A fund of public and private capital has been launched with the goal of lending to agricultural cooperatives, traders and processors in developing countries.
The Food Securities Fund was announced after receiving grant funding from investor network institution Convergence. It will be used by investment advisory firm Clarmondial to raise private capital from institutional investors in Europe and North America with the primary purpose of extending lines of credit to aggregator firms that cannot access loans from local lenders.
Joan Larrea, CEO of Convergence, told Development Finance that the fund’s blended structure allows it take risk away from larger corporates’ balance sheets and attract private investment in proportion to existing demand.
“This design and the use of these corporates’ existing supply chain relationships to reach aggregators engaged in responsible agriculture practices together make it possible for institutional investors to participate by offering them a better risk-return profile,” she said.
The Government of Canada is responsible for the grant funding of the vehicle, which is attracting leading private banks, family offices and foundations, the names of which remain confidential.
By working with these firms’ larger corporate partners, the fund is able to identify the most eligible aggregators based on the sustainability of their practices. Recipients will be evaluated for specific social and environmental practices, such as the promotion of climate-smart agriculture, rural development for smallholder farmers, and supply chains that do not engage in deforestation.
Tanja Havemann, co-founder and director of Clarmondial, emphasised the fund’s dual purpose, which she said not only addresses the finance gap among agribusinesses in emerging markets, but also ensures “the transition to responsible, climate smart practices” in the sector.
In September, Convergence and International Finance Corporation (IFC) announced a jointly-funded platform that mobilises public and private capital for investment in health and education businesses within the world’s poorest economies. The platform was similarly funded by the Government of Canada, with an overall target of half a billion US dollars in investment and advisory support.
Martin Spicer, director of blended finance at IFC, commented that the challenge to using blended finance to de-risk investment in agribusiness lies in selecting the right intermediary partner while ensuring that concessional finance benefits farmers rather than partners.
“Farming has a huge working capital aspect,” said Spicer. “When you think about the financing involved, you may need to invest in a mill, or you may need to invest in storage. These are all essential for increasing farmers’ access to markets, because it allows them and local processors to achieve higher value at source.”