Government-backed programs provide a safety net for private investment into developing nations, which will be crucial in addressing global hunger and driving returns as the asset class evolves.
Last week, we explained why this is an optimal time for fund managers and their LPs to consider agriculture investments, with their blend of the old and the new and potential to offer a range of returns while fulfilling ESG considerations. We ended by stating the oft-repeated and glaring global question: how will the world feed 9.1 billion people come 2050?
To answer this question, it will be crucial to not only innovate, but also attract private capital through the proliferation of agriculture initiatives from public, governmental and global bodies aimed at the developing world, a point the FAO has also argued.
Established investors should no longer overlook these developing regions. The instances of good work already being done in the development of these nations is too long to list, but the gist is simple: as more money is pumped into agriculture in Africa, South America, Asia and other developing regions through public ventures, institutional capital should take notice.
Like in other asset classes, IFC is taking the lead in attracting private capital to investment opportunities in emerging markets — even the most challenging ones. For example, through the Global Agriculture and Food Security Program’s (GAFSP) private sector window, IFC provides blended financing to ‘de-risk’ agricultural projects, reducing the fears of private investors who otherwise would not feel comfortable entering those markets.
IFC is close to completing the first GAFSP funding phase, which leveraged close to $1.3 billion of investments in agribusiness in emerging markets by deploying about $230 million of GAFSP funding to support through a range of programs designed to train smallholder farmers and boost yields, reduce waste and help companies improve operations across value chains.
“If you’re a private sector investor going into a difficult market, you assess risk and expect a return commensurate to that risk,” Sérgio Pimenta, IFC’s director for manufacturing agribusiness and services, told Agri Investor. “A partially subsidized loan makes the economics of the project more attractive, but [we also make] sure these investments are made in a disciplined way.”
Of course, initiatives like the IFC’s do not eliminate risks in unproven markets, but they do significantly reduce them. With that additional safety net, the potential for rapid advancement in emerging markets could result in outsized returns, without keeping investors up at night.
Given the significant deficiencies farmers face in many of these regions in everything from irrigation systems to planting methods, there are plenty of gains to be had. To give an example, certain areas of Africa lack basic access to grain storage facilities.
When we spoke to Guy Bentinck, chief financial officer of Fairfax Africa, which recently raised $500 million through an IPO to invest in developing nations, he explained how his firm planned to capitalise on that lack of storage. “There is huge growth potential, but these opportunities will take time,” Bentinck said. EXEO is another firm targeting Africa, in that case with a $100 million private equity fund.
Fairfax and EXEO are just two firms that have already raised significant amounts of capital to invest in Africa. As more firms enter developing regions, and as organizations like the IFC continue to ‘de-risk’ potential investments, the more likely we will be able to meet world challenges as population booms in the coming decades. If we are reading the market correctly, with time that will result in a nice payout, especially for those investors that got on board early.
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