East Agri Meetings – Agricultural Investment Funds Agricultural Investment Funds for Developing Countries Calvin Miller Senior Officer – Agribusiness and

East Agri Meetings – Agricultural Investment Funds

Agricultural Investment Funds for Developing Countries

Calvin MillerSenior Officer – Agribusiness and Finance

Rural Infrastructure and Agro-Industries Division (AGS) FAO-Rome

Istanbul, Turkey 13-14 October, 2010


• 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

Presentation Outline


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.

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.

I. Background on the FAO/ConCap Study


Global Agricultural Prospects for Commodity markets

0

20

40

60

80

100

120

140

160

180

200

1990 1995 2000 2005 2006 2007 2008 2009 2010 2015 2020

Year

Rea

l A

gri

cult

ura

l P

rice

In

dex

II. Why invest in agriculture?

World Bank


Food Prices vs. Investment Indices



Schwedel

The Social Rationale

Additional 140 million hectares

30 % yield increases


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 bio-fuels.

Supply-side• Resource scarcity• Urbanization• Environmental degradation


Why an Agribusiness Investment Fund?Ec

onom

y, M

arke

t Con

ditio

ns, S

hock

s

Clim

ate

Com

petiti

on, s

trat

egy

RISK FACTORS

Space for subsidized lending &grants

Low profits, high risk, but viable esp. with support for productivity

enhancement

raw materials Income + technology or credit support Space for SEAF-like investment funds

Reasonable and consistent returns (less exposed to market factors than

other sectors), but not extremely high returns.

Know

-how

Agribusiness fund focusing on businesses that link farmers to global buyers can complete a farm-level development strategy for emerging markets.

Space for SEAF-like investment funds and private sector

Opportunities for high returns, based on business strategy and ability to

beat competition.

FARMERS, PRIMARY PRODUCERS

PROCESSORS, AGGREGATORS, EXPORTERS

LOCAL & INT’L BUYERS/RETAILERS

processed goods

VALUE CHAIN PLAYERS OPPORTUNITIES

Source: (SEAF), 2009

II. Where to invest in the agricultural chain?


• 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

III. Main findings of the FAO/ConCap Study


Rising trend in setting up AIFs

0

2

4

6

8

10

12

14

16

18

20

<1999 1999-2006 2007-2009

Year

Nu

mb

er o

f fu

nd

s

Source: FAO/ConCap Study



Distribution of AIFs according to capital base

Source: FAO/ConCap Study

0

2

4

6

8

10

12

14

n.a. 8-25 26-100 101-250 251-500 > 500

Capital base (in million US$)

Nu

mb

er o

f fu

nd

s



• 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.



• 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)

Different types of investors in AIFs



• Type of fund: Private equity

• Start-up/exit date: 1995-2005

• Fund size: US$ 100 million

• Management company: Burlington Capital Group/AgribusinessManagement Company, LLC

• Countries: Russian Federation & NIS

• Target sectors: Agribusiness & food processing companies

• 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

Agribusiness Partners International Investment Fund

IV. Examples of AIFs



• Start-up/fund size: 2008/US$ 120 million

• Management company: Rabo Equity Management Company Ltd.

• Investors: IFC, FMO, DEG, CDC Group, Capvent AG

• Countries: India

• Target sectors: Food and agribusiness-companies

India Agribusiness Fund


African Agribusiness Investment Fund (Agri-Vie)



• Management company: Sanlam Private Equity and SP-Aktif

• Investors: DB of Southern Africa, private investors

• Countries: SSA

• Target sectors: Agribusiness sector along the agribusiness value chain


• Type of fund: Guarantee Fund• Start-up/fund size: 2008/US$ 30 million• Management company: Rabobank International• Investors: Dutch Ministry of Development

Cooperation, Rabobank Foundation etc.• Countries: Global• Target sectors: Financial intermediaries that pre-finance

agricultural cooperatives and SMEs

Rabo Sustainable Guarantee Fund (SAGF)


FOPEPRO/AGRIFUND

• Type of fund: Debt Fund


• Management company: Acerola Management S.A.

• Investors: SIDI, Alterfin

• Countries: LAC

• Target sectors: Smallholder agribusiness organizations & rural MFIs


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


New funds in ECA region and Africa

Pharos Miro Agriculture Fund • Type of fund: Private Equity • Start-up/fund size: US $350 million • Investors: Pharos and others• Countries: Moldova, Romania, Ukraine, Russia,

Kazakhstan, Tanzania and Ghana • Target sectors: acquiring and managing agricultural land

holdings in Eastern Europe, Eurasia and 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)

New funds in Africa


AfD

B-F

AO

-UN

IDO

Equ

ity &

Gua

rant

ee F

und

for

Agr

ibus

ines

s

and

Agr

o-in

dust

ries

(EG

FA

A )

Concept under development

AfDB


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

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

V. Conclusions


• 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?

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?

VI. Questions for discussion


• 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

Recommended Websites


Calvin Miller

Tel: + 39 06 570 54469

[email protected]

Sylvia Richter

Tel: + 49 69 977 876 50-79

[email protected]

Thank You!

Contact Details

Documents

East Agri Meetings – Agricultural Investment Funds Agricultural Investment Funds for Developing Countries Calvin Miller Senior Officer – Agribusiness and