that we are calling our Future Farm. This will be the platform and systems approach to deliver training and capacity building. We expect the grand opening to be by mid-2015. So, we are very happy with what we have achieved so far, but our investments so far have been towards the north and south of Africa. We have little in the east and west.. We believe the growth for agriculture will come from the east and the west, but there are some challenges we are facing in these regions that we need to overcome before we start investing.
VA – Could you please discuss some of these challenges?
NO –At the heart of the challenges we face in the east and west of Africa is the fragmentation in the agriculture industry. Let’s take for example, Nigeria where we have undertaken extensive research over the last two and a half years. Our research is looking practically on how the farmer is producing crops, and how the whole industry is integrated. If you look at the Nigerian government strategy regarding agriculture, it looks at one element, namely the effective integration of agriculture. There are two types of agriculture we need to focus on. We have a law called the Liebig’s law, or more formally “Liebig’s Law of the Minimum”. Simply put, Liebig’s Law, when applied to agriculture suggests that plant growth is controlled, not by the total amount of nutrients or resources available, but by the availability of the scarcest resource. Simplistically, water can be seen as one of those resources and we know that it doesn’t matter how much other resources there are in the soil for our crops, without any water those crops will not grow.
Take Nigeria, for instance, where poultry producing companies, have been buying chicken from the market and selling to the end user like the QSR (quick service restaurant). When they found that the price they are buying for is quite expensive, they then invested in broiler houses to grow their chickens, only to find out that it’s very difficult to get day-old chickens and feed, so they moved into the abattoir business because the cost of processing the chicken is very low but storing the chicken in their refrigerator or keeping them fresh is now very high. So, you find there is no link between the whole vertical integration of agriculture. Returning to my point, you need to take into account your crop production, storage capacity, feed mill capacity, day old chickens, boiler houses, processing size and distribution size. This is the vertical integration of agriculture and these systems are currently not available in the east or the west of Africa.
If you listen to the Minister of Agriculture of Nigeria, during his interviews, he speaks about the government’s targets for agriculture.…, He will speak about fertilizers, he will speak about seeds, he will speak about cassava, and about bread produced from cassava, but what he does not mention is, how can we effectively address the whole supply chain such that the whole industry loop of agriculture is closed. Doing this ensures that no capital is flowing out of the country, for example, to buy and import some of these day-old chickens; to buy some of the feeds; to buy some of the crops which you know that Nigeria imports significantly. An amount estimated at some 11billion dollars of cereals is imported into Nigeria.
So, if you can think about value and think about how do I link my agriculture industry from land to the shelf product, then this systems approach is available more in the northern and southern part of Africa,. Governments in the east and west of Africa need to start thinking in this total systems way, and incorporate this into their agricultural strategy. We at AGCO are spending a lot of time getting this message across to various governments, but we are not having much luck when talking to the governments of East and West Africa. We want to dedicate more time to explaining how agriculture has developed globally as a total system, and that you need to address the whole value chain, rather than single issues such as hybrid seeds, drought resistance seeds, fertiliser inputs, etc., that’s just the main input. You should think of more agriculture final products that the end user wants to pay. In supermarkets, for example, chicken, finished chicken, dairy products to milk cheese, eggs, and you need to look at the final product from the shelf and how to link the whole supply chain in order to have a constant supply within the value chain. We are not very happy about our performance in the east and west since we are not getting our matches crossed.
VA – Yes, there are states, counties’ local governments that start agricultural drives themselves. Will that be a thing you will be considering to get involved in in East and West Africa?
NO – For example, I myself have visited Enugu state, Kaduna, Bayelsa, Osun, Ekiti state, Niger delta. I have seen the challenges involved in, and the approach people are taking to land clearance, particularly in the south. Land clearance is really an intensive endeavour, and to do it sustainably can cost anything up to $2000 – $3000. This is even before you plant or before you start cultivating your land. That is a huge capital requirement upfront.
