Rural energy enterprises view agriculture sector as high risk

A  new study shows that lack of robust energy services in Africa’s agriculture sector is a major obstacle to the sector’s growth.

Agriculture and agribusiness together are projected to be a $1 trillion industry in Sub-Saharan Africa by 2030, and access to sustainable energy should be at the top of the agenda for the sector’s transformation.

The November 2020 study by Factor[e] Ventures titled, “The Opportunity at the Nexus of Energy and Agriculture” reveals existing gaps in designing solar-powered irrigation, agro-processing, dairy farming, and cold storage projects in Uganda, Nigeria, and Kenya, lessons learned, and five agriculture-energy opportunities that can attract commercial investors.

“With limited energy and technology to grow, harvest and process crops, profits are lower, restricting the potential income for farmers and frustrating the growth of rural communities and the agricultural sector,” the report notes.

According to the report, agricultural systems in Sub-Saharan Africa are underpowered. Energy is an essential service for modern agricultural economies enabling farmers to irrigate, work the land, refrigerate, dry, heat, process, and transport crops.

“However, the lack of robust energy services in rural areas is a fundamental obstacle to development. With limited energy and technology to grow, harvest, and process crops, profits are lower, restricting the potential income for farmers and frustrating the growth of rural communities and the agricultural sector.”

Farmers lack technical knowledge

Growing agribusinesses and smallholder farmers need modern energy to thrive, but lack the technical knowledge, financing, and project development and management capacity to access energy services. Rural energy enterprises, in turn, need reliable energy consumers anchoring demand for their services. Agriculture should be a key market for rural energy providers, the report notes.

“However, these energy providers don’t have the customer and market understanding or the capacity and interest to develop and serve opportunities in agriculture. With few examples of successful projects at scale and many barriers to entry, investors view the opportunity as high risk with questionable returns. There is a clear gap in designing and demonstrating energy projects that can be attractive candidates for commercial investment,” the report adds.

“Agriculture in sub-Saharan Africa is underpowered. Growing agribusinesses and smallholder farmers need modern energy to thrive, but generally lack the technical knowledge, financing, and project development and management capacity to access energy services. Rural energy enterprises, in turn, need reliable energy consumers anchoring demand for their services. Agriculture should be a key market for rural energy providers. This creates a set of needs and opportunities at the ag-energy nexus. These opportunities are real and compelling, but they are not straightforward,” the Principal at Factor[e] Ventures, Seth Silverman told Prosper magazine.

Partnerships

“To power Africa’s agricultural economies, we need a stronger foundation of agricultural businesses and farmer-aligned intermediaries, a deeper pool of quality innovative enterprises and relevant technology innovations, matchmaking to pull agricultural actors, energy providers, and technology innovation together, and partnership from governments, developments finance institutions, and philanthropies to absorb risk and drive scale,” Silverman added.

According to Silverman, energy is an essential service for modern agricultural economies, enabling farmers to irrigate, work the land, refrigerate, dry, heat, process, and transport crops.

Engines supply only 10 per cent of farm power in Africa. Only 4 per cent of agricultural land in Africa is irrigated. This figure contrasts with 37 per cent of cropland that is irrigated in Asia.

“The developed world has 200m3 per 1,000 people of refrigerated storage capacity. In the developing world, it is 19m3 and in Kenya and Nigeria, it is less than 3m3. Africa imports over $400m (Shs1.5 trillion) of processed fruit and vegetables a year, but agro-processing is predicted to be the fastest-growing sub-sector in the next decade – a $122b revenue increase. Farmers can lose up to 30 per cent of grain due to mycotoxins and bacteria from poor storage and drying,” Silverman adds.

“If agribusiness in sub-Saharan Africa is to become a one trillion-dollar industry in the next 10 years, rural development efforts will need to span both energy and agriculture. Projects need to focus on big target opportunities to encourage agribusiness, energy, and technology actors to work together,” the report concludes.

Energy access and technology adoption in agriculture must accelerate through motivated agricultural, energy, and technology enterprises. This means building the capacity of those operating in agriculture and assembling the physical and financial infrastructure they need to grow.

Fixing problem

According to the report, renewably powered technologies could fix agriculture’s problems.

“However, the many established innovations that have not been widely adopted show that technology alone is not enough. Solar irrigation pumps remain substantially underutilised despite attracting lots of funding. To unlock the value that solar dryers can deliver, drying centres need strong leadership from a motivated dehydrated products trader to operate effectively. Biodigesters can deliver energy from on-farm waste, saving costs and increasing productivity, but without a market signal that values quality, the full potential of these systems to improve smallholder incomes will go unrealised.

“There are few partners around whom minigrid developers can build a reliable value proposition and they struggle to build the expertise and teams that are needed to stimulate demand in the villages in which they operate. Thus, it is the combination of the right technology tailored to offer value for rural customers, a rural focused business model to capture and grow that value, and an effective operator to deliver the model that are required for success,” it adds.

Strong partners rooted in agriculture are critical, but agribusinesses are not natural candidates for venture impact investment, the report notes.

“Market-specific impact investors and funders should cultivate the local agribusiness sector and support the partners who have the right combination of incentive and capacity to deliver results. With sufficient scale and a clear signal, programmes can bring together the three key ingredients including agribusiness, energy services, and technology providers to unlock the opportunity and enable Africa’s rural economies to thrive.”

As to what do these findings mean for the agricultural sector in Africa, Silverman, said: “Unlocking the opportunity at the nexus of energy and agricultural is essential for agriculture in Africa to realise its potential. Productive and efficient agricultural sectors cannot be built without reliable access to reliable, modern energy. The opportunities at this nexus are ripening and the agriculture, energy, technology, and public sectors need to understand and pursue these opportunities. For the African agribusiness sector to top $1 trillion by the end of this decade – as it is projected to be – these opportunities must be unlocked.”