OBG talks to Sunny Verghese, Group Managing Director and CEO, Olam International

Interview: Sunny Verghese

What are the biggest challenges to vertical integration in Africa’s agricultural sector?

SUNNY VERGHESE: Farmers face several challenges in the upstream part of the value chain, including lack of credit and knowledge, logistics constraints and adequate access to markets. The lack of credit to smallholders has resulted in long periods of underinvestment in farms. However, given that private entities (notably, local commercial banks) are starting to provide microfinance, this situation is improving.

In processing and distribution, the challenges essentially boil down to one problem: preserving product quality given the lack of infrastructure for storage and transport. In Nigeria, even though peanuts are a key crop, the country is unable to export them; the lack of warehousing means that the peanuts are left too long in the fields, resulting in the growth of alfatoxin, which prime export markets like the US do not accept.

Overall, the most significant bottleneck lays in the logistics part of the African supply chain, including road, rail and port access. Agribusinesses can invest in storage, but ports issues are a different matter; they are highly congested, inefficient and costly. Addressing these issues would not only facilitate trade, but help to reduce food lost through spoilage, which in turn aids global food security. The Nigerian government is already making moves to tackle the issue but more needs to be done across the continent.

To what extent can West Africa replicate the success of agricultural processing in Asian countries?

VERGHESE: Africa can replicate and even exceed the success of Asia in agricultural cultivation and processing, but a few elements need to be taken into consideration. Proper land use, planning and management are essential, whether it is for a new plantation or a new processing plant. Indeed, clarity on land rights overall remains a major issue across Africa.

Equally, countries need to make use of what is already available. In Nigeria alone, there are close to 500,000 ha of old palm plantations that were never replanted. If governments can help to kickstart the rejuvenation of the neglected plantations through low-interest loans and the creation of agricultural hubs, it would help to accelerate on production.

Additionally, the spread of knowledge is crucial. Many expert organisations have been sharing best practices with smallholders and with governments. Yet, the key is to being able to scale-up and replicate initiatives through multi-stakeholder collaboration.

Furthermore, encouraging sustainable development is fundamental, not just for biodiversity and local communities, but for the long-term viability of the business.

Finally, governments need to facilitate foreign investment for in-country processing. Encouraging foreign investment with tax incentives that account for social and infrastructure investment is a case in point, as is ensuring that legislation is fit for purpose.

What sort of obstacles do investors face in terms of acquiring land in West and Central Africa?

VERGHESE: There are many challenges. Chief among them are the general absence of national land use plans, detailed information such as soil types or topography maps and the lack of skilled labour. These can be overcome by ensuring that the company has long-term lease conventions with the national government, and by ensuring that the local government and authorities have the same understanding. Clear agreements are needed with the local government within the framework of the legislation, as well as ensuring compliance with the existing regulatory process. It is worth also ensuring that communities grant social license.

Once the concession land is allocated, a thorough assessment of its suitability must be undertaken. Given that detailed land plans are lacking in many countries, plots can be mistakenly allocated (such as land with a high conservation value). Therefore it is imperative that Environmental and Social Impact Assessments are undertaken by independent third parties.