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FOREIGN AND LOCAL DIRECT INVESTMENTS IN

AGRICULTURE: Lessons from Financing

Agricultural Investments in Tanzania

________________________________________________AFRACA Eastern Africa Sub Regional Workshop, Kunduchi Beach Hotel, Dar es

salaam, Tanzania16th to 18th May, 2012

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Presentation By: Mr. Nicomed Bohay Manager

Agribusiness CRDB Bank Plc

Tanzania.

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Outline:1. About CRDB Bank Plc, Tanzania

2. Scope of Agriculture – FAO definition of agriculture

3. The future of Agriculture in Africa

4. Opportunities of investment in agriculture (The case of Tanzania)

5. Challenges of investment in agriculture (The case of Tanzania)

6. Lessons from agricultural financing in Tanzania

• Four case studies for investment in sugarcane estate, tea estate, dairy farm and large scale sorghum farming

7. Conclusion

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About CRDB Bank PLC:• The largest Bank in Tanzania in terms of

assets, deposits and lending*• Present in every region in Tanzania – 75

branches 10 mobile branches• Total assets – TZS 2.7 Trillion • Customer deposits – TZS 2.4 Trillion • Total loans – TZS 1.4 Trillion• Over 500 Collaborating Microfinance

Institutions• Over 1,200 POS at Merchant outlets* The figures above is the position as at 31.12.2011

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Nyerere

Meru

Bugando

(K/nyama)

Tarime

Mugumu

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The Scope of Agriculture (FAO Definition)

• Agriculture includes• Crop farming

• Agro processing

• Livestock

• Forestry

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The Future of Agriculture in Africa

• As the world population has reached about 7 billion people; -

1.Increased demand for food to feed the world population

2.More and more agricultural land in the world is encroached by urbanization i.e. less and less agricultural land is available to feed increasing world population!

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The Future of Agriculture in Africa

• Developed/developing countries (e.g. China, Thailand, etc) are now looking at Africa for investment in agricultural land to feed their population. Looking for bilateral agreements with African countries in invest and export food crops to their home countries

• Africa has the largest potential to feed the world population – arable and virgin land

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• Tanzania has over 10 million Hectares of arable land for agriculture that is not utilized (source FAO)

• In Tanzanian case, it is the “peasant farmer” feeding the country. What we have seen recently is transformation of Tanzanian peasant farmer to national regional “commercial farmer”………... Perhaps we can transform local small holder farmers to global supplier

The Future of Agriculture in Africa

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Opportunities of Investment in Agriculture (The Case of Tanzania)• Available green field land for new

agricultural investment e.g. Land Bank database at TIC, local government (village land)

• Available small holder farmers organized in farmer groups/cooperatives or associations that can be easily mobilized to out grower schemes (Note over 80% of population are engaged in agriculture)

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Opportunities of Investment in Agriculture (The Case of Tanzania)• Abundant water resources – rivers and

lake basins, under ground water (e.g. Dodoma grapes farming project)

• Available local finance to leverage agricultural investments – working capital facilities, structured finance, pre and post export finance, medium and long term senior debt.

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Challenges of Investment in Agriculture (The Case of Tanzania)• Limited land for expansion for existing

investments e.g. TPC in Moshi, KSL in Kilombero valley, etc

• Long approval process for land acquisition through the local government system (e.g. village land)

• Negative perception of local communities that the investors are robbing their ancestral land

• Water

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Lessons from Agricultural Investment Financing in

Tanzania Case 1: Foreign investor in large scale sugarcane farming and

processing

Sugar Factory

(FI)

Value Addition

Plant

Block Farms

Sugar Estates

(investor)

Sugar distributors

Sugar wholesalers

retailers

Sugarcane Outgrowers

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Lessons from Agricultural Investment Financing in

Tanzania Case 1: Foreign investor in large scale sugarcane farming and

processing

Foreign investor invested in sugar factory and sugarcane estatesContracted small holder farmers (outgrowers) through their organizations (e.g. SACCOS)Contracted medium scale farmers through block farmsProvided extension services and link to input suppliers and financiersSuccessful model, Foreign investor now expanding to a new value addition plant

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Tea Processing

Factory (JV-FI/FO

)

Tea Export Buyers

Tea Estates

(investor)

Local Tea Packaging

(JV)

Tea Outgrowers

Lessons from Agricultural Financing in Tanzania

Case 2: Partnership between foreign investor and local farmer organization in

Tea farming and processing

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Lessons from Agricultural Financing in Tanzania

Case 2: Partnership between foreign investor and local farmer organization in

Tea farming and processingForeign investor invested in tea processing factory and tea estatesShares were sold to local farmer organization on a free carry initially, later on farmers acquired more shares using cash flow from dividend paymentsFarmer organization has grown to 16,000 member farmers, supplying 70% of the factory green leafThe JV has expanded to new tea factory and new tea packaging subsidiary company

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Milk Processing

Factory (LI)

Dairy Farm

(investor)

Wholesalers and retailers

Dairy Keepers

(Outgrowers)

Lessons from Agricultural Investment Financing in

Tanzania

Case 3: A local investor in dairy farm

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Local investor has invested in a milk processing factory and large scale dairy farm with over 4,000 dairy cattleLocal dairy farmers around the farm were mobilized through outgrower scheme and provided with extension services from the investorToday the milk processing factory depends on outgrower dairy famers milk production for about 50% of milk supplies

Lessons from Agricultural Investment Financing in

Tanzania

Case 3: A local investor in dairy farm

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Large Scale

Sorghum Farmer

(LI)

Input Suppliers

Breweries(contract farming)

Small holder sorghum farmers

(Outgrowers)

Lessons From Agricultural Investment Financing in

Tanzania Case 4: A local investor in large

scale sorghum contract farming

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A local investor contracted by the breweries to supply sorghumCultivated over 3,000 acres of sorghum and mobilized/sub-contracted small holder farmers around the estate (out growers)Provided extension services and linked to input suppliers with financing from financial institutionsOver 70% of the contracted volume is supplied by small holder farmers

Lessons From Agricultural Investment Financing in

Tanzania

Case 4: A local investor in large scale sorghum contract

farming

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Linking of agricultural production to market is a key for successful and sustainable investment in agricultureOut grower model can easily address limitations in expansion of agricultural land for the investor, and can have a direct positive impact to the community around the project site.Africa has the largest potential of becoming the food basket of the world, if its agricultural potential is harnessed and managed efficiently

Conclusion

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End/Fin

Thank you