We are looking sustainably at how we can clear the land while keeping the nutrition to the soil, that is the biggest challenge in the south of Nigeria, the north is cleared, the challenge in the north is the transportation- getting goods from the north, moving crops produced from the north to the south. It is actually cheaper to buy grain from Ukraine or Russia and ship it to Lagos than buying grain from the north because the infrastructure is not that great. So that is the main challenge, the logistic cost in transporting food produced from the north to the south is very expensive. If you look at progress level, we are very successful with the government in Ekiti state. Ekiti state is now building a forest agricultural college, advised by AGCO, which opened its doors to students in October. AGCO put up a lot of resources and provided know-how to the college. So, that is the ideal solution.
The second challenge is the youth in Nigeria. They are not interested in Agriculture, which is not seen as ‘sexy’ enough. Agriculture is not seen as a ‘business’, not a career choice, but as a chore that needs to be done by someone, just not me! So, how do we change that image of agriculture? How do you show that in developing countries, 95% of people involved in agriculture work in a commercial environment, wear clean shirts, and that there’s no hard labour involved? Small percentages of people in developed countries are producing the crops. In the U.S., for example, only 3% produce the entire crop, the farmer population are almost less than 3% so if you look at all OECD countries you will find that 95% of the people involved in agriculture are in the processing or manufacturing side. We have to look at how to increase productivity by mechanizing at the early stage. This is where agribusiness has been very successful in the developed countries which we want to replicate in Africa such as to create a sustainable process chain from land to the dinner table, so that most of the people’s involvement is in the downstream manufacturing and packaging process.
VA –Okay, apparently Africa is very important for AGCO, what is the company’s unique plan for the continent?
NO – Okay, we had to look at the industry, and saw that in the entire continent of Africa, the total industry of agriculture mechanisation is smaller than the state of Sao Paulo, in Brazil. The state of Sao Paulo buys more agriculture mechanisation than the entire continent of Africa! So, first we need to address mechanisation levels, and the benefits of mechanization. Then we must address the more critical situation of processing and manufacturing infrastructure. We need to get people out of the field and move them into the better paying downstream jobs in agriculture. We will always need to have jobs in the field, but we can do this more efficiently by employing mechanization, and by investing in capacity building – if we train young Africans how to fix and drive tractors, and how to apply best farming practices. In this way, we will only benefit from those employees, their communities, and the agricultural well-being of their country.AGCO has been investing in Africa for 100 years, and our investment now is to focus on capacity building.
VA – You said something about developing human capital, I think that is what you are doing in Zambia, how’s the training farm going? How is it going in Zambia?
NO -The Future Farms concept I refer to, derives directly from asking ourselves some searching questions regarding mechanization:
- Can a mechanization of agriculture act as a driving force for growing prosperity in Africa?
- How can we best achieve agriculture that is not only economically and ecologically sustainable, but is also sustainable for employment?
- Which models benefit the sought-after growth for everyone?
AGCO’s 150 hectares farm near Lusaka, Zambia is the first example of such a Future Farm concept. Farmers, especially of small to medium sized holdings, with limited access to modern farming techniques will benefit from training courses ranging from basic agronomy through to general mechanisation, and will get training on the use and maintenance of tractors and harvesting equipment, including grain handling and storage techniques.
Second, we have also brought in expertise through partners like Bayer Crop Science, Yara, Farmers Insight, Rabobank to help us to link the entire value chain. The benefit of this approach is that this model can be replicated anywhere in Africa.
VA – Do you have plans to extend this kind of training facility to other parts of Africa?
NO – AGCO intends to package and transfer the knowledge and infrastructure being developed at the Zambian Future Farm across Africa. Exporting the core knowledge and expertise from Zambia, and successfully reproducing it, will establish the ‘Future Farm’ approach to providing agricultural education and development across the continent.. We are targeting Nigeria, Ghana, Senegal, Cameroon, Gabon, in West Africa, and in East Africa we are targeting Kenya, Tanzania, Uganda, and Ethiopia. We have also identified, and are targeting Algeria, Morocco, Tunisia in the north. In order to complement South Africa and Zambia, we are looking at Mozambique and Angola as well.
