Funds and governments to invest in African agrifood SMEs

28 February 2018. Rabobank Foundation, AgriProFocus, Food and the Business Knowledge Platform and ICCO Cooperation published the study ‘Critical Capital for African Agrifood SMEs’. The study evaluates the access of risk capital by agrifood SMEs (small and medium enterprises). SMEs are key for establishing sustainable food systems, while at the same time face difficulties to access capital.

Offer agrifood SMEs an assortment of services
The study focuses on agrifood SMEs that form the ‘missing middle’: too large for micro-finance and too small for mainstream banks and private equity firms. A major conclusion is that there are very few investment funds that meet the financing needs of agrifood SMEs, that are usually under 250.000 USD and rarely higher than 1M USD. Such smaller investments are tedious and costly for investment funds, even for those set up with the explicit goal to stimulate the development of the agrifood sector.

The report therefore calls on policy makers to promote a graduation strategy, that allows investors to offer an assortment of services to agrifood SMEs that match their development stage. Governments and international development agencies can contribute to such a strategy by reorganising investment funds; giving them a wider mandate and access to relevant financial resources.

Importance of agrifood SMEs for food security
Large portions of the African population continue to be food insecure despite availability of natural resources. Food supply is constrained by low productivity of soil and water, huge post-harvest losses, climate change, and poorly functioning value chains. Agrifood SMEs occupy critical positions along the value chains: as input suppliers, off-takers, processors, distributors, service providers or otherwise. They constitute a pull factor, aggregating large groups of smallholder farmers into the value chain, which can lead to better livelihoods and food security.

About the research
Apart from desk research, the study involved field research in four countries (Kenya, Tanzania, Zambia and Mali). Local researchers interviewed investment funds, agrifood SMEs, and relevant resource persons. This resulted in examples of successful SMEs that had raised capital, thereby boosting their development, and of SMEs that could not access such funds. The study also presents an overview of existing investment funds for agrifood SMEs in Africa.

You can download the research report HERE