Nairobi – Sep. 22, 2020 – A new report published by Bain & Company, How Farmer-Allied Intermediaries Can Transform Africa’s Food Systems, describes farmer-allied intermediaries as the anchor of a new paradigm of agricultural development. Farmer-allied intermediaries strategically source from commercially oriented smallholder farmers in a way that helps the farmers realize their production potential and increase their incomes. Intermediary businesses are typically farmer organizations that integrate into some primary processing, aggregators, processors, or vertically integrated brands. These intermediaries have the potential to transform Africa’s agriculture and food systems by reducing poverty, increasing employment, and providing affordable, nutritious foods for a growing population.

In Africa today, too few farmer-allied intermediaries have reached scale and profitability. Many are in the “missing middle,” underserved by commercial lenders and investors and too big for microfinancing. There is a reported $80 billion gap in debt available for agricultural small and medium-sized enterprises (SMEs) with annual revenue less than $15 million. Bain’s research found that of the estimated $6 billion in impact capital deployed to sub-Saharan Africa each year between 2013 and 2018, on average, less than 1 percent went to agricultural SMEs in the “missing middle.”

One reason for the persistent capital gap is the tradeoff between impact and returns. In particular, early-stage intermediaries that purposefully bear the cost of helping smallholder farmers build capacity will need to compromise on financial returns, especially when working with farmers of low-margin staple crops. Bain’s survey of nearly 50 agribusiness investors, most with an impact focus, reveals a “chronic disappointment” in returns. Almost half of impact investors generate zero or negative returns. Among investors whose portfolios focus on early-stage agricultural companies, only 55 percent report a positive return.

Significantly greater amounts of philanthropic, concessionary and blended capital are required to fill the capital gap; more capability building support is also necessary. But fundamental systemic challenges must be addressed by governments and philanthropic actors in order to alleviate the impact-return tradeoffs often required in scaling farmer-allied intermediaries. Aligned, collaborative action anchored around these linchpin businesses will ultimately be the key to food systems transformation in Africa.

The need for collaborative action is more urgent now than ever. African food systems are under pressure: from growing urbanization, youth unemployment, and, perhaps most crucially, the climate crisis. COVID-19 is one more blow, and the resulting disruption to long-term economic development may prove to be devastating. Many agricultural intermediary businesses have been severely impacted by market, supply chain and operational disruptions caused by the coronavirus.

According to a TechnoServe survey of over 100 food processors spanning sub-Saharan Africa, more than 60 percent of these enterprises do not feel adequately prepared, including having sufficient liquidity, to meet the challenges presented by COVID-19. Some food processing businesses are shutting down and at least 50 percent have scaled back operations. As of July, one in four have downsized their workforce through layoffs or forced leave.

“Governments across Africa have had to implement restrictions on the movement of people and goods to stop the spread of COVID-19, inadvertently disrupting intermediary businesses in agricultural value chains,” said Chris Mitchell, a Bain partner and co-author of the report. “We hope multiple stakeholders—government, corporations, capital providers—will increase support of farmer-allied intermediaries to ensure food security and protect livelihoods across the region.”

In May 2020, Bain joined forces with a number of our enduring pro bono clients—including TechnoServe, Partners in Food Solutions, Root Capital, and Land O’Lakes Venture37—and the US African Development Foundation (USADF), to establish the Coalition for Farmer-Allied Intermediaries (CFAI). The coalition’s mission is to catalyze a movement around farmer-allied intermediaries in order to transform and build more resilient African food systems. We aim to help scale many more profitable, competitive enterprises that enhance smallholder famer livelihoods, nutrition and food security, socio-economic development, and environmental sustainability through more effective collaborative action.

In August, with $500,000 provided by the Cargill Foundation and USADF, CFAI launched a Resiliency Grant Pilot program to support ten farmer-allied intermediaries in Kenya and Ghana helping to sustain livelihoods and food security during the pandemic. These grants will support intermediaries’ safe operations, workforce maintenance, smallholder farmer investments, and product and distribution adaptations. The ultimate goal is to scale this capital investment, as well as advisory and system coordination supports, to hundreds of farmer-allied intermediaries.

The launch of this report and convening of this coalition are initiatives from Bain & Company’s Social Impact practice, which has set a 10-year commitment to invest over $1 billion in pro bono consulting in support of leading social innovators tackling the world’s most pressing challenges.

Editor’s Note: To schedule an interview with Mr. Mitchell, please contact Katie Ware at katie.ware@bain.com or +1 646-562-8107.

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