24 Nov

Global Chocolate Binge Has Olam Predicting Smaller Cocoa Surplus

The world just can’t get enough chocolate.

With “tremendous” demand in emerging markets looking set to continue this season, the world’s third-largest cocoa processor is projecting a sharply smaller global surplus. Excess cocoa supplies that reached a record last season will probably drop to about 50,000 metric tons, said Gerry Manley, head of cocoa at Olam International Ltd.

Demand has picked up in Asia particularly, where countries including the Philippines, Indonesia, India and China are consuming more cocoa powder used in products like cookies and ice-cream, Manley said. And while West African growers may reap a second year of bumper crops, top producer Ivory Coast is unlikely to repeat last season’s record harvest.

“We are very positive on demand,” Manley said in an interview at the company’s London offices Thursday. “We are seeing good demand for cocoa powder across the world, but mainly emerging markets are in a leading position there.”

Benchmark cocoa futures traded in London tumbled 23 percent last year, the biggest decline since 2011, as output climbed to a record in Ivory Coast, while Ghana, the No. 2 grower, also reaped a big crop. The large African harvests helped push the global surplus to 371,000 tons, according to estimates from the Abidjan-based International Cocoa Organisation.

This season, global cocoa processing will probably rise by more than 3 percent, Manley said, adding that the forecast is conservative. Processing exceeded 5 percent growth in 2016-17. About 8,000 new products were launched in the confectionery market last year, Manley said.

Lower costs are boosting demand, with the global chocolate confectionery market expanding 2.3 percent in the three months to June and 2.2 percent the following quarter, the world’s top cocoa processor Barry Callebaut AG said earlier this month, citing data from analytics firm Nielsen. The rebound came after at least six consecutive quarters of contractions.

Underestimating Growth

Changing consumer habits mean some traders may be underestimating growth. Trends including online shopping as well as the rise of artisan shops and bakeries are often missed by traditional data sources, Manley said.

Global cocoa powder demand is forecast to grow at 5 percent and Olam is looking to capitalize on that. The Singapore-based company is investing to increase its capacity to mill cocoa cake into powder in Asia and is also planning a new milling facility just outside Chicago, Manley said. The factory should be commissioned later this month.

Demand for cocoa butter and cocoa liquor, used to make chocolate bars, is also growing and the market is tight despite last season’s record surplus, Manley said. That has helped boost cocoa-processing margins, with the so-called combined ratio — the price of cocoa products relative to beans — reaching the highest in more than a decade this year, according to KnowledgeCharts.

To read the full article, click here. 

19 Oct

Delivering land rights documentation to Ghanaian farmers

Landmapp, an Accra-based agri-tech start-up, provides landholders (particularly smallholder farmers) with a one-stop-shop land documentation service, allowing them to register their properties under their name. The documentation is compliant with Ghanaian regulations and customary traditions, and can be used as collateral for accessing agricultural loans.

Landmapp uses GPS data to map landholders’ plots, word-of-mouth to verify land ownership, and confirms the landholders’ identities in order to seek certification of land deeds from local authorities.

The company also has a presence in the Netherlands, with offices in Amsterdam.

“Authorities benefit by having a fully verified digital dataset, including biometrics and high-quality surveying. In turn Landmapp helps landholders access relevant services such as finance, leveraging their land document and personal dataset,” noted Simon Ulvund and Thomas Vaassen, the founders of the business.

The duo further answered How we made it in Africa’s questions.

1. How did you finance your start-up?

Initially we had a grant to explore technical feasibility. However, since then we have gone the classic start-up route, raising two rounds of early-stage finance from a mix of angel and institutional investors. Our investors are spread across Africa, Asia, Europe, and North America.

2. If you were given US$1m to invest in your company now, where would it go?

Expanding to new markets. Following our successful implementation in Ghana, we’re seeing quite some interest from other markets.

3. What risks does your business face?

Structurally, we can only operate in an environment where there is strong land administration legislation in place and where the judiciary respects land laws. On the customer side, our biggest risks are related to cash constraints, which can significantly affect ability to pay.

