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					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


                                 160
Real Agricultural Price Index




                                 140


                                 120


                                 100


                                  80


                                  60


                                  40


                                  20


                                   0
                                       1990   1995      2000      2005      2006       2007      2008       2009    2010   2015   2020
                                World Bank                                            Year

                                                               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                                    Supply-side
• Population growth & longer                   • Resource scarcity
  life expectancies                            • Urbanization
• Increases in purchasing                      • Environmental degradation
  power in emerging
  economies
• Renewable energy
  sources, including bio-
  fuels.

                East Agri Meetings – Agricultural Investment Funds
 II. Where to invest in the agricultural chain?

                                         Why an Agribusiness Investment Fund?
    RISK FACTORS                                                                 VALUE CHAIN PLAYERS                                OPPORTUNITIES

                                                                                                                             Space for subsidized lending &grants
                                                        Climate




                                                                                                                             Low profits, high risk, but viable esp.
    Economy, Market Conditions, Shocks




                                                                                                                                with support for productivity
                                                                          FARMERS, PRIMARY PRODUCERS                                     enhancement

                                                                     raw materials                          Income +
                                                                                                            technology or
                                                                                                                             Space for SEAF-like investment funds
                                                Know-how




                                                                                                            credit support

                                                                                                                               Reasonable and consistent returns
                                                                                                                             (less exposed to market factors than
                                                                        PROCESSORS, AGGREGATORS, EXPORTERS                      other sectors), but not extremely
                                                                                                                                          high returns.
                                          Competition, strategy




                                                                                                      processed goods

                                                                                                                             Space for SEAF-like investment funds
                                                                                                                                      and private sector

                                                                                                                             Opportunities for high returns, based
                                                                         LOCAL & INT’L BUYERS/RETAILERS                       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


               East Agri Meetings – Agricultural Investment Funds
III. Main findings of the FAO/ConCap Study

 Rising trend in setting up AIFs

                     20
                     18
                     16
   Number of funds




                     14
                     12
                     10
                     8
                     6
                     4
                     2
                     0
                          <1999                          1999-2006                     2007-2009
                                                            Year



Source: FAO/ConCap Study



                                  East Agri Meetings – Agricultural Investment Funds
III. Main findings of the FAO/ConCap Study

Distribution of AIFs according to capital base
                    14

                    12
  Number of funds




                    10

                    8

                    6

                    4

                    2

                    0
                         n.a.    8-25             26-100            101-250          251-500   > 500
                                             Capital base (in million US$)


Source: FAO/ConCap Study



                                East Agri Meetings – Agricultural Investment Funds
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)


                    East Agri Meetings – Agricultural Investment Funds
IV. Examples of AIFs

    Agribusiness Partners International Investment Fund
•    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



                          East Agri Meetings – Agricultural Investment Funds
    IV. Examples of AIFs
                              India Agribusiness Fund
    •    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


               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
                          East Agri Meetings – Agricultural Investment Funds
    IV. Examples of AIFs
                     Rabo Sustainable Guarantee Fund (SAGF)
    •    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

                               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
                           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 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:                     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)


                             East Agri Meetings – Agricultural Investment Funds
Concept under
 development




                East Agri Meetings – Agricultural Investment Funds
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

				
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