African Agriculture Is Ripe for Investment: An Interview with Tomato Jos
The untapped potential in Africa’s agriculture sector is enormous. The sector generates nearly a quarter of the region’s gross domestic product (GDP) and provides livelihoods for two-thirds of its population. The continent has a large percentage of the world’s remaining uncultivated but arable land, and while some of that land is inaccessible or used for other purposes, investments in infrastructure and logistics could open sizable tracts. Investors have the opportunity to increase productivity and profitability while improving lives. Even amidst the economic challenges of COVID-19, agriculture remains a high-potential sector for U.S.-Africa trade and investment.
African agriculture continues to struggle due to inefficiencies and weak value chains. Small-scale farmers with limited access to modern equipment and farming techniques dominate the sector. Most have little alternative but to use poor-quality seeds with insufficient fertilizer. Only 6% of cultivated land is irrigated, which lowers yields — a problem compounded by poor storage and postharvest losses. Staple crops like maize, rice and palm oil are often uncompetitive in global markets, and some farmers can’t reach those markets anyway because of bad roads and fragmented production.
Moreover, most of the value of Africa’s agricultural products is captured in other economies, off the continent. Smallholder farms in West Africa, for example, produce 70% of the world’s cocoa beans, yet because European and Asian companies transform these beans into cocoa butter, powder or chocolate, Africa misses out on capturing their true value, which comes from reselling these high-demand goods at a healthy markup. With little value-added processing happening on the continent, the lion’s share of the profits is accruing elsewhere.
For investors, there is immense potential for growth. With the right investments, McKinsey estimates that Africa could grow two to three times more grain, livestock and other food crops. Other investments to increase processing capacity would help capture more of the sector’s value creation. U.S. companies and investors are particularly well positioned to take advantage of these opportunities, in part because of the strength and sophistication of the U.S. agricultural sector.
Prosper Africa, a U.S. government initiative to increase trade and investment between the United States and Africa, recently interviewed one American, the founder and CEO of Tomato Jos, who seized a business opportunity in Nigeria’s agriculture sector. In this interview, she shares her insights on operating in Africa, partnering with the right investors and getting the support she needs to grow.
After graduating from Brown University and working two years at a large, U.S. asset management firm, Mira Mehta took a job at a non-governmental organization (NGO) in Nigeria. There, she first learned how important tomato paste is to Nigerian cooking. She also learned that Nigeria grows plenty of tomatoes, but many go to waste without local processing facilities to absorb and preserve them. After graduating from Harvard Business School, she founded Tomato Jos in Northern Nigeria. The company has a thriving farm and deep relationships with local farmers. Now, with USAID assistance in support of Prosper Africa, Tomato Jos has completed its Series A round of investment, raising $4.4 million in equity.
Goodwell Investments, via its Nigeria-based partner Alitheia Capital, led the investment round, with additional investment from U.S. investors Acumen Capital Partners and VestedWorld. Tomato Jos put the capital to work quickly, placing an order for processing equipment and breaking ground on a factory to serve the local market. As the factory becomes active, the company will increase its full-time staff from 50 employees to approximately 70. In addition, Tomato Jos plans to work with thousands of out-grower farmers in the future, injecting more than $1 million into the local economy each year in the form of increased income for farmers.
This interview has been edited for clarity and length.
Kristin Kelly Jangraw: Why did you start Tomato Jos?
Mira Mehta: I moved to Nigeria in 2008, and I was driving around Northern Nigeria quite frequently, visiting various health clinics and hospitals for my job, and I saw all these tomatoes on the side of the road. It turns out that had been an unusually large harvest, but it was such a stunning visual. You’d see tomatoes lining the roads as far as you can see.
At the same time, I was learning how to make different Nigerian dishes. Tomato paste was a key ingredient, but all the tomato paste was imported. I had this very simple idea: there are all these tomatoes I saw on the side of the road, and there’s a value-added tomato product that doesn’t seem to be getting made in Nigeria. Why can’t we just put the two together? It took me about five years of thinking about that idea before I took the plunge and acted on it.
Jangraw: How does the company work?
Mehta: Tomato Jos is a fully integrated business. That means we do everything from farming to processing, and eventually, we will produce a branded food product as well. We have a commercial farm where we grow tomatoes using best practices. Then we have our model farm where we bring farmers onto our land and train them on how to grow tomatoes the way that we want them to do it. After farmers have worked on our model farm for two full years, they graduate to become out-growers, at which point they’re growing on their own land. The average farmer in our program gets an income increase of about five to six times what they would get if they weren’t working with us. That is a significant increase. We’re not talking about 20 or 30%; we’re talking about 600%.