4. So far, what has proven to be the most successful form of marketing?

We use multiple channels and it varies by community. Anything from radio commercials, to working with commodity buyers, the traditional councils and chiefs – and our favourite: getting a slot at the end of Sunday service in churches, where you can present your wares to the whole congregation.

Read more: Start-up snapshot: Delivering land rights documentation to Ghanaian farmers

 

22 Sep

Agriculture: Private equity investors can help Africa to feed itself

The agriculture sector employs more people in Africa than any other industry and it also accounts for almost half of the continent’s GDP.

Yet inefficiencies in the sector have held back production in the sub-Saharan African region, hindering the sector’s growth and stymieing the industry’s ability to achieve cross-border trade and long-term food security.

This represents a fairly significant socioeconomic challenge, but it also provides private equity investors with an opportunity to support one of the continent’s biggest industries while contributing to job and wealth creation.

For investors, returns from the farming industry can be enhanced through investment and implementation of modern farming techniques.

In turn, successful agribusiness investments stimulate growth through the access to new markets and the development of a vertically integrated supply chain in the form of food processing, packaging and assembly, transportation, distribution and retailing.

Most importantly, well-targeted investments, alongside close collaboration between governments, donors, entrepreneurs, the international community and investors can make a significant and lasting contribution to Africa’s 2050 goal of being able to feed itself, as referenced in the African Development Bank’s Feeding Africa action plan.

Businesses that succeed after investments in their production and processing capabilities go on to create jobs and stimulate the wider supply chain.

Most importantly, they help to reduce Africa’s crippling reliance on food imports.

A March 2017 article by the Rockefeller Foundation says that one third of the world’s food, “never makes it from the farm to the table” and in developing countries, about 40% of produce is lost immediately or soon after harvest because of poor farming techniques and technologies. Inadequate storage facilities, poor processing, weak transport networks and poorly structured markets all work against Africa’s ability to feed itself, and most fruits and vegetables never make it to market for these reasons.

These facts are even more tragic in the context of the famine in South Sudan. The UN has also warned of a high likelihood of famine in Somalia and Nigeria.

Read more: Private equity investors can help Africa to feed itself

13 Sep

Seizing Africa’s rapidly-growing food market that could be worth $1tn by 2030

Businesses are waking up to the opportunities presented by a rapidly-growing food market in Africa, that may be worth more than US$1tn each year by 2030 as imports are substituted with high-value locally-produced food. This is the main conclusion from the latest Africa Agriculture Status Report.

According to the report, agriculture will be Africa’s quiet revolution, with a focus on SMEs and smallholder farmers creating the high-productivity jobs and sustainable economic growth that failed to materialise from mineral deposits and increased urbanisation. Despite 37% of the population now living in urban centres, most jobs have been created in lower paid, less productive services rather than in industry, with this service sector accounting for more than half of the continent’s GDP. Smart investments in the food system can change this picture dramatically if planned correctly.

Commenting on this year’s report findings, Dr Agnes Kalibata, president of the Alliance for a Green Revolution in Africa (AGRA), which commissioned the study, said: “Africa has the latent natural resources, skills, human and land capacity to tip the balance of payments and move from importer to exporter by eating food made in Africa. This report shows us that agriculture involving an inclusive transformation that goes beyond the farm to agribusinesses will be Africa’s surest and fastest path to that new level of prosperity.”

To succeed, Africa’s agricultural revolution needs to be very different to those seen in the rest of world. It requires an inclusive approach that links millions of small farms to agribusinesses, creating extended food supply chains and employment opportunities for millions, including those that will transition from farming. This is in contrast to the model often seen elsewhere in the world of moving to large-scale commercial farming and food processing, which employs relatively few people and requires high levels of capital.

Read more: How We Made It In Africa

 

 

29 Aug

Is the African mining sector becoming uninvestable?

mining sector

At the recent Africa Forum hosted by Hogan Lovells, in London, a number of common, positive themes came through: Africa is a continent of endless possibilities and opportunities; Africa has significant natural and human resources which can be unlocked for the benefit of all Africans; and the investability of many African countries has improved, for various reasons, including mature banking, finance and legal institutions, investment-friendly policies and regulatory frameworks, and national development plans which demonstrate governmental support for sustainable infrastructure and development.

