AGRICULTURAL INVESTMENT FUNDS for DEVELOPING COUNTRIES
AGRICULTURAL INVESTMENT FUNDS for DEVELOPING COUNTRIES
FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONSRome, 2010
Calvin Miller
Sylvia Richter
Patrick McNellis
Nomathemba Mhlanga
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FAO 2010
Agricultural investment funds for developing countries iii
Contents
PREFACE vii
ACKNOWLEDGEMENTS ix
ACRONYMSANDABBREVIATIONS xi
GLOSSARY xiii
EXECUTIVESUMMARY xv
1. THEROLEOFINVESTMENTFUNDSINAGRICULTURE 1 1.1 UnderstandingagricUltUralinvestmentfUndsandtheirgrowth 2 1.2 investmentfUndresearchstUdy 3 1.3 theimportanceofagricUltUrefordevelopment 6 1.4 theinvestorsperspectiveoninvestmentsinagricUltUre 9 1.5 capitalneedsandtheroleofinvestmentsinagricUltUre 14
2. STOCK-TAKINGOFAGRICULTURALINVESTMENTFUNDS 19 2.1 generalcharacteristicsofinvestmentfUnds 19 2.2 trendsregardingtheset-UpofagricUltUralinvestmentfUnds 21 2.3 geographicdistribUtionandoUtreachofselectedfUnds 22 2.4 sizeofselectedinvestmentfUnds(capitalbase) 23 2.5 shareholderstrUctUreoftheselectedfUnds 27 2.6 assetsmanagementofselectedfUnds 28 2.7 targetgroUpsservedbytheidentifiedinvestmentfUnds 28 2.8 organizationandset-UpofagricUltUralinvestmentfUnds 30 2.9 theinvestmentprocess 30 2.10theroleoftechnicalassistance 31 2.11expectedandactUalfinancialperformance 32 2.12investmentfUndimpact 34 2.13principalissUes,constraintsandopportUnities 35
3. OPERATIONS,PERFORMANCEANDCOMPARATIVEANALYSIS OFAGRICULTURALINVESTMENTFUNDS 37 3.1 overviewofselectedcasestUdies 37 3.2 agricUltUralfUndscomparedtootherfUnds 43 3.3 theeffectsoftheglobalfoodandfinancialcrises 47
iv Contents
4. CONCLUSIONSANDRECOMMENDATIONS 53 4.1 sUmmaryoffindings 53 4.2 recommendationsforsettingUpagricUltUralinvestmentfUnds 54 4.3 policyrecommendations 56 4.4 recommendationsforfUrtherresearch 58
REFERENCES 61
ANNEXESannex1.managementcompanycasestUdysmallenterpriseassistancefUnds 63annex2.casestUdygeorgiaregionaldevelopmentfUnd 73annex3.casestUdyactisafricaagribUsinessfUnd 91annex4.casestUdyagribUsinesspartnersinternationalfUnd 105annex5.casestUdysUstainableagricUltUregUaranteefUnd 111annex6.casestUdyrUralimpUlsefUnd 123annex7.casestUdyafricanagricUltUralcapital 133annex8.investmentfUndsUmmariesoverview 145annex9.investmentfUndsUmmariesfUnds,sectors,instrUmentsandtypes 165
BOXESbox1 investmentbythegeorgiaregionaldevelopmentfUndsindogan 1box2 investmentbytheagribUsinesspartnersinternationalfUndin chickenkingdom 2
TABLEStable1 overviewofagricUltUralinvestmentfUnds 5table2. theinvestmentsector:agricUltUreandagribUsiness 21table3. capitalbaseofselectedagricUltUralinvestmentfUnds 24table4. overviewofcUrrentinvestmentsthegeorgiaregional developmentfUndportfolio 79table5. projectedgrowthratesfordevelopmentindicators thegeorgiaregionaldevelopmentfUndportfolio 82table6. impactofinvestmentonworkforceandsUppliers 82table7. cUrrentstatUsoverviewofprojectsfUndedbyactisafrica agribUsinessfUnd31 101table8. overviewofinvestorsoftherUralimpUlsefUnd 125table9. termsandconditionsoftherUralimpUlsefUnd 127table10. performanceofthepartnermfisoftherUralimpUlsefUnd 130
FIGURESfigUre1. stakeholdersinflUencingtheagricUltUralvalUechain 7figUre2. agricUltUralstakeholdersrisksandopportUnities 8figUre3. thedevelopmentoffoodpricesandstocks(jUne2006april2009) 12figUre4. therUralfinancegapandthemissingmiddle 14figUre5. risingtrendinsettingUpagricUltUralinvestmentfUnds 22figUre6. geographicdistribUtionofagricUltUralinvestmentfUnds 22figUre7. distribUtionoffUndsaccordingtogeographicoUtreach 23
Agricultural investment funds for developing countries v