Jangraw: You recently closed a Series A fundraising round. How did you know you were ready?
Mehta: When I first started Tomato Jos, I did a lot of research on growing and processing tomatoes, and part of that research led me to California to talk with major growers and processors out there. They told me that if you cannot get the farming right, the factory will never make sense. The factory is very expensive, and if you don’t have tomatoes to run through the factory, it just won’t work. I took that advice to heart, and for the first six years of the business, my team only focused on farming: How do we get the best yields on our own farm and how do we get the farmers growing for us to get the best yields?
It wasn’t until last year that we felt we had a program that was replicable and achieving the right metrics to support the factory. That was the point at which we started to fundraise. But, because we focused on nontraditional metrics from other Series A investments — we had been focused on yields, productivity and cost of production, but not on revenue — a lot of investors had a hard time understanding what our model was, why our revenue numbers looked so bad and why we were trying to raise $5 million to put up this factory.
The value that we got from Prosper Africa and CrossBoundary was really to help us figure out how to tell that story — about why what we were doing mattered and why we were now ready to invest in a factory. That was very valuable to us because it enabled us to attract new investors to the table who had bigger checks to write to help us accomplish what had always been our goal.
Prosper Africa and CrossBoundary helped us understand what metrics investors want to see. They also identified comparable companies in a similar stage in Nigeria and across the continent to help us position ourselves and determine what kind of valuation we could push for. Finally, just the introduction to new investors who I didn’t know — that was also very valuable. Because those introductions came from CrossBoundary, which is a well-recognized platform, they gave me the first stamp of approval I needed to get to the next stage of the conversation.
It can be hard as an entrepreneur in the thick of things to figure out where you can draw support from. It can be hard to figure out what is a distraction and what’s going to be additive to your business. The more we can get business-focused initiatives like Prosper Africa to help cut through the noise, the better off everybody will be.
Jangraw: What do you want to accomplish with the new round of investment?
Mehta: We held an official groundbreaking ceremony for the factory back in February and the processing equipment should arrive soon. Currently, we have about 50 full-time employees and we are planning to increase our staff to about 65 or 70 people as we get our processing facility up and running. The goal is to commission the factory by mid-February of next year and do our first production run in March.
Our initial product will be sold within the Nigerian market, which is so big that our first production run will not even be able to cover 1% of it. We will sell locally at first to make sure we can sustain supply and don’t have issues. As we grow in experience and the capacity of the factory, we’ll start to launch the product in more and more states and we hope to be a regional player across West Africa eventually because tomato paste is popular from Nigeria through Senegal.
Jangraw: When you started fundraising, what were you seeking in investors? Do you see value in African businesses working with American investors?
Mehta: Of course, the ability to write the check is important, but there is so much more. You have to know and like the people investing in your company and they have to be aligned with your values and goals.
The American investors that we have invested in our company do provide us with a lot more than cash. First and foremost, there was the rigor of the financials that we had to go through to get the investment. That helps me be data-driven in my decision-making. The American investors also push me hard to make sure I’m thinking critically about the decisions I make or the board makes.
Our American investors also encourage us to think creatively. People talk about the American spirit — the “can-do” spirit and the idea of venture capital — and I think that is real. American firms come in with the mindset that you might have to pivot, but that’s okay. They say, “let’s look at the value you’re generating and how we maximize it.” I think that’s valuable as well.
Jangraw: How is the company adapting to the COVID-19 pandemic?
Mehta: COVID-19 has affected everyone in the world. In Nigeria, the government took proactive measures right away. We were considered an essential business, so the government asked us to continue operating. One of the first things we did was to change our staffing. At first, we moved to three different shifts. Each shift would come in for two weeks and then spend four weeks at home to mitigate the risk across the full team and give us time to catch it if anyone fell ill. We then moved to two weeks on, two weeks off. We wear masks and we’ve introduced hand-washing stations and additional sanitary measures for all of the vehicles. COVID happened right in the middle of our tomato harvest so it’s an operational challenge, but we’re hoping to get our full staff up and running again.
Prosper Africa is a U.S. government initiative to increase two-way trade and investment between the United States and Africa. The Prosper Africa toolkit includes more than 60 trade and investment support services across the U.S. government. To support Prosper Africa’s goals, 17 participating U.S. government agencies are adapting existing tools and creating new ones to help U.S. and African firms adjust their strategies, protect their investments and find new opportunities in the wake of COVID-19.
This post is made possible by the support of the U.S. people through USAID. The contents of this blog are the sole responsibility of INVEST, implemented by Development Alternatives Incorporated (DAI), and do not necessarily reflect the view of USAID or the U.S. government.