Why then, within the context of a mostly positive view of investment in Africa, is the question posed whether the African mining and natural resources sector, is becoming uninvestable?

Firstly, positive views of investment in Africa don’t always extend to the mining and naturals resources sector. While it is often acknowledged by stakeholders that the mining and natural resources of a country can contribute meaningfully to growth, development and transformation, there is a growing questioning of the impact of mining on aspects such as the environment, host communities, social structures, tourism, and industries such as agriculture, versus the benefits that often flow from mining and beneficiation operations. As the voices of concern increase and develop, the benefits that flow from mining and beneficiation operations are likely to be questioned, even further.

Secondly, the recent mining policy and regulatory changes in Tanzania and South Africa have brought into sharp focus the fragility of investment decisions relating to so-called frontier markets, such as Tanzania, and emerging markets, such as South Africa.

With a decrease in the number of investable frontier markets (equity and bond markets which are typically smaller than emerging markets and where there is less liquidity) and investment instability in emerging markets, such as South Africa, the recent events in these two countries are more concerning.

Tanzanian president, John Magufuli, signed into law the Natural Wealth and Resources Bill 2017, and the Natural Wealth and Resources Contracts Bill 2017, on 3 July, 2017. These laws, which were fast-tracked though the Tanzanian parliament, in a matter of weeks, have far-reaching consequences for foreign companies with investments in Tanzania, one of the continent’s largest gold producers.

There has been extensive investment in Tanzania’s gold mining industry, with a large percentage of the investment, focused on prospecting operations, which are of course critical in the creation of a pipeline that can be converted into mines, in the future. Many of these investors are listed in Australia, and the Australian Stock Exchange took the drastic step of suspending trading of various junior mining companies, following the announcement of the enactment of the laws, by President Magufuli. The uncertainties flowing from the new laws are likely to impact on these junior mining companies, who are focused on exploration, quite dramatically and it will make capital raising exercises extremely difficult, if not impossible. Where ownership of mining assets in a company are put at risk, this is likely to scare off would-be investors, and make existing investors exercise extreme caution.

Key changes brought about by the new legislation in Tanzania include the following:

  • The Tanzanian government is given the right to re-negotiate or dissolve current mining contracts with multi-national companies
  • The state will be required to own at least 16% of mining projects
  • Export royalties have been increased
  • The Tanzanian government can reject a mining company’s valuation where the government believes that the transfer price is too low, and the Tanzanian government is entitled to purchase the consignment of the minerals, at the price declared by the mining company
  • The right to international arbitration is removed
  • The Tanzanian government is also pushing for compulsory listing of mining companies on the Dar es Salaam Stock Exchange, with the complexities that this will bring, particularly because of the potentially small pool of investors who can take up the public offerings.

While multi-national mining companies with investments in Tanzania continue to engage with the Tanzanian government, some of the multi-national companies have declared disputes with the Tanzanian government and are referring these disputes to arbitration. None of this is good for the Tanzanian mining sector.

On 15 June, 2017, the South African minister of minerals, Mosebenzi Zwane published the “Reviewed Broad-Based Black Economic Empowerment Charter for the South African Mining and Minerals Industry, 2016″, (“Mining Charter 3“).

The response was immediate, dramatic, and far reaching. It is estimated that mining stocks lost approximately R50bn (US$3.8bn) in value, following the announcement, with the rand losing ground, and the Chamber of Mines, the body that represents the majority of the mining companies, launching legal proceedings against Minister Zwane. The grounds of challenge go to the heart of the minister’s powers and functions under the mining legislation and the Constitutionality of Mining Charter 3.

