On 25-27 January 2017 the International Fund for Agricultural Development (IFAD) hosted a conference on investments in inclusive rural transformation at its headquarters in Rome. The event was organised on the premise that more private sector resources are required to meet the financing demand of smallholder farmers, which is estimated at USD 200bn – an amount which cannot currently be meet with public resources available to IFAD and similar organisations.
IFAD, which typically finances projects through the governments of its member states, is exploring different routes to attract private sector funding to its activities. For example, a project to increase productivity and profitability of smallholder producers of cereals in Kenya has led to a warehouse receipt financing scheme involving Equity Bank that allows farmers to access post-harvest credit. Moreover, IFAD recently announced a EUR 10m investment into a Ugandan private equity fund investing in agricultural SMEs. In parallel to these interventions, IFAD is working on a broader strategy to make the producers and businesses it supports investable for private sector players. In a related effort it also announced the establishment of the Smallholder Agriculture Finance & Investment Network (SAFIN) to coordinate activities between private, public and philanthropic investors and rural farmers and enterprises to address finance and investment challenges.
It is yet unclear how SAFIN will mobilize additional resources, and how it will complement various existing initiatives, such as the Initiative for Smallholder Finance (ISF), the World Food Programme’s Patient Procurement Platform, the Council on Smallholder Agricultural Finance (CSAF), and a variety of initiatives launched by FAO, the World Bank Group, and various regional initiatives supported by development banks and foundations. However, these numerous initiatives have so far not succeeded in attracting mainstream investors at scale to finance smallholders and sustainable agriculture in emerging markets.
We see exciting avenues through which public sector players could catalyse private sector investment in emerging market agriculture. Public resources could be used in blended finance initiatives that (i) support all links in the relevant value chains, (ii) do so in a way that supports accountability and (iii) consider long-term viability, be it through government budgets or private-sector driven models. It is important such initiatives consider three broad levels:
- Local capacity development of smallholder farmers including market linkages and infrastructure
- Strengthening of local and international value chains, in particular local aggregators trading with local and international markets
- Channels that mobilize new sources of commercial financing linked to responsible agricultural practices
Our focus has been on last point, where we have developed investment strategies and vehicles through which the limited pool of public monies can leverage significant additional funding. We also see untested opportunities for Public Private Development Partnerships (PPDP) around asset securitisations, and that public resources could also be used to develop indices linked to responsible agricultural production and sustainable landscapes. At Clarmondial, we have been working with private investors, foundations and governments to initiate and develop such new initiatives to bring to market new, business led solutions.