Africa

Details

  • Industry: BRICS
  • Type: Press release
  • Date: 3/28/2013

BRICS

During the Fifth Annual BRICS Summit held in Durban, South Africa, in March 2012 KPMG compiled a series of thought leadership and investment guides for investors interested in BRICS and its interaction with Africa.

The BRICS Corridor: Agriculture and Agro-Processing 

The focus of BRICS nations on agriculture and food security has a long history and from the very first BRIC summit in 2009, these countries have made pronouncements on their plans to enhance the agricultural sector.
Separate meetings have taken place between BRICS leaders and Ministers in the Agricultural and Agrarian Development portfolios over the years.

 

In 2010, before South Africa joined, BRIC countries accepted the Moscow Declaration. It included a focus on “pragmatic cooperation” and “adopted tangible measures to boost domestic agricultural productivity, which has played a positive role in promoting food security and maintaining economic stability”.

 

In 2011, the same Ministers, under the theme of Making Joint Efforts for World Food Security, agreed to establish the BRICS Strategic Alliance for Agricultural Research and Technology Cooperation, which aims to pool the effort of BRICS countries to address major challenges faced by the world in agricultural technologies. The Alliance will receive guidance and support from the agricultural ministries of the countries. The countries also adopted the Action Plan 2012–2016 for Agricultural Cooperation of BRICS countries.

 

The Action Plan 2012–2016, has the following five priority areas:

 

  • Creation of a basic agricultural information exchange system in BRICS countries
  • Development of a general strategy for ensuring access to food for the most vulnerable section(s) of the population
  • Undertaking of measures to reduce the negative impact of climate change on food security
  • Adaptation of agriculture to climate change
  • Enhancement of agricultural technology co-operation and innovation, as well as promotion of trade and investment in agriculture.

 

These initiatives are undoubtedly very important. They have significant bearing on food security in the medium- to long-term, particularly considering how important the agricultural sector is in all of the BRICS countries. However, they do not lay out a clear plan to tackle the shorter-term challenges of rising input costs – the major contributing factor to current high levels of food inflation.

 

Initiatives focused on small-holder farmers, which are particularly vulnerable to high input costs, also seemed to be focused more on the medium- to long-term. However, there has been specific focus on increasing access to markets for small-holder farmers. In Africa alone, small-holder farmers contribute 80 percent of the food needs of the continent.

 

Despite some of these short-term shortcomings, it is important to notice that plans are put in place and that there is a clear understanding of the role that agriculture could play in economic development. According to the World Bank, GDP growth originating in agriculture has proven to be, on average, two to four times more effective in raising the incomes of the poor than growth generated in non-agricultural sectors.

 

Given the importance of the agricultural sector in all of the BRICS nations, and the potential market from these countries representing around 3 billion people and more than a quarter of the world’s GDP, it is clear that investing in the agricultural and agro-processing sectors makes sense. In fact, it makes sense for BRICS nations to invest in agriculture and agro-processing in Africa in particular. With 60 percent of the world’s arable land in Africa and 50 percent of the African population involved in agricultural production, we are already seeing a significant focus on agriculture in Africa.

 

However, the challenge for the BRICS nations would be how to manage seemingly competing interests, such as the developments between Brazil and South Africa around the import and export of poultry products. The way these types of challenges are handled in the future will play an extremely important role in the benefits (or lack of benefits) that each of the BRICS nations and the African continent experience from co-operation in the agricultural space. It will also play an important role in creating a long term sustainable agricultural sector. Sustainability, at the end of the day, is more important that the provision of cheap food over the short-term.

 

Furthermore, infrastructure to get products to market remains a challenge in Africa, although investments are being made to improve this. Air transport has grown significantly over the past decade, while improvements are constantly being made to rail and road infrastructure.

 

Quite a few of the investments that BRICS countries have made into African agriculture have been driven by private sector investments. As such, the scale of these investments have been in the medium ranges and have not, thus far, addressed the entire value chain but rather parts of it. Public Private Partnerships could increase the availability of funding and enable policy interventions that could create a vertically integrated agricultural sector. This could lead to the sector being less exposed to global market volatility.

 

Contact

Contact
John McIntosh
Executive Partner
Advisory
Tel: +27 011 647 6596
advisory@kpmg.co.za