While Minister Zwane has labelled the legal challenge as being anti-transformation, the Chamber of Mines and other bodies representing mining interests have consistently expressed the position that the industry is committed to transformation, that the industry has demonstrated its commitment through the implementation of appropriate programmes of transformation – including in respect of the host communities through the social and labour plans, which are a requirement under the mining laws, but that the targets in the Mining Charter must be achievable, sustainable, and the timeframe should take into account the reality that the mining industry finds itself in, with the spectre of further job losses in the near future (while figures vary, the suggestion is that in excess of 80,000 direct jobs have been lost, in the industry, over the last three to five years. Various South African mining companies have recently announced proposals for further job losses, which may exceed 20,000 direct jobs).

Mining Charter 3 made significant amendments to the transformation requirements under the previous versions of the mining charter. Key changes include the following:

  • Holders of new prospecting rights must have a minimum of 50% plus one black person shareholding
  • A holder of a new mining right must have a minimum of 30% black person shareholding (up from the previous 26%)
  • The 30% black person shareholding in new mining rights must be distributed amongst three beneficiaries, namely a minimum of 8% for employee share ownership plans, a minimum of 8% for mine communities to be held in a community trust, and a minimum of 14% to Black Economic Empowerment entrepreneurs
  • For employee share ownership plans, a minimum of 8% for mine communities to be held in a community trust, and a minimum of 14% to Black Economic Empowerment entrepreneurs
  • A holder of a new mining right must pay a minimum of 1% of its annual turnover in any given financial year to the black person shareholders prior to, and over and above, any distributions to the shareholders of the holder
  • While there is limited recognition of the “once empowered, always empowered” principle, unless the historical Black Economic Empowerment transaction achieved 26% black shareholding or more, the historical transaction is not recognised
  • Where a historical Black Economic Empowerment transaction is recognised, the holder is required to top up the black person shareholding from the existing level to a minimum of 30% black person shareholding within 12 months;
  • Even where a holder of a mining right maintained a minimum of 26% black person shareholding as at 15 June, 2017, the holder is required to top up its black person shareholding to a minimum of 30% within 12 months from the date of publication of Mining Charter 3;
  • Minimum requirements are specified in relation to procurement, supplier and enterprise development. A holder is required to spend a minimum of 70% of total mining goods procurement spend on South African manufacturedgoods, with the 70%, being broken down into specified requirements. A minimum of 80% of total spend on services must be sources from South African-based companies, with the 80%, being broken down, into specified requirements;
  • A foreign supplier (a foreign controlled and registered company, supplying the South African mining and minerals industry with mining goods and services, which does not have at least a Level 4 DTI Code BEE Status, and 25% plus one vote black ownership) must contribute a minimum of 1% of its annual turnover generated from local mining companies towards the Mining Transformation and Development Agency;
  • Employment equity targets are increased, and there are specified requirements from board level, to core and critical skills.

There were glimmers of hope when, following negotiations between the Chamber of Mines and Minister Zwane, Minister Zwane agreed to suspend Mining Charter 3 pending the outcome of the legal challenge initiated by the Chamber of Mines. However, the following week, Minister Zwane published his intention to issue a notice placing a moratorium on all applications for new prospecting and mining rights, renewals of prospecting and mining rights, and ministerial consents in terms of Section 11 of the Mineral and Petroleum Resources Development Act, No. 28 of 2002 (“MPRDA”) (in summary where a right or an interest in a right is to be transferred or there is a change of control, ministerial consent is required).

The minister indicated his intention to issue the moratorium notice under Section 49 of the MPRDA which vests the minister with the authority to issue a notice prohibiting prospecting or mining in respect of certain geographical areas or certain minerals for a particular period, having regard to the national interest, the strategic nature of the mineral in question and the need to promote the sustainable development of the nation’s mineral resources.

The widely expressed view was that the minister had exceeded his powers under Section 49 of the MPRDA by intending to issue a blanket notice. Litigation was again initiated, and at the time of publishing this article, there is uncertainty regarding the status of the moratorium notice.

On a positive note, stakeholders across the spectrum, including the largest, recognised trade unions in the mining industry, have spoken out against the actions of Minister Zwane, and there have been widespread calls for his resignation or sacking.

But this of course does not remedy the turmoil which the South African mining sector finds itself in, and large scale job losses loom.

While the South African and Tanzanian mining sectors are in turmoil, this does not mean that Africa is uninvestable.

