Conventional food systems financing is failing – here’s how we can do better

Steward ownership models that cap returns to support social mission and partnership with public and philanthropic networks are among the financing options needed in global ag, says the TIFS Initiatives’ Rex Raimond.

Redirecting private and commercial investment in food systems towards long-term and more efficient allocation of capital is critical.

To support this shift, the Global Alliance for the Future of Food and the Transformational Investing in Food Systems Initiative recently identified six examples of financial investing that have advanced food systems transformation and reaped financial, social and environmental dividends. The report shares insights of entrepreneurs, business leaders and food system actors operating across local, national and international markets and is instructive for those in the food and agri-investing space.

One of the businesses profiled, Organically Grown Company (OGC), is a wholesale distributor of organic produce with an annual revenue of over $100 million. In 2018, OGC became the first company in the US to restructure using a steward ownership model – a form of alternative ownership that caps returns to support re-investment in, or donation to, social causes that is more common in Europe but still emerging in the Americas.

OGC’s pioneering transition involved raising more than $20 million to recapitalize and has enabled the company to uphold its environmental and social mission while securing new capital to fund growth. High-net-worth individuals and impact investment firms were vetted for mission alignment and own non-voting preferred stock. They share profits with four other stakeholder groups, including the company’s employees, farmers, customers and community allies.

With the support of its investors, this shared ownership model guarantees OGC can remain independently-owned and steer clear of the profit-motivated business acquisitions seen in the organic sector worldwide recently.

The Mobilizing Money and Movements report also highlights the compelling opportunity for private investors to coordinate with public and philanthropic funders and increase financing for transformative food initiatives. We witnessed the effectiveness of this approach when speaking with a director from Educe Cooperativa, a beekeeping cooperative in Mexico.

The cooperative secured a blend of financial investment from the United Nations, the WK Kellogg Foundation, and social enterprise loans from US and UK-based impact investment firms Root Capital and Shared Interest, as well as a national development bank in Mexico. Combined with advance payments from fair trade partners in Europe, this creative financing approach supports the livelihoods of 750 beekeepers and delivers positive returns. This includes ESG dividends through supporting the cooperative’s mission to curb deforestation rates, prevent pesticide use and defend Indigenous rights.

Initiatives like Organically Grown Company and Educe Cooperativa demonstrate what’s possible with the support of visionary investment and financing.

At a systems level, there’s ample opportunity to invest in the expansion of guaranteed markets for organic and equitably produced food. Many of the most impactful food-focused initiatives are bridging the gap between smallholder farmers and national or international markets. Investors can step in to support the creation or growth of these markets as well as the financial incentives needed to transition farmers and food producers to more sustainable means of production.

Investors can contribute to food systems change in many ways but avoiding the pitfalls of conventional agri-financing while also earning positive financial returns and social and environmental dividends requires rethinking old investing habits.

Financial flows and investment dollars must prioritize holistic and cooperative approaches that meaningfully engage all actors in food production, distribution and consumption. Guided by the success of forward-looking food initiatives like those shared in the report, investors should act to secure fair and inclusive returns for all parties and buffet their portfolios from the risks of the world’s turbulent new normal.

Currently, markets and government regulations favor narrowly focused agri-business models, while businesses using a holistic approach require blended finance – a combination of catalytic, blended and flexible capital as well as grants and technical support – to accelerate their impacts. Transformational business models generate value for nature, workers, communities and investors.

Investors need to cooperate in identifying and building relationships with networks and communities – private, public and commercial – that are actively working to support and accelerate context-specific transformational businesses and food systems initiatives. Aligning these investment opportunities and actively scoping possible collaborations with governments, cooperatives, farmers, banks, corporations, researchers and others can further drive positive returns for investors, local farmers and the environment.

Rex Raimond is director of the Transformational Investing in Food Systems Initiative, an allied initiative of the Global Alliance for the Future of Food.