Batanai Matsika 
THE food demand outlook in the sub-Saharan Africa (SSA) region remains very strong. Rapid population growth and increased economic prosperity are expected to create substantial demand and opportunities for the agricultural sector on the continent.
The SSA region accounts for more than 950 million people, approximately 13 percent of the global population. By 2050, this share is projected to increase to almost 22 percent, or 2.1 billion.
The major constraint is that total food production (primary crops and meat) has been growing but at a very slow rate of less than 1 percent per year.
This is rather alarming considering the fact that food production growth rate is not statistically different from population growth rate which raises concerns about the ability to self-insure against food insecurity within the SSA region.
Without both food imports and serious effort to boost food production, SSA would not be able to insure adequate food supply for the population. Climate change will likely make it even more difficult.
This puts the region at greater food security risk. We note that SSA has the necessary fertile land and labour to be food self-sufficient.
However, the scarcity of inputs such as adequate water and fertilisers is a major constraint.
Agriculture is mostly rain-dependent and this dependence makes it vulnerable to late rainfall onsets and precludes it from obtaining the best possible output.
Initiatives such as the New Partnership for Africa’s Development (NEPAD) and the Comprehensive Africa Agriculture Development Programme have all drawn considerable multilateral interest from communities across Africa.
Governments and development partners around the continent have put in place various rural development programs that seek to subsidise fertiliser costs in order to make them widely available.
Despite the headwinds, a recent report by Deloitte shows that the agricultural value in Africa more than doubled over the decade between 2006 and 2015, primarily as a result of foreign direct investment (FDI) inflows.
The countries that were found to be highly lucrative spaces for investment include Ethiopia, Nigeria and Tanzania.
The report also lists six crops, namely cassava, maize, wheat, rice, ground nuts and soya beans, as the most lucrative, based on market sentiment and demand across the continent and the globe.
In addition to fertilisers and adequate water supplies, hybrid seeds will also be critical in boosting yields on SSA farmlands.
SeedCo Limited develops and markets certified crop seeds, mainly hybrid maize seed as well as wheat, soya bean, barley, sorghum, groundnut and vegetable seeds and is set to benefit from the strong national focus on agriculture.
The company has an estimated market share of 70 percent for open market sales and gets c50 percent for government sales in Zimbabwe.
The seed company also gets the lion’s share of the government business with high demand for premium varieties by commercial farmers.
One of SeedCo’s competitive strengths has been its research capabilities. The business has a strong focus on communal farming activities in SSA, having developed a number of seed varieties in the region over time.
Most of the global seed majors tend to focus on commercial farming activities in developed markets and have limited expertise in African continent.
As a result, the SeedCo has managed to maintain very strong market share positions on the continent.
The partnership with Limagrain is expected to unlock value in terms of research in the long-term. Limagrain is the world leader in vegetable and field seeds and the fourth largest seed company in the world.
SeedCo should benefit from an importation of new technology. Limagrain has more than 100 research centres and over 1 400 researchers over the world that create approximately 600 new varieties each year. The group’s annual research budget is in the region of EUR 200m.
While there are a number of smaller seed companies that are also active in the Zimbabwean market, SeedCo remains a dominant player on the Zimbabwean market. Smaller local players find it difficult to compete in this market segment given that SeedCo has a leading edge in terms biotechnology and research and development.
SeedCo’s dominance coupled with the government’s strong focus on agriculture should also help earnings growth in the outlook period. SeedCo’s business model is also not demanding on capex.
Generally, most companies in the agricultural sector consume significant amounts of cash on the back of high capex requirements associated with farm acquisitions and maintenance.
SeedCo is a biotechnology company and most investments are in R&D. In addition, the out-grower model does not compel the company to invest in farms.
Overall, while SeedCo is likely to continue facing headwinds in Zimbabwe (worsening macro environment and product pricing constraints), prospects in regional markets (SeedCo International) remain very strong. We view SeedCo Limited as a vehicle of gaining exposure in the food demand growth story in SSA.BUY
● Matsika is head of research at Morgan & Co, and founder of piggybankadvisor.com. He can be reached on +263 78 358 4745 or batanai@morganzim.com / batanai@piggybankadvisor.com