Africa has a significant and, often, thriving mining and minerals industry, providing millions of jobs and opportunities. It is also a source of significant foreign direct investment, and the mining sector remains a substantial contributor to the GDP of many African countries with the benefits that this brings to the growth of those economies.

It is likely that demand for certain precious metals will continue to grow, and that the demand for the so-called “battery metals” will grow exponentially. All of this creates opportunities for investors, provided that the investors have a proper understanding of the various risks that are faced in these investment opportunities.

The investability of Africa is likely to depend, significantly, on balancing the growing need for mineral resources while at the same time, addressing concerns that multi-national companies extract value without returning benefits for the host countries, and ensuring that the vast socio-economic benefits that can flow from mining operations, materialise.

Warren Beech is global head for mining at Hogan Lovells in Johannesburg. Jessica Black Livingston is a deputy for mining at Hogan Lovells in Denver.

 

from How We Made It In Africa

29 Aug

Nigerian Investor Sets Up $135 Million Commodities Exchange

commodities exchange

A Nigerian startup is developing a new agricultural commodities exchange in Africa’s most populous country to take advantage of the government’s efforts to boost farming output to reduce reliance on oil.

The exchange, Integrated Produce City Ltd., will be located near the southern city of Benin, about 300 kilometers (186 miles) east of Lagos, Nigeria’s commercial hub, a site accessible to nearby growers of cocoa, palm oil, rubber and cassava, Chief Executive Officer Pat Utomi said in an interview.

“The concept of a wholesale-produce market is to enable the farmer to fully dispose of his produce, instead of today where he loses 80 percent of his output” that rots before it can reach the market, Utomi said on Aug. 18 in the capital, Abuja.

Nigeria is boosting investment in agriculture to increase exports and cut food imports that cost it $3.2 billion in 2015, according to the National Bureau of Statistics. The economy of Africa’s biggest oil producer has been hit hard by lower output and prices of crude, which accounts for more than 90 percent of foreign income and two thirds of government revenue.

Export Hub

Integrated Produce City will have storage facilities, including refrigerated warehouses, and host processing plants on its 100-hectare (247-acre) site in Edo state’s Ugbokun village when it starts operating by the end of 2018, Utomi said. “It will be an export hub for produce,” where exporters will have access to large quantities stored in one place rather than sending agents to individual farmers to collect small amounts, he said.

The company has put up 20 percent of the required $135 million and is in talks with lenders and investors from South Africa, China and Australia for additional capital, Utomi said, declining to name them. Integrated Produce City signed an agreement with KPMG LLP’s Nigerian unit on Monday to help it raise more capital, Vitus Akudinobi, a spokesman for the new exchange, said.

Cocoa, palm produce, cashew nuts and rubber are among the products to be traded on the exchange. Others are fresh fruit and vegetables, grains and tubers such as cassava and yams. Local manufacturing companies will be able to buy agricultural goods at the exchange, he said.

Chocolate Factories

“Among the factories we’re trying to attract are chocolate makers,” he said. “The entire cocoa value chain will be represented.”

The exchange aims to provide services to six states in southern Nigeria, Utomi said.

A likely rival is Abuja-based Afex Commodities Exchange Ltd., which started providing warehousing and trading services in four of Nigeria’s 36 states in 2013. Integrated Produce City plans to offer daily auctions as well as an industrial park for manufacturers.

Nigeria is Africa’s fourth-largest cocoa producer and the seventh worldwide with a 2015-2016 output of 190,000 metric tons, according to the International Cocoa Organization.

In addition to cocoa, other major exported products during the last quarter of 2016 were sesame seed, frozen shrimps, soy beans, cashew nuts and crude palm kernel, figures from the statistics agency showed.

(A previous version of this story was corrected to remove reference to the first commodities exchange in lead.)

 

via Bloomberg

24 Aug

Africa: Agriculture a Culprit in Global Warming, Says U.S. Research

Global Warming

New York — Agriculture has contributed nearly as much to climate change as deforestation by intensifying global warming, according to U.S. research that has quantified the amount of carbon taken from the soil by farming.

