CDC mulls direct agri investments

The UK-based DFI is keen to invest into African and South Asian food processing businesses as it develops its direct investment platform.

CDC, the UK’s development finance institution focused on building businesses in Africa and South Asia, has identified food processing agribusinesses as a primary target for its agriculture investment strategy.

The institution is keen to invest into processing companies rather than into primary agriculture — the land and the farms — because they provide larger scope for job creation, fulfilling one of CDC’s primary mandates, according to David Easton, investment director at CDC.

CDC will focus on the expansion or rehabilitation of existing businesses where it can build scale more quickly than a greenfield project, and play a more significant role in the local economy, Easton told AgriInvestor.

“It is often underappreciated what a human business agriculture can be, especially in emerging markets,” said Easton. “From managers and harvesters to local agronomists and machine operators – these skills take time to develop and are the key elements determining yield, productivity and ultimately the bottom-line. These skills can also take a huge amount of training and years to develop and this one of the reasons that greenfields and start-ups are so difficult.”

CDC is still in the process of mapping out the agriculture sector and the approach it will take after it changed its investment mandate from what was essentially a fund of funds approach to direct investment 18 months ago.

“Since we started making direct investments again, we have invested in two food-processing companies with a total investment of $50 million,” said Easton. “But we are very much in the early days of our strategy and will be focusing a lot of effort on ensuring we map the sector to determine precisely where we want to play in the value-chain.”

The most recent agribusiness deal was a cornerstone investment in a $28.5 million investment into Democratic Republic of Congo agribusiness Ferronia. Ferronia is a 102-year old production and processing business focused on palm oil plantations and arable farming in DRC.

Other investors in the deal included Phatisa, an African agriculture investment fund that invested in Ferronia previously and came back in for this deal, according to Easton. The funding went towards Ferronia’s on-going rehabilitation including the restoration of three palm oil plantations, a replanting programme and improvement of production efficiency.

In November 2012 it provided $32.5 million in financing to the founders of Export Trading Group, an African agribusiness with operations in crop buying, warehousing, distribution, and merchandising.

CDC has a deal team on the ground in London with representatives in India, Southern Africa and East Africa. The fund now employs close to 100 people after streamlining its business from around 600 people in the 1990s. The fund now partners with local private equity firms and with local management teams to handle its investments.

CDC will co-invest with investors and private equity funds that have a similar plan in mind for the company. CDC has no limit on the timeframe of its investments because it invests off its own balance sheet. It is valued around £2.7 billion.