Agricultural investor SilverStreet Capital believes raising crop yields in Africa can provide a solution to the food crisis and create positive social and environmental impact on local communities
In brief
- Russia’s invasion of Ukraine is causing a major global food crisis and threatens economic and social stability in Africa
- It comes on top of the damaging effects of climate change
- But at the same time there is an enormous opportunity to raise crop yields across the continent and investors have a role to play
SilverStreet Capital invests across the agricultural value chain including the seed sector, primary production, processing, protein, and storage and manages the largest agricultural fund in Africa.
CIO Gary Vaughan-Smith comments: “We are impact orientated and look to achieve positive environmental impact and social impact.”
As such, Vaughan-Smith is very concerned by the dramatic effects which the Ukrainian conflict is having. “The Ukrainian invasion is a real game changer for agricultural markets. It has led to two huge impacts. A dramatic disruption in food supplies and a dearth of the crucial fertilisers on which agriculture depends.”
According to Vaughan-Smith, 23% of global wheat production is affected, as well as 19% of barley and 18% of corn. In sunflower oil it is 64%. “Historically a doubling in prices could be generated by shortfalls in production of just 6%. So these shortfalls are massive, and we may not have seen the full effect on prices.”
Then there is the disruption to fertiliser production. For farmers there are three main fertilisers that are important – phosphates, potash, and nitrogen. Vaughan-Smith continues: “Something like 37% of global potash comes from Belarus and Russia combined, most of it sent across the EU (now forbidden) or out of the port of Odessa, hardly a secure route at the moment.”
The havoc wrought by Russia’s invasion, as Vaughan-smith notes, is coming on the back of an already difficult situation caused by severe weather. “Back-to-back, we’ve suffered two Las Niñas. Some even fear that we may have another one coming.”
Raising crop yields
He notes that 60% of the calories humans eat globally come from just four crops – corn, wheat, soya and rice. “The first two of these have been significantly disrupted.” And will be so for some time.
Africa is a particular cause for concern. “We always watch nervously for the effects of La Niña in the key East African farming markets of Kenya, Ethiopia, and Uganda. We are starting from a vulnerable position. Africa is a net importer of wheat, around 60% of which comes from the Black Sea.”
Vaughan-Smith fears this will be a major political issue. “The kind of food riots we saw in Mozambique in 2007 could be repeated across the continent The only country which seems to be properly self-sufficient is Zambia,” he adds.
He continues: “But the real opportunity, the huge opportunity, is to raise the yields on corn per hectare. On small farms in central Africa these can be as low as two tonnes per average hectare, versus as much as 12 tonnes in the United States.”
“It has already been demonstrated that commercial farms in Africa can reach eight tonnes per hectare. This is our impact goal. If we can take the farms and double the yields this will prevent an impending social, economic, and political crisis.”
There are three ways in which SilverStreet seeks to raise agricultural yields in Africa. “The first and most important of these is by ensuring that farmers use the right seeds. Secondly, we can improve their farming techniques looking at land conservation and introducing mulching. And finally, introducing crop rotation bringing into use another crop such as vegetables.”
These changes can have an immediate impact on yields within the first year and build further over time.
SilverStreet is in the business of selling seeds and providing training to a large number of small farms which Vaughan-Smith estimates cover half a million hectares across Africa. In addition, it has 15,000 hectares in high value crops it runs itself. Vaughan Smith expects good investment returns, “in the low teens”. But it is the broader impact that he focuses on.
“It should be remembered that two thirds of small farmers in Africa are women and that they are the poorest social group. By doubling their incomes and raising them out of poverty, it has a massive social impact. The positive environmental impact should also be considered. We are benefiting the planet by producing more corn on the same acreage.”
So far, the investments of SilverStreet Capital’s two funds have employed over 10,000 people and had direct economic benefits for nearly 600,000 people, who have seen their annual incomes rise, on average, by over 50%.
But crucially now, Vaughan-Smith believes “we could double yields on millions of hectares, and this would easily swamp Africa’s shortfall from Ukraine”.
