DFIs: getting creative for agribusiness

Development finance institutions are becoming more proactive when it comes to agriculture and agribusiness, creating opportunities for the wider investment community.

FMO’s new director Suzanne Garboury told me earlier this month that growing the bank’s €700 million agribusiness portfolio, initiated only five years ago, is a priority for her, and could even double under her tenure.

The bank is not alone in dramatically scaling up the intensity with which it is looking at the sector, even in the most challenging markets. Despite agribusiness investment being relatively new to a number of DFIs, it is increasingly recognised as key to social stability and food security, driving creativity and sophistication when it comes to finding financing solutions in challenging environments.

The African Development Bank is looking to attract $400 billion in co-investments to African agribusiness over the next 10 years, perhaps one of the most ambitious goals set by a development institution. IFC Global Industries director Alzbeta Klein told me her institution, which has been investing in agribusiness since at least 1960, puts great emphasis on global food security, and would continue to build on its agribusiness portfolio. She added that for many more banks, the 2008 world food crisis was a wake-up call.

DFIs are not always so different from other investor types popping up around the world. Impact funds like TriLinc in the US are looking to generate returns and social impact through agribusiness investment. The recognition of agriculture’s importance to climate change at COP21 last year has also increased the incentives for environmentally minded investors to look at agriculture. Governments from Nigeria to Norway and the UK increasingly see that agri investments can be tailored to create impact.

Other investors follow DFIs, investing in companies and areas they target, and so finding creative ways to invest in companies that the general investment community would not have considered is important. IFC loan facilities have helped large operators like Olam and Barry Callebault involve smallholder farmers in their supply chains in countries like Cote d’Ivoire. Creative blended financing, where a normal loan could be combined with a grant, is becoming increasingly important in reaching small and medium sized businesses in the most difficult environments.

But, as one government institution told me recently, there is still a long way to go. DFIs sometimes “pile in on top of each other”, co-investing in the same companies, when they could make a bigger difference by looking for their own investments, the institution worried. After all, there are many small and medium sized businesses that have little or no hope of getting financing.

At the same time, one chief investment officer for a development investor told me they would like to see more planning for strategic investments between aid organisations, DFIs and purely return-driven investors, but that even getting those conversations started can be a challenge. Still, there are positive developments, with the African Development Bank, for example, wanting to create a risk-sharing facility to bring together a wide variety of investors for African agribusinesses.

The achievements of blended financing and development banking are to be praised, but they also are putting into sharper relief the funding gaps that still need to be filled. That calls for even more creativity to make agribusiness investments in the developing world as attractive as they can be.