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[Secure sustainable supply of essential products]

Enhancing Agricultural Productivity in Africa through the Provision of Farming Guidance and Materials

In Africa, more than half of the working population is employed in the agricultural sector, therefore boosting agricultural productivity is very important for achieving economic growth. Rapid population growth in Africa since the 1960s has led to growing demand for food, but Africa’s self-sufficiency in staple food production such as grains is limited, and in many African countries there is a significant problem with food production being unable to keep pace with population growth. At the same time, the unsatisfactory state of infrastructure and distribution networks in many African nations creates problems on the sales side, with farmers unable to access markets easily. In May 2018, Mitsui & Co. began investing in and collaborating with ETC Group Ltd. (ETG), a conglomerate that is engaged in a wide range of business areas, including agricultural products trading, sale of agricultural supplies, and manufacturing and sale of everyday household goods. ETG is an enterprise which has business operations in 45 countries, mainly in Sub-Saharan Africa and the Indian Ocean Rim region, and which ranks number one in the East Africa region in terms of the quantity of fertilizer and miscellaneous beans* that it handles, as well as being one of the largest sesame trader in the region. Having been operating in Africa for over 50 years, ETG contributes towards the growth of the agricultural sector which is a key foundation for national development, by providing a product purchasing/sales platform that links together producer regions with other regions where there is demand for their products. Such contribution embodies the company’s philosophy of supporting farmers and growing together. Mitsui is helping to improve the quality of life of the region’s inhabitants by contributing, through ETG, towards the stable supply of agricultural materials, the building of the agricultural products value chain, and the enhancement of value-addition.

* “Miscellaneous beans” is a general term for all types of beans except soybeans and peanuts. They are a major source of protein in India and in Southwest Asia.

Providing agricultural supplies and sales opportunities for around 2 million farm households

Providing agricultural supplies and sales opportunities for around 2 million farmers

ETG has around 430 “Farm Gate” transaction centers (with warehouses attached), mainly located in East African nations, which serve as direct contact points linking ETG with approximately 2 million small farm households. By adopting a bi-directional business model, in which the Farm Gate centers purchase the crops that farmers bring while also selling the fertilizers, pesticides etc. that the farmers need for agricultural production, ETG provides farmers with a stable supply of agricultural materials and also opportunities to sell their crops.

Besides distributing and selling the collected crops within Africa, ETG also processes crops to enhance their value-addition for export sale outside the Africa region, and imports raw materials from outside Africa for manufacturing fertilizer which it sells to local farmers. To support this distribution model, ETG has established a logistics network that links each Farm Gate center with major ports, utilizing over 600 vehicles to overcome the under-developed infrastructure in Africa. This logistics network has become a major source of strength for ETG. However, the business of importing raw materials and exporting goods to overseas markets can involve long waits for capital recovery, necessitating large amounts of working capital. With this in mind, Mitsui has prioritized strengthening ETG’s financial fundamentals, providing support to help ETG make improvements in existing business areas, for example by optimizing logistics and realizing operation that is not burdened by excessively high inventory levels, and to strengthen the company’s financial infrastructure through adjustments to fund-raising, etc.

Boosting farmers’ revenue is the key to business growth

On the basis of several visits to Africa to determine the current situation for the farmers who are both ETG’s customers and its suppliers, it became clear that farmers’ incomes were too low for them to be able to purchase adequate amounts of fertilizer. By increasing farmers’ incomes, it would be possible to create a “virtuous circle” in which farmers are able to purchase agricultural supplies, which will generate a further increase in farmers’ revenues, enabling them to make further investments in farming equipment. Raising farmers’ income levels is a vital precondition for ETG to achieve business growth.

The main reason for low agricultural productivity in Africa is the slow pace of adoption of irrigation and of new types of agricultural equipment. However, even when attempts are made to provide farmers with better products and new technology, it is not always easy to accept a change for those who have been farming in the same place for many years. Thorough communication is important to gain the farmers’ understanding and for them to make their own choice, and this is exactly what ETG has been doing for 50 years, enabling ETG to build trust and grow its business. In order to further develop this framework, Mitsui and ETG have decided to encourage a change in the farmers’ mindset from “producing, and then selling” to “producing to sell,” by adopting the Smallholder Horticulture Empowerment and Promotion (SHEP) approach developed by the Japan International Cooperation Agency (JICA), which has already achieved significant results in Africa. In May 2018, a Memorandum of Understanding (MoU) was signed between JICA, ETG and Mitsui; the provision of support began shortly afterwards, initially focusing on Malawi. This kind of project cannot be expected to bear fruit immediately, and we plan to maintain a long-term view.

Providing support to enhance corporate value from multiple perspectives, through a coordinated effort involving several business units

The ETG Business Team to which I belong represents a first for Mitsui, embodying an unprecedented collaboration between four different business units: EMEA Business Unit (Europe, the Middle East and Africa), the Food Business Unit, the Infrastructure Projects Business Unit, and the Nutrition & Agriculture Business Unit. The main mission of the ETG Business Team is to provide support to enhance ETG’s corporate value from a long-term perspective. Since the establishment of the Team in January 2018, I have been providing overall coordination, liaising on an ongoing basis with Mitsui staff who are on assignment to ETG and with specialist local staff, and coordinating the activities of the different business units, with the aim of promoting and supporting projects based on careful evaluation of the optimal overall outcome.

When promoting projects, we come to realize that it takes unimaginably long time to bridge the gap between the ideal situation and reality. ETG’s founder and chairman has commented that, in order to put down firm roots in Africa and develop business, patience is vitally important. While the members of our Team recognize the need for steadfast determination, the fact remains that every day is a continuing struggle. Having said that, with a reasonable timeline and an appropriate level of cost-effectiveness in mind, we intend to implement measures such as expanding infrastructure improvement including electricity generating facilities, and growing sales channels, by further utilizing Mitsui’s integrated capabilities as a major trading company in order to establish a sizeable footprint in Africa through close collaboration with ETG..

My over 20-year business experience in Mitsui makes me realize that no other industry will develop without the growth of food sector that has direct linkage to social issues, and agriculture sector which underpins food production. Our role may seem small, but I firmly believe that, by making effective use of the platform that ETG provides, we can contribute to the achievement of sustainable growth in Africa through the development of food production and agriculture.