First look

Galapagos swaps debt for climate action   
Climate Fund Managers, acting alongside portfolio business Ocean Finance Company, completed a $656 million debt-for-nature conversion for Ecuador – the largest deal of its kind.

The South American nation will use the savings from its restructured sovereign debt to restore and enhance the biodiversity, marine life and local economy of the Galapagos Islands.

How it works: Debt-for-nature swaps involve restructuring a nation or organization’s debt in a de-risked way, often with political or credit risk insurance provided by a development finance institution, with the savings from the restructured debt invested into environmental conservation.

“The involvement of the US International Development Finance Corporation provides the arbitrage opportunity because their involvement allows us to exploit the differential in the credit risk between the Ecuadorian sovereign and the US government sovereign,” explained Climate Fund Managers regional head Latin America Juan Paez.

“So that allows for amplitude of space, and then we can translate some of those savings to the government and some of those savings go to conservation.”

Multi-party structuring: Credit Suisse acted as offeror for the international bonds. The US International Development Finance Corporation provided $656 million in political risk insurance, while Inter-American Development Bank provided an $85 million guarantee. A group of 11 private insurers provided more than fifty per cent reinsurance to facilitate the project.

The Galapagos conversion exchanged $1.6 billion in Ecuadorian government bonds for a $656 million impact loan. The transaction will generate savings of $1.126 billion through 2041 for the South American nation.

They said it

“The faster we can get these technologies developed and implemented, the better off we collectively are going to be”

US Secretary of Agriculture Tom Vilsack tells Agri Investor at the AIM for Climate Summit that public-private collaboration will be key to ag’s tech revolution.

Commodities

Avocados set for growth
A new report from Rabobank predicts that the global trade in avocados is set to continue growing over the next few years, but pressure on growers to operate more efficiently and sustainably will also increase.

Globally, Rabobank said, avocado production has grown by a compound annual growth rate of around 7 percent over the past 10 years, rising to around 9 percent in Australia over the same period.

Drivers: Cindy van Rijswick, Rabobank global strategist, fresh produce and farm inputs, said that “attractive prices and returns” had pushed expansion and encouraged investment into the sector. The crop’s health benefits as a strong source of vitamins, minerals and mono-unsaturated fats were driving demand from the consumer side, she said.

Mexico remains the world’s largest producer of avocados, accounting for around 30 percent of global supply, with Colombia, Peru and Kenya also seeing strong CAGR over the past 10 years.

Australian outlook: Australia’s proximity to the wider Asia-Pacific region has proved a boon, Rabobank analyst Pia Piggott said, with the country seeing a 35 percent increase in export volumes of the crop in 2022, crossing the 11,000-tonne barrier.

Australia increased its market share for avocados in Singapore to 73 percent, in Malaysia to 62 percent and in Hong Kong to 25 percent – useful when the domestic market has experienced oversupply, with retail prices in 2022 in Australia sitting 32 percent below the five-year average.

“Maintaining market share in key countries and developing new market access will be priorities to ensure sustainable returns for growers,” Piggott said.

Report

PGIM sketches map for changing food system landscape
PGIM says conventional meat stands out as a contrarian opportunity within a broader global food supply chain beset by “tensions and opportunities” related to ESG.

That observation is contained within a sector overview entitled Food for Thought: Investment Opportunities Across a Changing Food Systems, in which the asset manager drew on its fixed income, equity, real estate and private alternatives units to offer background and projections on distinct investment themes related to global food demand and supply.

Plant-based plateaus: “The steep growth rates for plant-based meats producers have either plateaued or peaked. Only a few years ago – as fast food chains began to offer Beyond Meat burgers – there were expectations for continued exponential growth and drastic changes in consumer preferences,” says the report.

But the reality is that growth rates have faltered and the alternative meat market can only claim a tiny 0.2 percent share of the $1.7 trillion global meat market.

“In fact, alternative meat demand is in decline, while global demand for animal-based meat is set to grow by 14 percent by 2030,” says the report.

Ripe for growth: Other growth areas identified by the report include cold storage and transportation, due to the demand for fresh foods, online grocery and food delivery.

PGIM says cold storage real estate is the US is particularly compelling opportunity, as it is already the biggest and most developed market for this type of asset and now has the benefit of an additional tailwind from food delivery start-ups.

Packaging and home storage solutions are another area that “offers steady cashflow, no matter the underlying food fads,” said the report. Health and wellness products continue to experience strong consumer demand, while food safety in emerging markets is another opportunity area highlighted by PGIM.

Agtech fundraising

ChrysaLabs, a Canadian soil science agtech company, raised C$15 million in Series A funding. Leaps by Bayer, TELUS Ventures and BDC Capital participated in the round, with existing investors Ecofuel, Emmertech, Anges Québec, AQC and Koan Capital also involved.

ecoSPIRITS, a Singaporean start-up focused on low carbon and low waste distribution systems for the premium wine and spirits industry, raised a $10 million Series A round. The round was backed by Convivialité Ventures, Closed Loop Partners, Proterra Asia, Pavilion Capital and Wavemaker Partners.

Obeo Biogas, a Canadian provider of biogas solutions for dairy farms, raised $3 million in a seed funding round led by Diagram Ventures.

Farmless, a Dutch start-up using fermentation to produce carbon-negative proteins raised €1.2 million in a pre-seed funding round. The round was led by Revent, Nucleus Capital, and Possible Ventures, with participation from HackCapital, Sustainable Food Ventures, VOYAGERS Climate-Tech Fund and TET Ventures.

Sentera, a US-based provider of agricultural analytics, raised an undisclosed amount in a Series C expansion funding round led by Conti Ventures and S2G Ventures.

Also in the news

Start-ups see sustainable future in seaweed farming
Investor interest is growing in a protein-rich food source that could also free up agricultural land (FT).

CalSTRS boosts climate-related allocation, asks funds to classify assets by carbon impact
Meketa presented climate scenario risks, allocations shifted toward sustainable private markets and a color-coded climate classification was adopted (VCJ).

Aviva adds nature and Just Transition to engagement hit list for high emitters
The investor also ditched a telecoms firm over human rights and corruption concerns and a beef exporter on deforestation (RI).

Paine Schwartz hunts for a sustainability head
The sustainability-focused food and ag firm has nearly reached its $1.5 billion target for Fund VI, with a raft of the US’s biggest institutional investors as LPs (NPM).

Today’s letter was prepared by Binyamin Ali, Chris Janiec and Daniel Kemp.