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May 08, 2008

Global food crisis increases investor interest in African agriculture

Historically, there have been tenuous links between farmers and food producers, with many companies having scant knowledge of how and where their ingredients are grown.

But as the prices of raw materials soar – from the barley used to make beer or the cocoa used to make chocolate – leading brewers and food manufacturers from Cadbury Schweppes to Diageo are increasingly recognising their businesses will benefit from investment in agriculture.

Nicolaus Cromme, project manager for foodstuffs at the Common Fund for Commodities, a branch of the UN, says the group has received approaches from companies that want to develop projects in Africa.

Multinational companies traditionally had only “so-so” interest in agricultural development, he says. “That has really changed.”

Mark Lundy, senior research fellow at the Consultative Group on International Agricultural Research, which was created by the World Bank in the early 1970s to find ways of producing more food, claims food producers can no longer afford to ignore farmers.

“It used to be very much a buyers’ market ... now companies have to position themselves as good partners.”

Last month,Barry Callebaut, the Swiss group that claims to be the world’s biggest maker of chocolate, bought a 49 per cent stake in Biolands, an exporter of organic cocoa based in Tanzania. Biolands runs a smallholder programme involving 20,000 farmers, paying farmers for delivering beans. It also trains them and gives them seeds.

Cocoa prices are highly volatile – prices rose by almost 50 per cent between September and February – but by investing in producers, Barry Callebaut gets to control part of its cocoa supply. “We try to buy more and more cocoa directly from cooperatives or other organisations because it’s giving us full control over the quality,” the company says.Biolands plans to extend the Tanzanian project to other countries.

Meanwhile,Cadbury Schweppes, which created the “Cadbury Cocoa Partnership” with the United Nations Development Programme this year, plans to invest $59m over the next decade in cocoa farms in Ghana, which provides nearly three-quarters of its cocoa.

In Cameroon,Diageo, the British drinks group that owns the Guinness brand, is investing £250,000 in local farms over the next five years to encourage farmers to grow sorghum. Diageo says this will create a “sustainable market” for local grain, enabling it to reduce its reliance on imported barley, with which it has traditionally made its beer.

Nick Blazquez, managing director of Diageo’s Africa business, says the company benefits by sourcing raw materials locally.“It reduces our need for foreign exchange, shortens our supply lines and develops our relationship with the local community,” said Mr Blazquez.

SABMiller, the London-based brewer, is also trying to get closer to farmers as rising global prices for barley raises its costs. Andy Wales, head of sustainable development at the company, says: “We are looking at more direct relationships with farmers ... as competition for commodities increases, obviously businesses want to get hold of the right quality.”

Mr Wales said the brewer had run into “a land competition” with the biofuel industry in Ecuador, and needed to develop better relationships with farmers so that they would grow rice for SABMiller rather than maize for biofuel producers. SABMiller uses rice in the brewing process to add starch to beer.

SABMiller also has several projects running in Africa encouraging farmers to grow sorghum. Mark Bowman, managing director for SABMiller Africa, says that by switching to locally-grown sorghum, the brewer is creating a new market for farmers.

Financial Times

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