Some 133 billion tons of carbon have been removed from the top two meters of the earth’s soil over the last two centuries by agriculture at a rate that is increasing, said the study in PNAS, a journal published by the National Academy of Sciences.

Global warming is largely due to the accumulation of carbon dioxide in the atmosphere from such activities as burning fossil fuels and cutting down trees that otherwise would absorb greenhouse gases such as carbon dioxide.

But this research showed the significance of agriculture as a contributing factor as well, said Jonathan Sanderman, a soil scientist at the Woods Hole Research Center in Falmouth, Massachusetts and one of the authors of the research.

While soil absorbs carbon in organic matter from plants and trees as they decompose, agriculture has helped deplete that carbon accumulation in the ground, he said.

Widespread harvesting removes carbon from the soil as do tilling methods that can accelerate erosion and decomposition.

“It’s alarming how much carbon has been lost from the soil,” he told the Thomson Reuters Foundation. “Small changes to the amount of carbon in the soil can have really big consequences for how much carbon is accumulating in the atmosphere.”

Sanderman said the research marked the first time the amount of carbon pulled out of the soil has been spatially quantified.

The 133 billion tons of carbon lost from soil compares to about 140 billion tons lost due to deforestation, he said, mostly since the mid-1800s and the Industrial Revolution.

But the findings show potential for the earth’s soil to mitigate global warming by absorbing more carbon through such practices as better land stewardship, more extensive ground cover to minimize erosion, better diversity of crop rotation and no-till farming, he said.

The world’s nations agreed in Paris in 2015 to reduce emissions of greenhouse gases generated by burning fossil fuels that are blamed by scientists for warming the planet.

President Donald Trump pulled the United States out of the landmark Paris accord in May, saying it would undermine the U.S. economy and weaken national sovereignty.

Supporters of the accord, including some leading U.S. business figures, said Trump’s move was a blow to international efforts to tackle global warming that would isolate the United States.

Source from allAfrica

18 Aug

Quantum Global’s Africa Investment Index shows Ghana on the rebound

Ghana is the eighteenth-most attractive economy for investments flowing into the African continent, according to the latest Africa Investment Index (AII) compiled by Quantum Global’s independent research arm, Quantum Global Research Lab. In 2016, Ghana attracted a net foreign direct investment of US$3.5bn.

According to research by Quantum Global Research Lab (QGRL), Ghana’s economy has experienced strong and robust growth over the past decade, making its success a case worth emulating by its regional peers. Industry was the main driver of overall growth with an annual average growth of about 13%, followed by services with 8.4% and agriculture with about 8%. The strong growth record has fostered the country’s graduation to lower-middle-income status in 2010.

Commenting on the Ghanaian economy, Prof. Mthuli Ncube, head of Quantum Global Research Lab stated: “Ghana’s democratic attributes are as robust as its economic growth, and by improving policies and institutions, successive governments have been able to build an attractive business climate conducive to growth. These measures include reducing the number of days it takes to register a limited liability company and days spent on resolving commercial disputes in the courts. Furthermore, the election of a new government in 2016 has revitalised the drive for higher growth and infrastructure investment, all which augurs well for investment opportunities in the country.”

The research noted that whilst the economy continued to grow on a steady pace until 2013, the GDP growth slowed from 7% in 2013 to 3.6% in 2016 due to structural challenges – such as the on-going fiscal deficits pushing public debt to over 70% of GDP, trapping the country in a cycle of debt service and borrowing.

Furthermore, a three-year power crisis and power rationing slowed down the private sector’s productivity and competitiveness. In addition, the significant external sector deficit and low world prices for the country’s gold, cocoa and oil exports were a major factor behind the economic slowdown.

Read More: How We Made it In Africa

16 Aug

Africa: ‘Recovery Lending’ Helps Disaster-Stricken Farmers Get Back On Track

microfinance

Accessing credit has long been a major hurdle for small-scale farmers in Africa, who produce some 70 percent of the continent’s food. Not only does this mean yields fall far below their full potential, but the ability of farmers to manage the increasingly frequent and severe weather shocks brought about by climate change is also greatly reduced.

