Over the last two decades, Africa has experienced extraordinary economic growth. Increased private investment flows have enabled the technological transformation of several key sectors like telecommunications, financial services, and banking. Yet, the agricultural industry, the continent’s most important economic sector accounting for 14% of GDP and 52% of the workforce, remains much the same as it did decades ago.
The sector is acutely underdeveloped and lags behind much of the world. It’s highly fragmented, inefficient, and unable to support the growing food needs of the population.
This stark reality is pretty astonishing, given Africa should be the world’s breadbasket. The continent has approximately 60% of the world’s unutilised arable land, with the potential for widespread irrigation through seven major river networks. It can support the growth of a wide array of crops and produce enough to feed much of the world, let alone the continent alone.
An industry left in the past, beset by problems
Africa’s agricultural industry faces problems up and down the value chain. For the most part, farmers have to buy raw materials such as seeds, fertilizers, and equipment, just as they did 20 to 30 years ago. Production is highly fragmented, with smallholder farmers constituting 90% of the total farms and 85% of farms occupying less than two hectares. For context, in Mexico, 50% of the farmers are considered smallholders. In countries like Brazil, Germany, and the US, this number is around 11%.
African farmers also lack skills, training, and access to credit and other financial services to fund and safeguard their businesses. They have poor availability of information and are forced to navigate inefficient supply chains. There is also a severe lack of market linkages which prevent farmers from connecting with buyers.
The consequences of these and other challenges can be seen in the low levels of quality, output, and the high price of food items. Wastage is enormous, with 30-40% of the total harvests wasted in the supply chain. Food quality varies enormously, and the nutritional value of what is produced is also declining. In addition, African consumers currently spend about 50% of their disposable income on food compared to 10% in European nations.
Ultimately, these factors are a leading contributor to widespread malnutrition that plagues the continent. It’s estimated that 20% of people in Africa are undernourished and that 30% of children under five have stunted growth. The rate of wasting among children in Africa stands at approximately 7.1%. These figures give Africa the highest burden of malnutrition in the world.
Agri-tech innovations can change the entire equation
Transforming Africa’s agricultural industry to meet its vast potential will be challenging. But it’s important to remember that transformation on such a scale is not unprecedented in Africa.
One need only look at the success of mobile and telecommunications connectivity as an example of what’s possible. The continent now has an estimated 1 billion mobile phones that connect hundreds of millions of people. It also has a thriving mobile payment and banking industry, and all of this without needing to build an expensive landline infrastructure.
Much in the same way mobile devices and telecommunications have transformed many African nations, agri-tech innovations can revolutionise the continent’s underdeveloped agricultural sector. In fact, the proliferation of mobile devices and connectivity has set the foundation for the transformation of the farming sector.
The proliferation of mobile devices has opened up the opportunity to collect data on unbanked smallholder farmers’ transactions and build a record of their financial transactions, enabling the provision of data-driven micro-credit and micro-insurance products.
Likewise, thanks to the widespread adoption of mobile devices and increased connectivity, unskilled farmers can access things like farming advice, market information, and weather forecasts in their language. There are now a small but growing number of mobile applications that use SMS and web-based tools to deliver low-cost farming techniques, step-by-step instructions, and other advisory services to help farmers upgrade their knowledge and skills.
However, these mobile based solutions are just the tip of the iceberg.
There are substantial opportunities to transform disaggregated and fragmented supply chains through affordable access to off-grid, mobile cold storage units to reduce food loss and transport costs. Web platforms can connect smallholder farmers with production inputs, knowledge, and access to local and international buyers.
Precision tools for crop management and sustainable food production can help improve yield and output quality by making data on land and soils. Automated hardware and software solutions can also offer a way for farmers to increase productivity and income and reduce costs.
Key investment areas
In recent years, technology has started to penetrate the market in more substantial ways. There’s been a noticeable rise in investments. In 2021, agri-tech firms received $200m of growth investment, a 3x increase from 2017. Deal size is also up 3x. However, with that said, 2021 saw African tech funding reach an all-time high of nearly $5b, so agri-tech’s share of investment is still meager, especially when considering the market’s size and importance to the African economy. The market remains untapped, and because Africa has had so little tech investment for decades, the value of agri-tech is perhaps higher in Africa than anywhere else in the world.
