Agricultural Investment Funds for
Developing Countries
Calvin Miller
Senior Officer – Agribusiness and Finance
Rural Infrastructure and Agro-Industries Division (AGS)
FAO-Rome
Istanbul, Turkey 13-14 October, 2010
East Agri Meetings – Agricultural Investment Funds
Presentation Outline
• Background on the FAO/ConCap study
• Reasons for increasing interest in investments in
agriculture
• Main findings of the FAO/ConCap study
• Examples of AIFs
• Conclusions
• Questions for discussion
East Agri Meetings – Agricultural Investment Funds
I. Background on the FAO/ConCap Study
Investment is essential for the growth of the agricultural
sector.
Investments in agriculture through investment funds have
experienced significant growth in recent years.
Desk study: stock-taking and case studies
Definition of Agricultural Investment Funds
• Clear focus on investments in agriculture, agribusinesses
and other areas linked to agriculture.
• Focus on developing countries (SSA) and transition
economies.
• Focus on development-oriented funds.
East Agri Meetings – Agricultural Investment Funds
I. Background on the FAO/ConCap Study
Limitations of the research
• Short track-record: limited available data on financial
returns & development impact
• Many vehicles are not investing in agriculture only
• Willingness of counterparties to disclose information:
confidentiality concerns
• Effects of the financial crisis impacted on attracting
(private) investors and placements of investments
Comprehensive analysis of a broad range of
investment funds that target agriculture in
developing countries, outlining current trends and
lessons learned.
East Agri Meetings – Agricultural Investment Funds
II. Why invest in agriculture?
Global Agricultural Prospects for Commodity markets
200
180
Real Agricultural Price Index
160
140
120
100
80
60
40
20
0
1990
World Bank
1995
2000
2005
2006
2007
2008
2009
Year
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2010
2015
2020
Food Prices vs. Investment Indices
East Agri Meetings – Agricultural Investment Funds
II. Why invest in agriculture?
The Social Rationale
Additional
140
million
hectares
30 % yield increases
Schwedel
East Agri Meetings – Agricultural Investment Funds
II. Why invest in agriculture?
Mismatch between supply and demand in favor of
the investor, due to:
Demand-side
• Population growth & longer
life expectancies
• Increases in purchasing
power in emerging
economies
• Renewable energy
sources, including biofuels.
Supply-side
• Resource scarcity
• Urbanization
• Environmental degradation
East Agri Meetings – Agricultural Investment Funds
II. Where to invest in the agricultural chain?
Why an Agribusiness Investment Fund?
VALUE CHAIN PLAYERS
OPPORTUNITIES
Climate
Space for subsidized lending &grants
FARMERS, PRIMARY PRODUCERS
Know-how
raw materials
Competition, strategy
Economy, Market Conditions, Shocks
RISK FACTORS
Income +
technology or
credit support
PROCESSORS, AGGREGATORS, EXPORTERS
Low profits, high risk, but viable esp.
with support for productivity
enhancement
Space for SEAF-like investment funds
Reasonable and consistent returns
(less exposed to market factors than
other sectors), but not extremely
high returns.
processed goods
Space for SEAF-like investment funds
and private sector
LOCAL & INT’L BUYERS/RETAILERS
Opportunities for high returns, based
on business strategy and ability to
beat competition.
 Agribusiness fund focusing on businesses that link farmers to global buyers
can complete a farm-level development strategy for emerging markets.
Source: (SEAF), 2009
East Agri Meetings – Agricultural Investment Funds
III. Main findings of the FAO/ConCap Study
• Out of 80 investment vehicles reviewed, 31 AIFs
identified (mainly focused on SSA or globally)
• Significant growth of AIFs in recent years
• Capital base ranging between US$ 8 million and
US$ 2.7 billion
• 68% have a capital base< US$ 100 million
• Many set up as a public-private partnerships
(PPPs)-58%
• One third of the AIF that were launched during
the last 3 years are private capital funds
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III. Main findings of the FAO/ConCap Study
Rising trend in setting up AIFs
20
18
Number of funds
16
14
12
10
8
6
4
2
0
<1999
1999-2006
Year
Source: FAO/ConCap Study
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2007-2009
III. Main findings of the FAO/ConCap Study
Distribution of AIFs according to capital base
14
Number of funds
12
10
8
6
4
2
0
n.a.
8-25
26-100
101-250
Capital base (in million US$)
Source: FAO/ConCap Study
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251-500
> 500
III. Main findings of the FAO/ConCap Study
• Varied instruments: equity (14), debt (4),
debt/equity (8), guarantee (1), others (4)
• Target groups served vary: in particular, growth
finance for the “missing middle” is needed.
• 70% of funds invest in agro-industries and
agribusinesses
• Clear social & development mission assigned to
two thirds of AIFs.
• Technical assistance is provided through 50% of
AIFs.
East Agri Meetings – Agricultural Investment Funds
III. Main findings of the FAO/ConCap Study
Different types of investors in AIFs
• Investors in AIFs range from public investors without
return expectations to private investors with strong
commercial orientation
• Agriculture perceived as a sector that offers investment
opportunities for the private sector
• AIFs offer a means for investors to pool their assets and
invest in the rural/agriculture sector in developing
countries, diversify portfolio
• AIFs offer opportunity for the private sector to build
synergies with the public sector (risk sharing)
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IV. Examples of AIFs
Agribusiness Partners International Investment Fund
•
•
•
•
Type of fund:
Start-up/exit date:
Fund size:
Management company:
•
•
Countries:
Target sectors:
•
•
The principal was guaranteed by a US government agency (OPIC)
Investment strategy: high returns to investors by addressing the capital
needs of the agribusiness and food sector in the target countries
Examples of funded projects: poultry production and processing/cheese
production start-up
•
Private equity
1995-2005
US$ 100 million
Burlington Capital Group/Agribusiness
Management Company, LLC
Russian Federation & NIS
Agribusiness & food processing companies
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IV. Examples of AIFs
India Agribusiness Fund
•
•
•
•
•
•
Type of fund:
Start-up/fund size:
Management company:
Investors:
Countries:
Target sectors:
Private equity
2008/US$ 120 million
Rabo Equity Management Company Ltd.
