2 Jan 2010, 0047 hrs IST, MV Ramsurya,
Companies and investment houses prefer the African route to agriculture as direct investment in this sector in India is fraught with bureaucratic hurdles. Also, land is relatively cheaper in Africa and fertile. Contiguous nature of land — a company can get large tracts contiguous land — are the other main drivers.
According to statistics provided by governments of various countries in east Africa, more than 80 Indian companies have invested about £1.5 billion (about Rs 11,300 crore ) in buying huge plantations in countries in eastern Africa, such as Ethiopia, Kenya, Madagascar, Senegal and Mozambique that will be used to grow foodgrain for the domestic market.
The list of companies that have purchased land in Africa is quite long and includes companies in businesses ranging from agriculture and horticulture to engineering and metals. They include the Kolkata-based Kankaria group (manufacturing and textiles), Kommuri Agrotech (floriculture and horticulture), Surya Electrical (electrical products), Karuturi Agro Processing, AVR Engineering (construction), Nelvo International (minerals), Allied Chemicals, BP Jewellery, KSR Earthmovers.
The land purchase has been done in places like Oromia, Addis Ababa in Ethiopia, Port Sudan, Khartoum and Suwakin in Sudan, and in Nairobi in Kenya.
Rising food prices is one of the main reasons for the rush. Food price inflation rose 19.95% for the week ended December 2 from the previous year, with prices of food products and vegetables reaching record levels due to a combination of hoarding and slow production after the country saw its worst monsoon since 1972.
“The cheap cost of land is the main driver for such a trend,” says Dileep Choksi, a leading tax and accounting consultant, who has been part of several business initiaves in Africa. “While the firm food prices in India and elsewhere are also a reason, the availability of arable land (in Africa) is a major advantage,” he added.
Africa has 807 million hectare of cultivable land, of which just 197 million hectare is currently being cultivated. This demand for food and
agricultural commodities is likely to remain strong, according to a recent statement by global investor Jim Rogers.
Since farmers are not getting loans to expand, once the current cyclical decline in commodities ends, the world would see less supply of commodities.
The interest in agro-commodities reflects the demand seen for mass consumer products. According to JM Trivedi, country head with private equity major Actis — which has a majority equity interest in Nilgiri Dairy Farm — while agriculture is a growth area, investments in related aspects such as dairy would depend on whether the plan is to turn it into a mass consumer product with a brand.
While corporate farming in India is still restricted by slow government approvals, dairy farming is catching on, with KKR, another large global PE major, eyeing investments in the sector. KKR India head Sanjay Nayyar recently told ET that his firm was interested in investing in the Indian dairy sector.
KKR recently invested $150 million in a dairy farm in China and could soon follow it up with a similar investment in India, he added. Baroda-based Vigo Biotech was recently acquired by Anil Products of the Arvind Lalbhai group, in a Rs 75-crore deal, that aims at integrating the dairy operations and increasing the cow count from the current 1,000 to over 5,000 and to diversify into value-added dairy products.
The deal, advised by Transwarranty Finance, is to expand into localised market segments by leveraging on distribution strengths of the starch businesses of Anil Products.