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April 27, 2009

AGRA launches fund for seed industry

by Pius Sawa

The Nairobi-based Alliance for a Green Revolution in Africa (AGRA), in partnership with the African Agricultural Capital (AAC) group, recently launched the African Seed Investment Fund (ASIF) in Kampala.

Over the next five years, it will invest in at least 20 small- and medium-size seed companies in Southern and Eastern Africa, infusing equity and expertise into an industry that has languished for decades, and paving the way for raising the productivity and incomes of at least one million farm households.

“The sole purpose of ASIF is to provide high quality seeds to smallholder African farmers, thereby improving income and quality of life,” said Dr. Namanga Ngongi, President of AGRA.“Direct investment in local seed companies will allow African enterprises, working with local public crop breeders and local farmers, to seed prosperity.”

ASIF is the first fund of its kind: targeted specifically at promoting the growth of small- and medium-sized African seed companies through long-term loans provided at below-market rates. ASIF will thus fill a critical funding gap in African agricultural development—financing for its seriously underdeveloped and undercapitalized seed sector. Across Southern and Eastern Africa there are over 50 small- and medium-sized African seed companies, compared to hundreds that operate in Europe or in the United States.

To help fill this gap, ASIF will operate in eight countries--Kenya, Tanzania, Uganda, Rwanda, Ethiopia, Mozambique, Malawi and Zambia. Having more than doubled in four years, sales revenues of African seed companies stood at about US$2.5 million in 2006. Yet, in Eastern and Southern Africa alone, only about one-third of maize – the region’s largest staple food crop – is produced from improved varieties. And African seed comprises only a fraction of the global seed market, estimated at US$30 billion.

“While recent growth of the African seed sector demonstrates the high demand for good quality seed, it falls far short of meeting that demand,” said Josephine Okot, Managing Director of Victoria Seeds Ltd in Uganda. “Our women’s collectives are working hard to grow good seed for distribution.”

Okot’s company contracts with some 200 growers, most of whom are women’s groups, to produce high quality seed of a range of crops that includes such staples as maize, rice, sorghum and groundnut. Companies like Okot’s stand poised to benefit from the new fund.

The lack of a robust African seed industry has left these farmers with few choices. Smallholder farmers—who grow most of the food consumed in Africa—can neither afford nor access high-yielding quality seed varieties of their staple food crops. Whereas improved seed has been responsible for more than half of global yield increases, African smallholder farmers must rely on saved seed whose quality has deteriorated over time, producing the world’s lowest cereal yields and ensuring chronic hunger and malnutrition.

“Yet Africa’s plant breeders have begun developing high yielding, locally-adapted seed that would enable farmers to double or triple their yields,” said Joseph DeVries, director of AGRA’s Seeds Programme. “We now need a vibrant seed sector that gets these varieties to farmers. ASIF will enable this--it is venture capital for Africa’s seed entrepreneurs.”

The AGRA-AAC partnership aims to jumpstart a well-capitalised, competitive and efficient regional seed industry; with commercial incentive to produce, distribute and market improved seed varieties that meet farmers’ demands.“Until recently, only well-off, large-scale farmers bought improved seed,” DeVries said. “The seed market is evolving to recognize that the real markets is at the pyramid’s base, among millions of smallholder farmers. The prices, crops and varieties marketed need to reflect that.”

AGRA is an organization that finds practical solutions across the agricultural value chain to sustainably boost smallholder farm productivity. Its investment in ASIF is part of a comprehensive approach to helping millions of small-scale farmers and their families end poverty and hunger. AAC is a diversified agri-business fund, incorporated in Uganda in 2004, with a track record of spurring the growth of pro-poor African agri-businesses.

Alongside capital investment, the fund will provide business development services, including continual advice on issues like seed production, storage, and distribution and seed company management. Distributors will also be trained on the appropriate use of seeds and other inputs such as fertilizer, to ensure the most efficient, safe and environmentally sound use of all.

ASIF will implement a gender policy that works to involve women actively as entrepreneurs, workers, and smallholder farmers. Women make up the majority of Africa’s smallholder farmers and have the greatest impact on the livelihood of their families, yet face many impediments to education, training and access to finance. In addition to its larger loans to at least 20 African seed companies, ASIF will invest in about 10 early-stage businesses with big potential, said Tom Adlam, Managing Director of AAC.These loans will range from approximately about $50,000 to $1,500,000 each. The fund overall will seek a net return of 3% on its investment.

“AAC’s management of the fund will build on our successes in reaching smallholder farmers,” Adlam said. “These include working with more than one thousand farmers of organically-certified vanilla in Uganda, and an investment in Kenya’s Western Seed company which distributes hybrid maize seed that is drought-resistant and stress-tolerant.”

The drought-resistant maize varieties now reach about 200,000 farmers in Kenya, and has enabled them to significantly increase maize yields.“African farmers need improved varieties of maize more than any other farmer in the world. Their livelihoods—their very survival—depends on it,” DeVries said.

And while maize will be an important crop for the program, it will not be the only one. Companies producing seed for such staple crops as beans, cowpea, pigeonpea, rice, sorghum, millet and others will be encouraged to apply. To qualify, companies will need to meet investment criteria in three main areas: enterprise, performance, and development criteria. The latter includes measures such as overall job creation, skills development in rural communities, and an environmentally benign footprint.

“Rather than having to chose between poor quality low-yielding seed or high-cost hybrid seed marketed by multinationals, African farmers will have another choice,” Ngongi said. “We can foresee the day when dozens, if not hundreds, of small- and medium-sized African seed companies are working across the region with local, public sector breeders to get low-cost, high-quality seed to farmers from Ethiopia to Mozambique.

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