Agricultural Investment Funds: Catalyst for Development

1. Agricultural Investment Funds for Developing CountriesCalvin MillerSenior Officer – Agribusiness and FinanceRural Infrastructure and Agro-Industries Division (AGS) FAO-Rome Istanbul, Turkey 13-14 October, 2010

2. 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

3. 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

4. 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

5. II. Why invest in agriculture? World Bank

6. Food Prices vs. Investment Indices

7. II. Why invest in agriculture? The Social Rationale Additional 140 million hectares 30 % yield increases Schwedel

8. Mismatch between supply and demand in favor of the investor, due to: II. Why invest in agriculture? 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

9. II. Where to invest in the agricultural chain? Source: (SEAF), 2009

10. 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

11. Rising trend in setting up AIFs III. Main findings of the FAO/ConCap Study Source: FAO/ConCap Study

12. Distribution of AIFs according to capital base III. Main findings of the FAO/ConCap Study Source: FAO/ConCap Study

13. 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. III. Main findings of the FAO/ConCap Study

14. 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 III. Main findings of the FAO/ConCap Study

15. Type of fund: Private equity Start-up/exit date: 1995-2005 Fund size: US$ 100 million Management company: Burlington Capital Group/Agribusiness Management 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

16. Type of fund: Private equity 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 IV. Examples of AIFs African Agribusiness Investment Fund (Agri-Vie) • Type of fund: Private equity • Start-up/fund size: 2008/US$ 100 million • 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

17. 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) IV. Examples of AIFs FOPEPRO/AGRIFUND • Type of fund: Debt Fund • Start-up/fund size: 2009/US$ 20 million • Management company: Acerola Management S.A. • Investors: SIDI, Alterfin • Countries: LAC • Target sectors: Smallholder agribusiness organizations & rural MFIs

18. Examples: New funds in ECA region • Resource Eastern European Equity PartnersI, 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

19. 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 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)

20. Concept under development AfDB-FAO-UNIDO Equity & Guarantee Fund for Agribusiness and Agro-industries (EGFAA ) AfDB

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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! Contact Details