A millenary-old sector, agriculture remains one of the largest contributors to the global economy. In 2016 it supplied more than one job in four globally. In Asia, Taiwan, China and South Korea followed a successful agriculture development-led, industrialization pathway. Over five decades, they grew from impoverished to rich, industrialized, innovative economies.
This begs a question for South Africa. Has the country fully harnessed the sector’s potential? What can we do differently to ride a steeper growth curve?
Beyond the macro picture, a tale of two agricultures
At a high level, South Africa displays characteristics of an industrialised economy. In 2019, agriculture represents less than 2.5% of the GDP vs. 2.8% for food & beverage manufacturing. It also supplies slightly more than 5% of the employment.
However, this picture hides a large dichotomy. On one hand of the spectrum, commercial farms (less than 40,000) and agribusinesses, predominantly white-owned, contribute largely to the 10$bn of ag and food exports. They produce high-value products and are globally competitive without the equivalent subsidies provided to their US or European competitors. On the other hand, over 2 million black farmers practice agriculture as a way of subsistence.
This is the product of the apartheid: decades of oppressive racial segregation, leading to the under-investment in infrastructure and education, and the denial of economic development opportunities for the vast majority of South Africans.
A different model to unlock the growth potential
At BeyondSoil, we believe one segment has been underestimated: the emerging agri-entrepreneurs. They form less than 1% of South Africa’s farming population and stand between subsistence / small scale and commercial farming. Yet they have strong potential. They have an initial commercial track record, and the ambition and capability to scale up rapidly to become large, competitive farms and agribusinesses. But they suffer from three major challenges:
- Limited investment readiness – owing to their lack of collateral and limited financial literacy, which prevent them to raise sufficient funds for investment and growth;
- Underdeveloped operational capability – challenging their scale-up as they struggle to meet the needs of more sophisticated buyers in terms of volume, quality and supply terms;
- Poor access to market – owing to underdeveloped infrastructure in their areas of operations, established supply chains with vested interests, and their relatively small scale and limited capability to meet stringent supply requirements.
To fulfill their potential, we believe they need long term support and patient investment. BeyondSoil’s venture builder model provides just that. We invest a significant amount of time and human resources into businesses before fundraising to build their strategic, financial and operational capabilities to reach the ‘investment readiness’ stage. We assist them in fundraising for investing in their production capacity and fueling their growth. We accompany them through their scale up as a strategic and operating partner. Our vision is long-term. They need experienced partner support over a decade.
In scaling up these high potential emerging agri-entrepreneurs, we create value beyond just the financial bottom-line and a competitive return for investors. These ventures will create sustainable rural employment, contribute to reducing wealth inequality as Historically Disadvantaged Individuals are to be the majority shareholders, and above all create economic development for the local communities. These new agribusinesses will act as local economic anchors and over time could integrate other small-scale farmers in their supply chains.
Our approach is for-profit but not just that – we believe that creating sustainable local middle-class jobs is the only way to truly develop and attain the post-democratic development South Africa longs for.
Sources: BeyondSoil research; FAO Yearbook 2018; World Bank; Asian Development Bank; Cousins, B. and Walker, C. (2015). Land Divided, Land Restored. Land Reform; BeyondSoil analysis and research; Boettiger, S., Denis, N., & Sanghvi, S. (2017). Successful agricultural transformation: