Agri firms see hurdles in investing in Africa

With past investments stuck, investors seek assurance from the African government over returns on investment

The Prime Minister Narendra Modi's tour to Africa has revived enthusiasm over agriculture in African continent. Indian companies have started looking at African continent as the potential destination for investment in agriculture to meet deficit in India and elsewhere in the world. However, past experience suggests that the road is not free of hurdles.

To begin with, the government of India has signed a pact with Mozambique to import 100,000 tonnes of pulses (with the potential to double the quantity later) for which the government of India has committed supply of seed, technology and intelligence to the farmers of Mozambique. India is looking at similar opportunities in other countries including Kenya, Ethiopia, Congo and Tanzania that offers tremendous potential with very limited possibilities of success.

 

The contract for pulses import with Mozambique assumes significance in Indian context due to widening supply deficit with limited room for production growth in India. The Indian government, meanwhile, has assured its counterpart in Mozambique to pay the minimum support price (MSP) for pulses to be imported from the African country. India needs around 5.5 million tonnes of pulses and 16 million tonnes of edible oil to meet its immediate requirement.

"Africa can grow pulses for India having agro climatic condition and land fertility almost similar in both countries. All countries including Kenya, Malawi, Sudan, Tanzania etc. offers good soil and water availability suiting to agriculture needs. But, investors put their money at risk by investing in agriculture sector in Africa due to uncertain political system, unfavourable government policies etc. Therefore, some protection is required from the local government there to win investors' confidence. To begin with, therefore, trade between governments of two countries would be preferred to investment in agriculture," said Pravin Dongre, Chairman, India Pulses and Grains Association (IPGA).

Indian investors have had bitter experiences in the past. Number of large companies including Ruchi Soya Industries, Vedanta Harvests Plc, Solvent Extractors' Association, MMTC Ltd, McLeod Russel, Adani Group among a host of others invested in African agriculture four - six years ago. Many of these investors purchased land for growing various agri commodities. Companies like MMTC Ltd and Adani Group proposed to grow pulses, Ruchi Soya Industries invested Rs 50 crore to grab 152,649 ha of land parcel to grow soybean and set up a processing plant in Ethiopia.

The primary objective of these corporate investors was to grow pulses and oilseeds to meet growing demand - supply deficit in India. But, the objective was met with expected success because of various issues pertaining to agriculture. The major fear, certain political classes raised, was that the local land owners would lose their control over land in case Indian investors succeed in their business efforts.

"Our land parcel is situated at Sudan boarder which faces security unrest. We have spent Rs 50 crore in land acquisition, but no progress was made thereafter," said a Ruchi Soya spokesperson.

Meanwhile, the availability of large land parcel with suitable agronomic condition still induces Indian investors to take the risk with investment in African region.

Similarly, Solvent Extractors' Association (SEA) formed a consortium of 18 vegetable oil companies and took 15,000 ha of land on lease in Paraguay. But companies lost interest gradually due to a dramatic upsurge in cost of production. "We released the land which we had taken on lease," said B V Mehta, Executive Director, SEA.

Endowed with rich natural heritage like fertile land, favourable climatic condition similar to India and direct connectivity with mass consumer markets like Europe, countries in African region remained on back foot in terms of agriculture production. Irrigation facility remained almost absent resulting into the entire region's sole dependence on seasonal rainwater.

In good monsoon year, therefore, the agriculture productivity mounts while in drought year, the agriculture output hits. Consequently, a large portion of African continent needs aids from the rest of the world.

"It is therefore, essential for the African government to give a commitment on returns as investors cannot spend on people, infrastructure, land, politics and everything. So, trade between two governments would yield better results than investment in agriculture," said a senior industry official.

While pulses import from Mozambique would be a new initiative, Tanzania continues to supply pulses to India albeit in a small quantity. India opportunistically imports wheat and onion from Kenya too.