At DAI Magister, we anticipate the next few years will be transformative for Africa’s agricultural industry. We expect $1bn investment into the sector over the next three years and a rise in the number of companies graduating to larger rounds. This expectation is based on two external catalysts that will drive increased investment and bigger funding rounds.
Population growth and rising demand
Africa’s population is one of the fastest growing and will hit 1.68 billion people by 2030. The continent also has a rapidly growing middle class. By 2030, food demand from Africa’s rapidly growing population and expanding middle class will hit $1 trillion per year. With a growing middle class, demand for higher quality agricultural products will rise.
Climate change and food security
The adverse impacts of climate change are forcing governments and farmers to adopt climate-friendly and sustainable agricultural practices. In the coming years, worsening climate threats, natural resource degradation, and the continued decline in the nutritional value of produce will drive the need to build more resilient agricultural value chains that can ensure greater food security.
Taking into consideration these external catalysts, we predict the lion’s share of investment will flow into the following key areas.
Increasing yield and produce quality
Precision tools for crop management and sustainable food production can help to improve yield and output quality by making data on land, soils, and other resources more widely available. Using data and analytics, farmers can make more accurate fertiliser and irrigation decisions to optimize water usage and reduce crop wastage. Real-time alert systems can monitor crops and livestock health for pest and disease management.
Companies like Gro-Intelligence already illustrate how human and artificial intelligence can increase yield and enhance food security. Gro analyzes trillions of data points such as crop forecasts, satellite images, topography, reports on precipitation, and soil moisture to provide insights, projections, and model risks. Esoko, out of Ghana, is now serving hard-to-reach communities & farmers by providing real-time information about market pricing, weather forecasts, and even agricultural tips and techniques via text messages.
Improving process automation
Automated hardware and software solutions have yet to be widely applied. Solutions range from automated drip irrigation kits, driverless and autonomous tractors, picking machinery, and more. Such solutions can minimise the need for human supervision and offer a way for farmers to increase productivity, quality, and output while reducing costs.
Releaf, for example, helps smallholder farmers reduce and improve their monthly income by using a specialised machine that eliminates the hours spent manually de-shelling and separating palm nuts. The company also supports farmers by providing zero-interest equipment financing that drives increased access to mechanisation, improving productivity and working conditions. There are also crop monitoring solutions with automated detection and assessment capabilities that can minimise the human supervision usually required to harvest crops or understand irrigation needs and the ripeness of fruits or vegetables.
Enhancing supply chain efficiency & market access
Due to a fragmented supply chain and retail sector, smallholder farmers suffer inefficiencies, higher transaction costs, and problems matching supply with consumer requirements. These challenges can and are being overcome by using web platform solutions that aggregate communications, logistics, demand, and distribution.
One such example is Twiga. Twiga leverages technology to aggregate retail demand in African cities, providing high-quality, low-cost food. Sokofresh, another agri-tech, manages affordable access to off-grid, mobile cold storage units to optimise aggregation from smallholders, significantly reducing food loss during harvest periods and slashing transport costs. Farmcrowdy is Nigeria’s leading agri-tech platform that provides smallholder farmers with production inputs, knowledge, and access to local and international buyers.
A new era of farming is on its way
At DAI Magister, we see Africa’s agricultural industry representing the largest untapped technology opportunity anywhere in the world. The sector is broken and fragmented and lags behind other emerging markets like India and Southeast Asia in terms of investment and the application of agri-technologies in the value chain.
Compelling growth factors will also stoke unprecedented demand in the coming years. The continent is home to many of the world’s fastest-growing economies, and the AfCFTA trade agreement will make Africa one of the world’s largest single markets. The population is also set to rise above 1.65 billion by 2030.
With exciting innovation already taking place and investments on the rise, Africa is well on its way to becoming a global leader in the agri-tech space. We’re excited to continue closely monitoring new developments as the sector transforms in the coming years.