However, help could be at hand. A new method of aid microfinancing, known as recovery lending, aims to give such farmers a much-needed short-term boost, especially in times of crisis.

Vision Fund International (VFI) is a project of the international NGO World Vision. It sourced a two-million-euro returnable grant from the UK’s Department for International Development to be loaned to 14,000 families in Kenya, Malawi, and Zambia after disasters so they can rebuild their lives and start generating income again.

Farmers need loans at the beginning of agricultural seasons to buy seeds, fertilisers, and other vital inputs. But as smallholders often lack title deeds or other forms of collateral, traditional banks don’t view them as viable debtors, while the rules imposed by other kinds of lenders – the return of the principal sum in full, for example – don’t always suit the seasonal economics of farming.

Charity Mati, VFI Kenya’s business development and integration manager, explained that the lender tries to tailor its repayment terms to borrowers’ needs, unlike other microfinance institutions that charge interest every month, leaving the entirety of the loaned sum due on maturity.

“Most of our clients are farmers,” Mati told IRIN. “While recovering from the El Niño rains, they were met with a second shock: the drought. We sat down with them and developed workable repayment plans, listened to their voices, and arrived at a solution,” she told IRIN.

A case study

In 2015, Alice Muthee, a smallholder farmer in Motonyi, a village nestled in Kenya’s Narok County, took out a $200 loan from a microfinance organisation and leased an acre of land with the aim of turning a good profit from growing tomatoes.

“With five mouths to feed, in addition to the pressure of educating my children, life had seemed overwhelming,” recalled Muthee. “I had had to sell livestock to meet the rising demand for finances in my family.”

Muthee believed her tomatoes would bear fruit and she would be able to repay the loan within three months.

But tomatoes are a notoriously fickle crop and certainly no match for the El Niño rains that wreaked havoc in late 2015, not only in parts of Kenya, but also in Somalia, Uganda, and Ethiopia.

“From the cost of leasing the land, labour, purchase of seedlings, and fertiliser, I ran a deficit,” Muthee told IRIN. “My several attempts to have extra money for buying pesticides failed. When the 2015 rains persisted, I watched helplessly as my tomatoes disappeared.”

Facing the daunting prospect of having to sell more livestock in order to repay her loan – the terms of which required full settlement of the principal sum in a single payment at the end of the agreed period – Muthee heard about a new kind of finance geared specifically for small-holder farmers, small businesses, and communities recovering from disaster shocks.

‘Hand up’, not ‘hand out’

Recovery lending, described as a “hand up” rather than “hand out” approach, was pioneered by VFI in the aftermath of 2013’s Typhoon Haiyan in the Philippines, with the disbursement of almost 5,000 loans with an average value of $430 designed to help people restart their lost small businesses.

According to Philip Ochola, CEO of Vision Fund Kenya, in the wake of major disasters, many microfinance institutions grow reluctant to continue extending loans because potential customers lack collateral and are seen has having little ability to make repayments.

“Credit is required most during post-disaster to help rebuild communities,” said Ochola. “Governments’ help to affected communities during disasters usually come in form of relief, which is not sustainable.

ADVERTISING

“Preparing the communities for loans, helping them establish business and embrace agri-business is the sustainable assistance you can give to a vulnerable community.”

VFI distributes loans on the basis not of lenders’ available collateral but on an assessment of their likely ability to repay. It then provides business training to its customers.

Muthee took out a $300 recovery loan from VFI, which she invested in growing vegetables and starting a business selling second-hand clothes. She has since been able to settle her previous loan and pay her children’s school fees.

Aid, with conditions

In all, VFI has loaned out some $1.2 million in Kenya.

“DFID gave us the money not as a grant to dish out in the field, but a returnable one to be used wisely, lend it wisely, recover it, and pay back. Aid with conditions is good,” said Ochola.

“Aid is aid and human beings are human beings. If I know that appearing as poor as possible will make me continue receiving charity from you, I will always want to appear that way. But if it comes with conditions, it will help me get on my feet, stabilise, and work.”