IFC, FMO, DEG, CDC Group, Capvent AG
India
Food and agribusiness-companies
African Agribusiness Investment Fund (Agri-Vie)
•
•
•
•
•
•
Type of fund:
Start-up/fund size:
Management company:
Investors:
Countries:
Target sectors:
Private equity
2008/US$ 100 million
Sanlam Private Equity and SP-Aktif
DB of Southern Africa, private investors
SSA
Agribusiness sector along the agribusiness
value chain
East Agri Meetings – Agricultural Investment Funds
IV. Examples of AIFs
Rabo Sustainable Guarantee Fund (SAGF)
•
•
•
•
Type of fund:
Start-up/fund size:
Management company:
Investors:
•
•
Countries:
Target sectors:
Guarantee Fund
2008/US$ 30 million
Rabobank International
Dutch Ministry of Development
Cooperation, Rabobank Foundation etc.
Global
Financial intermediaries that pre-finance
agricultural cooperatives and SMEs
FOPEPRO/AGRIFUND
•
•
•
•
•
•
Type of fund:
Start-up/fund size:
Management company:
Investors:
Countries:
Target sectors:
Debt Fund
2009/US$ 20 million
Acerola Management S.A.
SIDI, Alterfin
LAC
Smallholder agribusiness organizations &
rural MFIs
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Examples: New funds in ECA region
Resource Eastern European Equity Partners I, LP
• Type of fund:
Private Equity
• Start-up/fund size:
€ 51 million
• Investors:
Rabobank Group, EBRD and Resource Partners
• Countries:
Poland and other EU members in central and SE Europe
• Target sectors:
investing in mid-cap food and agribusinesses operating in
food processing, manufacturing, retail and logistics
Bulgarian Agricultural Fund
• Type of fund:
Private Equity
• Start-up/fund size:
40 million BGN
• Investors:
9 commercial banks
• Countries:
Bulgaria
• Target sectors:
refinance loans for agriculture machinery
East Agri Meetings – Agricultural Investment Funds
New funds in ECA region and Africa
Pharos Miro Agriculture Fund
• Type of fund:
• Start-up/fund size:
• Investors:
• Countries:
•
Private Equity
US $350 million
Pharos and others
Moldova, Romania, Ukraine, Russia,
Kazakhstan, Tanzania and Ghana
Target sectors:
acquiring and managing agricultural land
holdings in Eastern Europe, Eurasia and Africa
New funds in Africa
•
Silverlands Fund – invests in agricultural businesses
•
The West Africa Agricultural Investment Fund (WAIFF) – invests in seed producers
•
Mahaseel Agriculture Investment Fund – invests across the value chain
•
Global Agriculture and Food Security Program (GAFSP)
-- food security and income
($880 launch from Gates and 5 countries; IFC manages private window; WB is trustee of private
window)
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Concept under
development
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AfDB
V. Conclusions
Recommendations for setting up agricultural
investment funds
• PPPs can be a useful tool to engage the private sector as
they provide for sharing of risks and costs: coordination of
different investors is essential
• Local presence of the fund manager & highly specified
agricultural expertise
• Careful risk assessment and portfolio diversification
• Development of tailor-made products
East Agri Meetings – Agricultural Investment Funds
V. Conclusions
Policy recommendations
• Policy and regulation affecting agricultural production
and investment in developing countries
• Capital repatriation and tax incentive for FDI
• Investments in infrastructure, technology and education
• Involvement of public sector and private sector entities in
developing countries
Recommendations for further research
• Gap analysis on access to finance for agricultural
stakeholders
• Structuring of a “model” agricultural investment fund
• Impact of AFI for agriculture
East Agri Meetings – Agricultural Investment Funds
VI. Questions for discussion
• What are financing gaps of agricultural
stakeholders in the ECA countries? Are
investment funds a suitable means to tackle
those financing needs? Which role does the
“missing middle” play for the region?
• There was explosive growth of microfinance
investment vehicles in recent years. Can
developing-world agriculture develop into a new
alternative asset class, similar to microfinance?
East Agri Meetings – Agricultural Investment Funds
VI. Questions for discussion
• What are the benefits, risks and opportunities of
AIFs vs. other means of investments (e.g. direct
investments) in agriculture? How can those
models catalyse local investments?
• Interest of the private sector in investing in
agriculture is increasing. Which role should
IFIs/international donors play? Is public capital
taking the lead in leveraging private capital or are
currently rather private efforts attracting public
money into the sector?
East Agri Meetings – Agricultural Investment Funds
Recommended Websites
• AGS Website:
www.fao.org/ag/ags/index_en.html
• Rural Finance Learning Centre:
www.ruralfinance.org
• Contract Farming:
www.fao.org/ag/ags/contract-farming/en
• Review Guidelines on FAO and the Private
Sector
http://www.fao.org/tc/private/principles_en.asp
East Agri Meetings – Agricultural Investment Funds
Contact Details
Calvin Miller
Tel: + 39 06 570 54469
Calvin.Miller@fao.org
Sylvia Richter
Tel: + 49 69 977 876 50-79
S.Richter@finance-in-motion.com
Thank You!
East Agri Meetings – Agricultural Investment Funds