VA – Have you ever considered going into partnership with higher institutions of learning, universities and the likes, to set up training facilities like this in their faculties of agriculture.
NO – We are working with Harper Adams University, one of the foremost agricultural colleges in the UK, and they have seconded a PhD student to work on our farm, and develop his thesis in the area of Controlled Traffic Farming in African conditions.
Another university in the Netherlands with expertise in dairies and specialized crops will bring this expertise to our farm. In addition to our interaction with farmers in Zambia, we also directly engage with the University of Agriculture in Zambia.
VA – With the current trend in oil and gas sector, falling oil prices and everything that has been predicted will go on till 2015, a country like Nigeria that depends on oil for about 80% of its revenue, do you think it’s now that they will be looking at diversifying the economy? This may be a very big opportunity for AGCO to come in because now they will be thinking about the future and putting in better policies in the agricultural sector. Your thoughts on this?
NO – You are absolutely correct in your assessment. Indeed, African countries have been enjoying high levels of economic growth, spurred on by ever higher commodities prices, but as these industries stagnate, they must now look to new paths to maintain economic progress. Diversification into industries such as agriculture becomes imperative, especially as some 70% or higher of rural population is employed in this sector. Yet diversification does not occur in a vacuum. There needs to be an enabling environment to make diversification possible, and this is what I’ve mentioned earlier.
So, what needs to be done to enable this shift to agriculture? On the key matters there is a broad agreement:
■ Establish government policies and a favourable environment for investment.
■ Access to finance and credit for acquiring seed inputs, fertilizers, and mechanisation.
■ Increase adoption and utilisation of technology and mechanization
■ Ensure access to agricultural training and basic education
AGCO can offer support for the first two points above, and use our expertise to enable the second two points..
VA – Thank you, do you think there is any model for medium scale farmers, any AGCO model that can encourage them to go into full mechanisation of their practises.
NO – Yes, for the medium sized farmer, AGCO is developing the concept to provide timely and affordable mechanized services to farmers who cannot afford agricultural machinery on their own. The proposed package would include a range of agricultural machinery, such as tractors, implements – planters, tillers, seed drillers, and so forth. With access to bank lending of $ 8,000 – 10,000, a consortium of farmers could pool their resources together, and gain access to much more sophisticated equipment than they could alone. This is where AGCO is driving towards the medium size farmer. It is something we call ‘machine rings’. Machine rings means that if we have 10 farmers, one buys the tractor, one buys the implements, one buys the grain storage, and another buys the trailer. With this in place, the 10 farmers contribute and ensure fair usage and access to each of equipment, meaning that ownership of a $50,000 or $100,000 equipment is easily within reach of a medium size farmer..
VA – You have a tractor manufacturing partnership in Algeria, how soon do you think farmers in Africa can start enjoying that?
NO –Our customers in Algeria are already benefiting from this manufacturing partnership. Together with our Algerian partners, we are producing Massey Ferguson tractors locally for the Algerian market ensuring so that high quality products are available to the fast growing agriculture scene in Algeria. It is a significant step in our long term growth strategy for the African continent.
Second, with this development, we will fast climb the learning curve, and will be better equipped to locate new manufacturing and assembly plants in other parts of Africa.
VA – Can you tell me something about the AGCO Africa Summit?
NO -The Africa Summit is quite interesting for us. We host it in Germany every year.
AGCO is heavily engaged in the challenges and opportunities in African agriculture. As a stakeholder to the World Economic Forum (WEF) ‘New Vision for Agriculture, AGCO is taking the initiative by promoting debate and action through its annual Africa Summit which discusses the challenges facing African agriculture, addresses the world food supply problem, and promotes dialogue to encourage businesses to invest in the future of Africa
The event is held in Berlin in January, and our distinguished guests and panellists look at and discuss the impacts of innovations in Agriculture, from government policy, to the development of women farmers’ potential; from mechanization, to innovative opportunities offered along the value chain. Overall, an emphasis is being made on developing the farmer [through education and capacity building] and developing the structure, i.e. downstream manufacturing and processing.