Among the other beneficiaries is 38-year-old Chiwai Ole Taka, a father of six who lost seven cows and 10 sheep during a severe drought. He used his $300 loan to buy weak sheep and goats, which, thanks to the training that came with the loan, he fattened up and sold for a profit.

“It is not the first time that I have lost livestock to drought. It has happened before. This drought threatened to drive our community to extreme poverty,” said Chiwai, adding that he was now much better placed to meet his family’s basic needs.

Recovery lending was the result of joint research by Stewart McCulloch, global insurance director of VFI, and Professor Jerry Skees of GlobalAgRisk. The thinking behind the initiative was published in a report titled: A New Model for Disaster Preparation and Response for Microfinance Institutions.

“Recovery loans are not suitable for the highly indebted or those without viable cash-generating livelihood options; but rather for the economically active poor, including (but not limited to) those not normally targeted for humanitarian aid,” the report says. “The support to this group should have a disproportionate effect on the community’s economic recovery.”

While Alice Muthee could be a poster child for the success of recovery lending, others like Ole Peres have found themselves unable to keep up with VFI’s terms amid multuple climate shocks.

Peres, whose maize was destroyed by rains, had trouble making the $55 monthly repayments on a $300 loan.

“I obtained a second loan of $450 where I bought 10 sheep for fattening, but the drought killed five of them. With a monthly loan repayment of $40 for a 12-month period, I sold the remaining animals I had bought and ventured into maize buying and selling at a profit, but have been faced with shortage,” he said.

Peres is now in even greater debt and seeking a reduced interest rate on his loans.

The UN’s World Food Programme has flagged estimates that hunger and malnutrition could increase by up to 20 percent by 2050 if bold efforts to improve people’s ability to prepare for, respond to, and recover from climate shocks aren’t undertaken.

Recovery lending is not a panacea for all the problems African farmers face, but it is helping.

Author Note

Part of a special project that explores the impact of climate change on the food security and livelihoods of small-scale farmers in Kenya, Nigeria, Senegal and Zimbabwe

 

Source from IRIN

14 Aug

Kenya: Focus Shifts to New Leaders On Proposed Coffee Sector Reforms

coffee

The elections are over. And the focus is now turning to incoming leaders and whether they will embrace reforms proposed by a team of experts to turn around the fortunes of the coffee sub-sector.

The proposals, which were on the way to being implemented, were stopped after the High Court declared them unlawful following opposition by the Council of Governors and a group of farmers.

Meru Governor Peter Munya, who was chairman of the Council of Governors at the time the case was filed, is among the leaders sent home in the polls. He lost to Mr Kiraitu Murungi of Jubilee.

The CoG had teamed up with New Farmers’ Association, contending that members of the task force did not involve all stakeholders when arriving at the resolutions.

“I am prepared to work with new governors in the 31 coffee growing areas, hoping that they will support the legal reforms we proposed,” Prof Joseph Kieyah, who chaired the task force, told Sunday Nation on Friday.

During the telephone interview, Prof Kieyah admitted that he found it difficult to work with some governors, adding that reforms cannot be successfully implemented without their support.

County governments play a major role in the agriculture sector, which is devolved, and farmers have been banking their hopes on the units to realise better returns for their harvests.

The proposed legal reforms were aimed at improving production for small-holder farmers and enabling them to access credit facilities.

They were also meant to make millers and marketing agents more accountable to farmers.

Restructuring co-operative societies, which growers use to market their coffee, is also part of the reforms.

Another proposal by the task force was to set aside Sh200 million to brand and promote Kenyan coffee locally and internationally.

Some governors were keen on supporting small-holder farmers in improving their production and remuneration.

In Nyeri, then Governor Nderitu Gachagua (deceased) had come up with an ambitious marketing programme for small-scale farmers where they were supposed to market their crop directly to overseas consumers.

But the initiative came a cropper, making producers incur heavy losses. Mr Gachagua pointed fingers at coffee cartels.

As a management official of Rumukia Co-operative Society in Mukurwe-ini sub-county, Mr Wanyaga Mutahi, explains, farmers have never recovered the losses that saw most societies incur huge debts.

 Source from allAfrica

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