With attention turning to non-oil investments, agriculture is set to be the next big thing in investment. Right at the centre of financing agrobusinesses, is Olumide Lawson, Executive Director at Sahel Capital Managers. He shares
Getting into Agribusiness
In a way, I would say Agribusiness found me. As you may notice, my background is mostly finance and accounting, across various sectors- including oil and gas, telecoms, real estate and financial services.
Over time, my interest in finance extended to Private Equity and I was excited to work with the Sahel team to set up a Private Equity Fund Management firm. Sahel chose to specialise in agriculture and as I studied the opportunity in the agri-space, I became so entrenched to the point that I became so intrigued with the sector; I don’t see myself playing actively in any other sector.
Investing in Agribusiness for Beginners
What I have seen is that, the average Nigerian typically invests in the agribusiness sector via three major vehicles: The first being, investments by owning farms and agribusiness. Some Nigerian investors own farms and/or agribusinesses that are either run commercially or for subsistence. In the last decade, we have seen quite a number of private investments in the agribusiness sector with the aim of developing the sector and impacting lives.
The second vehicle is the class of investors who make passive investments by buying equity shares of listed and private agribusiness companies.
The third and last class are the investors who make indirect investments through crowdfunding platforms in order to gain exposure to the agribusiness sector and make appreciable returns.
Pitfalls to Watch Out For
In my view, one of the biggest pitfalls to agribusiness investing is the misconception that one will always make money in agriculture — perhaps because of our population or demand/supply gap. Any business case in agriculture must be subjected to as much rigor as you would in any other industry. The case must make sense.
Other pitfalls include, inefficiency in planting and harvesting through use of crude/manual labour. This ultimately results in low yield, post-harvest losses and natural disasters such as flooding and drought which impact economies and primarily the agribusiness sector negatively. For example, the unexpected flooding of farmlands across Nigeria in the second half of 2018 affected some agribusiness value chains – such as rice, yam, cassava, beans and some other crops. This ultimately led to scarcity of these products and increased prices.
Furthermore, epidemic outbreak of diseases or widespread attack of pests can also be inimical to agribusiness. A final point is the inherent instability of product prices, which could lead to losses during periods of low prices.
To navigate these pitfalls, my overriding tip would be that investors need to be cognizant of the importance of rigorous and extensive analysis of the business case before signing off on any investment. That said, to mitigate against the challenge of low yields, agribusiness managers should employ mechanisation in agricultural practices and consider the use of genetically modified inputs and seedlings in order to improve yields and outputs.
In the case of a force majeure, no individual can prevent the occurrence of natural disasters. Stakeholders can however put measures in place such as effective drainage and irrigation systems to temper the effect of possible natural disasters.
Other tips on navigating the pitfalls in agribusiness include regular use of disease control mechanisms (i.e fumigation) in farms, silos and warehouses, utilisation of adequate storage facilities to extend product life span and take advantages of price increases during non-harvest periods and use of insurance products to minimize losses during disease breakouts and natural disasters.
Myths about Agribusiness
A popular myth about agribusiness is the idea that agribusiness means farming. Agribusiness goes beyond farming to operating across the entire agriculture value chain. Farming is just an aspect of agribusiness and businesses operation in the processing, storage, and distribution of agriproducts are also regarded as agribusiness.
Another popular myth is the view that modern farming practices are not commonly used in Nigeria: In my opinion, Nigeria utilises more modern inputs in agriculture production than given credit for. For example, in Coscharis Farms, one of FAFIN’s portfolio companies, the team makes use of a combined harvester in the harvesting of rice. Crest Agro, another company in FAFIN’s portfolio has an ultra-modern, fully automated state-of-the-art plant.
The Agro Sector and Nigeria’s Economy
The agro sector has improved the Nigerian economy in a lot of ways. To highlight a few, I will touch on food security, job creation, foreign exchange generation and import substitution. With regards to food security, the efforts of the Federal Government, the CBN and other key stakeholders have led to an improvement in local production capacity of some agro products (such as yam, cocoa, shea, and cassava among others) to meet local demand, which is a key step toward attainment of food security.
Also, over the last decade, agro sector has consistently provided job employment for Nigerian citizens. Agro sector employment has increased significantly over the years and according to NBS labour statistics, the agro sector is the highest employer of labour in Nigeria.
In the face of declining crude oil prices, the agro sector has also been pivotal to Nigeria’s generation of foreign exchange earnings. Exportation of agricultural products such as cocoa, sesame seed, cashew nuts and shea have contributed to foreign exchange earnings and maintenance of exchange rate stability.
Finally, local production of agricultural products which were predominantly import based in the past, such as rice, poultry products, starch (cassava starch and others) etc have increased, which in turn has reduced the need to import, and thus helped the country attain improved levels of import substitution.
Biggest Challenge for Agribusiness in Nigeria
I dare say the biggest challenge to agribusiness in Nigeria is competition with imported products. Many local consumers still prefer imported agricultural products to locally produced ones despite government restrictions on imported goods. This is as a result of a combination of taste and societal perception. The onus is on the entire country to support locally produced agricultural products. Furthermore, the paucity of good storage and distribution facilities has led to huge losses in the value chain, with less than 60% of farm gate products getting to the table. In addition to these, ineffective agribusiness practices and poor technical capacity have also led to low outputs across the value chain.
Future of the Nigerian Agro Sector
I see an improved adoption of mechanisation in agriculture and the emergence of Ag-tech. However, whilst these would hold to be true for the large players in the sector, the Government’s intervention in supporting smallholder farmers would also be sustained and a number of other financing and technical support facilities would be initiated in addition to restricting the importation of other agricultural products for which local production can be boosted. These would lead to private investment in the sector with the hope of taking advantage of the Government’s support for the sector and the local market.
Adding Value to the Economy
According to the NBS GDP report, ‘services’ is the biggest sector in Nigeria, contributing c.50% of GDP per year. However, in my opinion, the agribusiness sector adds the most value to the Nigerian economy, due to its value addition through food security, job creation and import substitution as well as FX earning potential.
Although the Nigerian agricultural sector had experienced setbacks due to neglect, greed and misappropriation of funds, the last few years has seen the sector experience the beginnings of a resurgence. To a significant degree, this can be attributed to what we are seeing in recent times, whereby we’re seeing critical and serious government interest in realizing Nigeria’s agricultural potential.
When I am not working, I thoroughly enjoy spending time with my family and close friends. I also enjoy spending time with young agricultural entrepreneurs and providing advice on business strategies. I love stage plays, scrabble and try to play golf on weekends. Two books that have provided a lot of insight for me are The Seven Habits of Highly Effective People by Steven Covey and The Tipping Point by Malcom Gladwell.
Olumide Lawson is a partner at Sahel Agribusiness Managers, a private equity and advisory firm focused primarily in agribusiness in Nigeria. Prior to his current role, Olumide has had almost 20-year career in finance. Olumide was previously the Chief Financial Officer of Lotus Capital, a full service ethical investment boutique asset management, private wealth management advisory services, and financial advisory services firm. In this role, he developed and executed the financial strategy, oversaw the company’s financial planning and budget, and managed the treasury function.