Prior to the actual event each year, we have been running an AGCO Africa ambassador contest program for four years now, aimed at reaching young Africans with an interest in developing African growth through agriculture, with the eventual winner having the opportunity to host the AGCO Africa Summit, and win a prize of 10,000 dollars.
VA – When you hold the summit, do you invite journalist, policy makers, ministers of agriculture of countries in Africa, so that they can see what you are doing?
NO – Absolutely. As you know, The International Green Week (IGW) event, which allows food producers from all over the world to introduce new products, to test market food and establish brand identities, runs during January of every year in Berlin since 1926. As part of the International Green Week, Global Forum for Food and Agriculture and the 7th Berlin Summit of Agricultural Ministers will take place with themes of discussions around “Empowering Agriculture”, and “Securing Food and Nutrition”. So, with so many Agriculture Ministers already present, it made absolute sense for us to run the AGCO Summit in the same city, immediately following the ministers forum, and invite them to attend, along with entrepreneurs and investors in agriculture.. Just to give you an example of our distinguished delegates, at our first summit, our key note speaker was former president of Nigeria, Mr. Obasanjo. At the following event we also had the former president of Ghana, Mr. Kuffour, and we also had ministers coming from Congo, Zambia, and different parts of Africa. At the end of the day, this is a platform to present the business solutions of agriculture, and we hope to continue this type of dialogue, eventually, bringing our conference to Africa in the near future.
VA– What role do you think AGCO’s investment can play or is playing to reduce the poverty in Africa and ensuring sufficiency of food?
NO – First, we must recognize that addressing these problems requires a multi-stakeholder approach that involves partnering with governments, prive sector, and civel society . AGCO was an early signatory to the WEF ‘New Vision for Agriculture’, and is taking the initiative by promoting both the debate and action through its annual Africa Summit, with its partners, and the Future Farm concept.
This concept and its underlying programs will help smallholder farmers and their families increase production, in a sustainable manner, through increasing yields and selling more crops, thereby reducing hunger and poverty, and achieving a nation’s food security.
Second, as these farmers improve their food production, and income, they are better able to feed their families and provide for their children’s education and investing in developing and expanding their farms. This will have the effect of economically developing their communities, making these stronger and more viable.
VA – Apart from the challenges you talked about in Nigeria and in East Africa, what other challenges do you face in Africa?
NO – Making agriculture attractive to youth is critical if we are to meet the challenge of feeding the world’s growing population. Only the youth can transform rural Africa, and hence make a tremendous contribution to both their society and environment.
Do not forget that Sub-Saharan Africa has the fastest growing youth population projected between now and 2050 and the highest youth population percentage in the world. It is imperative that governments factor this into national and social development planning, as these youths will face a bleak future of high unemployment, unless their skills, interests and capabilities are channeled into a diversified economy, with a focus on agriculture.
We must also look to our growing African middle classes, to inspire their children to study agriculture, agricultural engineering or agricultural economics at university level and get involved in farming. To support this, governments, and companies like AGCO need to show the modernized agriculture by improving both attitudes and perceptions of people towards agriculture.
The media can also play a critical part in supporting this campaign, to show that farming needs intelligence, good know-how, and lot of professionalism to carry out complex agricultural operations. We need to change our attitude and perception towards farming and I implore the youth of Africa not to underestimate farming. Agriculture has the potential to provide them with not only very good income, but also the chance to transform Africa.
VA– AGCO is already investing $100 million in the continent, which is supposed to run for five years. After this, do you plan to invest more?
