Investors urged to work directly with governments on ag policy

While financial institutions are often focused on removing the bottlenecks of today, long-term returns can only be brought through state-backed infrastructure and education efforts, Bain partner Jose de Sa tells Agri Investor.

Investors targeting developing-world agriculture would be well-served to collaborate directly with governments in order to help shape a long-term vision for the sector, according to a partner at Bain & Company.

In a report, Bain recently said that investors would only benefit from the adoption of new agricultural technologies once they have ensured developing countries have reaped the benefits of the previous wave of innovation, which included improvements in seed genetics, irrigation and mechanization.

In many developing countries, Bain wrote, adherence to tradition and a siloed approach to policymaking mean that agri-related issues including logistics infrastructure, financing and insurance tools, market liquidity, and land ownership often go unaddressed. In response, the report recommends investors work directly with governments, in some instances offering discrete intelligence and expertise, to help align their long-term visions for the sector.

“There is immense wealth trapped inside  agricultural value chains”
Jose de Sa, Bain & Company

Jose de Sa, a Rio de Janeiro-based Bain & Company partner and one of the report’s authors, told Agri Investor that developing-world governments often fail to convene the kind of conversations most beneficial for investors, in part because the array of stakeholders relevant in agriculture is so wide.

In response, Sa said, investors should look for ways to collaborate with existing trade and investment associations in target countries to determine how best to establish the kind of holistic collaboration with governments suggested in the report.

“There is immense wealth trapped inside agricultural value chains,” said de Sa. “The barrier to accessing that wealth is the lack of convergence in terms of the vision or ambition for the future of the sector as a whole.”

De Sa said that, while investors are often focused on efforts to address market shortcomings visible today, the long-term development of the agriculture sector depends on the types of long-term investments in infrastructure and education that can only happen in coordination with governments. State-driven decisions such as whether to pursue self-sufficiency in specific food crops, support export industries or create distinct zones to protect wildlife or the environment can have a direct impact on agricultural investors, according to de Sa.

Policy vs politics

Collaboration with governments by investors can be especially important in agriculturally endowed countries of Latin America, Sa said. In part because the importance of regional and sub-national elections often leaves politicians with relatively small windows of time during which they can focus on policy, as opposed to campaigning.

“Governments actually don’t have a lot of spare time to think strategically about what they need to deliver and how to deliver it,” he said. “If investors don’t push for this integrated vision and plan that talks about the future in a more ambitious way, they will continue to be trapped by the election cycle.”

Client confidentiality agreements kept de Sa from identifying specific investors that had followed the advice contained in the report, but he did say the approach had already been employed in parts of Africa, Brazil, Malaysia and elsewhere.