Agricultural Investment Funds for Developing Countries Calvin Miller

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/Con. Cap study • Reasons for increasing interest in investments in agriculture • Main findings of the FAO/Con. Cap study • Examples of AIFs • Conclusions • Questions for discussion East Agri Meetings – Agricultural Investment Funds

I. Background on the FAO/Con. Cap 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/Con. Cap 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? World Bank East Agri Meetings – Agricultural Investment Funds

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 bio-fuels. Supply-side • Resource scarcity • Urbanization • Environmental degradation East Agri Meetings – Agricultural Investment Funds

II. Where to invest in the agricultural chain? Source: (SEAF), 2009 East Agri Meetings – Agricultural Investment Funds

III. Main findings of the FAO/Con. Cap 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 East Agri Meetings – Agricultural Investment Funds

III. Main findings of the FAO/Con. Cap Study Rising trend in setting up AIFs Source: FAO/Con. Cap Study East Agri Meetings – Agricultural Investment Funds

III. Main findings of the FAO/Con. Cap Study Distribution of AIFs according to capital base Source: FAO/Con. Cap Study East Agri Meetings – Agricultural Investment Funds

III. Main findings of the FAO/Con. Cap 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/Con. Cap 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) East Agri Meetings – Agricultural Investment Funds

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 East Agri Meetings – Agricultural Investment Funds

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 East Agri Meetings – Agricultural Investment Funds

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 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) East Agri Meetings – Agricultural Investment Funds

A Gu f. DB-F ara AO n -UN and tee Agr Fund IDO Equ o-in f o r dus Agr ity & trie s (E ibusin GF ess AA ) Concept under development East Agri Meetings – Agricultural Investment Funds Af. DB

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