NO – Yes, helping smallholder farmers and their families increase production, in a sustainable manner, through increasing yields and selling more crops is the most effective way to reduce hunger and poverty, and achieve a nation’s food security. As such, AGCO will transfer the knowledge and infrastructure being developed in Zambia across Africa, in partnership with government and private sector partners, to ensure education and development across the continent.
Meanwhile AGCO will continue to invest in developing its footprint in to other parts of Africa such as the east and the west, to mirror the investments in the south, such as the building and opening of our Parts Distribution Centre in Johannesburg, South Africa.
With these initiatives AGCO, is not only strengthening its position in Africa, but also delivering on its mission: ‘To provide high-tech solutions to farmers feeding the world.’
VA – What other expansion plan do you have for Africa?
NO – Considerable attention has been focused on expanding our manufacturing footprint, and we are now testing the viability of producing our implements in Africa. These are essential components that all farmers require in order to fully deploy mechanization, and yet are less complex to design and manufacture. These would make an ideal next path for AGCO in Africa.
VA – What advice do you have for farmers and policy makers in the agricultural sector to ensure that agriculture is seen as an essential business?
NO – Agriculture holds the key to transforming the prosperity of many African countries, where agriculture and farming drives the local economy. In some cases, agriculture currently accounts for up to 50% of Gross Domestic Product (GDP) and accounts for up to 60% of employment.
It is clear then that investing in agriculture, investment in mechanization accompanied, importantly, by education will provide the catalyst for rural development. At the same time, governments must play their part. Agriculture remains the main source of income and employment for the majority of Africans, but today agriculture’s potential is not being achieved due to limited investments not only in the production stage, but also in high value agro-processing. We need political stability; improving infrastructure – continuing connectivity and reliability of transport systems, roads, trains, and fairly reliable power and water supplies; youth who are enthusiastic about agriculture, and with appropriate experience and technical skills; and government’s attention and focus – government must make use of earmarking of agriculture as one of their priority sectors.
VA – A good percentage of Africa believes mechanisation is very costly so they can’t afford it, how do we create a balance?
NO -Past initiatives of promoting mechanization in Sub Saharan Africa have generally not been very successful. The lack of demand for mechanization and the lack of supporting infrastructures were major reasons for this failure. Now, as agriculture has become more intensive and more commercially oriented, we are confident that this demand has increased.
Farm machinery co-operatives are the way forward. It not only lowers machinery costs per farm member but also enables farms to operate more efficiently, since larger and more powerful equipment can be purchased. Because of the larger equipment, the number of hours needed to farm the land is also reduced, giving the farmers involved more time either to earn additional income.
So what is critical is forming the cooperative for mutual benefits. AGCO is working with support organizations and NGOs who are helping create such cooperatives, based on the co-operative values of self-help, self-responsibility, equality, equity, and solidarity.
VA – What are you doing to influence better farming policies across Africa?
NO -I have experience globally of how everything is done in agriculture. I don’t think there are many people out there whose exposure across agriculture policy, agronomy, farm science and management, farm equipment use and service as well as the agriculture value chain has been as extensive as mine. As such, I feel great responsibility to promote agriculture as it should be practised, throughout Africa and afar. But it’s not easy to really get a one-on-one discussion with policy decision makers.
I would welcome the opportunity to speak with policy makers about the many technologies and best practices that enhance agricultural productivity with potential to lift thousands of rural families out of poverty. I want to stress that there are existing ideas for the enhancement of agricultural productivity based on adopting influences and best practises globally, and not being afraid to do so, or to embrace scientific methods, including GM crops, or crop disintegration. I want them to support us, and embrace our approach which calls for training and empowerment of people at the grassroot level.
If policy makers do not do this, but only listen to NGOs and donor countries, the agriculture agenda will remain a single focus agenda, namely to highlight small holder farmers. Without creating the environment in which small holder farmers can grow to become medium sized ‘farm businesses’, I am afraid the small holder farmer is liable to remain so for the next 100 years.
VA – Thank you very much for your time.
NO – Thank you.