figUre8. distribUtionofagricUltUralinvestmentfUndsaccording tocapitalbase 24figUre9. overviewofoperationsofthegeorgiaregional developmentfUnd 31figUre10. distribUtionofagricUltUralinvestmentfUndsby retUrnexpectations 33figUre11. developmentofoilandfoodprices(janUary2009may2009) 48figUre12. globalgrossdomesticprodUct(gdp)growthpercoUntry groUps(200709) 50figUre13. seafindUstryportfoliobreakdown 67figUre14. organizationalchartofthegeorgiaregionaldevelopmentfUnd 75figUre15.overviewofinvestmentdecisionmakingintheactisafrica agribUsinessfUnd 93figUre16. indicativediagramoffinancialflowsandsUpportservices oftheactisafricaagribUsinessfUnd 95figUre17. themanagementandgovernancestrUctUreofthesUstainable agricUltUregUaranteefUnd 113figUre18. thegUaranteestrUctUreofthesUstainableagricUltUre gUaranteefUnd 117figUre19. managementandgovernancestrUctUreoftherUralimpUlsefUnd 124figUre20.geographicdistribUtionofinvestmentsoftherUralimpUlsefUnd 126figUre21. investmentportfolioaccordingtoinvestmentinstrUments oftherUralimpUlsefUnd 127figUre22. africanagricUltUralcapitalcompositionoftheboard ofdirectors 135
Agricultural investment funds for developing countries vii
Preface
Agricultural investment funds, which have experienced significant growth in numbers and volume in recent years, have underscored public and private sectors interest to help address the resource constraints for achieving food security. Moreover, the growing attractiveness of agricultural investment projects as profitable business ventures has played a role in the emergence and growth of such funds, especially in light of higher agricultural prices and improved business climates that favour longer-term investments.
This publication provides insight into the nature and operations of these funds and draws lessons for development agencies, governments and investors. It was developed from Agricultural investment funds for developing countries (October 2009), a research study undertaken as a joint collaboration of ConCap Connective Capital (ConCap) and the Food and Agriculture Organization of the United Nations (FAO) in order to better understand the growth and potential of agriculture and agribusiness investment funds. It included a stocktaking analysis of agricultural investment funds as well as case studies of distinct funds and fund management structures. This publication is enhanced with a complementary analysis of agricultural funds in the broader context of non-agricultural investment funds and experiences, and an analysis of the effects of the food price increases of 2008 and the financial and economic crisis in 2008 and 2009.
This publication outlines the importance of connecting less developed financial markets around the world with international investors, and in promoting joint efforts by the public and private sectors. The investment study and publication by the Rural Infrastructure and Agro-Industry Division (AGS) of FAO form part of a larger analysis and work on agricultural investment by the Division and other parts of the Organization.
Agricultural investment funds for developing countries ix
Acknowledgements
The authors would like to thank all those who generously shared their insights into their funding operations. Special thanks go to those who provided significant contributions in the development of the case studies:
Mildred Callear, Stephanie Komsa and Katherine H. Wheeler (Small Enterprise Assistance Fund and Georgia Rural Development Fund)
Keith Alexander (Actis Africa Agribusiness Fund)
Patrick Oketa (African Agricultural Capital)
Marissa Blankenship (Rural Impulse Fund, Incofin)
Ellen Bogers (Sustainable Agricultural Guarantee Fund, Rabobank International).
The authors would also like to thank Sylvia Wisniwski, Marco Kaiser and Diego Staff (ConCap Connective Capital) and Elmar Benjie Panahon (Frankfurt School of Finance & Management) for their continuous support during the different stages of developing and writing the original study on which this publication was developed.
Special thanks are due to FAO colleagues, Ivana Gegenbauer for her contributions to this publication, Doyle Baker, Prasun Das, Andrew Shepherd, Ake Olofsson and Divine Njie for their insightful reviews, to Barbara Hall for her support in editing, and to Marianne Sinko for layout and graphics.
Agricultural investment funds for developing countries xi
Acronyms and abbreviations
AAAF Actis Africa Agribusiness FundAAC African Agricultural Capital Ltd.AfDB African Development BankAGRA Alliance for a Green Revolution in AfricaAPIF Agribusiness Partners International FundASIF Africa Seed Investment FundBDS Business development servicesBI
