About Root Capital • An impact-first, specialist agricultural lender providing working capital and asset financing to rural and agricultural SMEs in Latin America and Africa. • Our mission is to grow rural prosperity by investing in agricultural businesses that build sustainable livelihoods in Africa and Latin America. • We seek to address a sector that is doubly underserved in the frontier markets: the “missing middle” between microfinance and commercial banking, and the rural finance gap. • We do this by providing credit and financial management training to rural SMEs, to scale our portfolio and demonstrate that rural SME finance can work. We also work collaboratively with industry stakeholders to build knowledge, develop best practices, and to understand impact.
Definition of Agribusiness • Any operation along the agricultural value chain that is conducted on a commercial basis. • Agricultural value chain includes mainly, inputs (seeds, fertilizer, pesticides, herbicides and animal feed), primary production (crop and livestock), processing (milling, storage, packaging and handling), marketing and distribution.
Why Invest in Agribusinesses? • Agriculture contributes close to 30% of GDP. It is the largest source of employment for Ghanaians. • Benefits offered by investing in agribusiness – strong risk-adjusted returns that compare favourably to other sectors; – Means of portfolio diversification; – Certain macro trends also offer attractive long-term opportunities for investment. • Growing global demand for food and protein • rise of biofuels in the energy value chain
Key Challenges • Despite the fact that agriculture is not a new industry, institutional investment in the sector remains in its infancy. • to design, implement, and monitor an investment program can be difficult and elusive for many investors. • There are several factors and risks to consider when investing in agribusiness – Agricultural communities often lack the infrastructure that would enable them to thrive and contribute to food security and/or exports. – Timing is very critical – Production largely dependent on natural factors, thus many uncertainties
Evaluating Agribusinesses for Investment • A systems approach is needed - comprehensive, holistic approach. Combine financing with interventions that improve the capacity and creditworthiness of chain operators for debt financing • Understand to assess the relative risks per value chain actor per sector and type of financing needed to strengthen the chain; • Structure and customize financing to suit the needs of the individual agribusiness , rather than the one-size fit all approach. Need for flexibility to accommodate the specific requirements of each value chain and context.
Evaluating Agribusinesses for Investment • Investors looking for projects that: – Are viable and sustainable. – Demonstrated capacity to undertake activity for which funding is required. – Seek to maximize returns to society as a whole and to the priority target groups and regions in particular. Social and environmental impact
• Investors critically assess: – Resources available – land, infrastructure, labor, processes, etc.
– Economic and market trends affecting the business – Financial situation and management
Diversifying investments into rice, maize and soy value-chains • driven by a number of factors including, – on the demand side, growing demand for food, (animal) feed and fuel; increasing population and rapid urbanization; and increase in large scale commercial farming. – Food security concerns – Interventions by Governments, donors and development partners that are significantly improving the investment climate in these sectors
Diversifying investments into rice, maize and soy value-chains • Developing and packaging products that are well suited to various actors in these value chains. Products generally include: – Pre harvest/production credit, structured based on production cycle – Post harvest support, which often provides financing to purchase farmers’ harvest – Longer term financing for equipment (both farming and processing) and farmland development
• Strategic alliances with various stakeholders, particularly the technical assistance providers involved in various programs aimed at developing capacity and improving credit worthiness of operators in these sectors
What part of the value chain attracts the institutional capital and why? • Key is to finance efficiently – Costs and risks can be lowered by providing financing through the strongest actor or actors in the chain. Financing the stronger, less risky agribusinesses – most often those near the end of the chain – lowers the financial costs associated with risk protection. – While a strong case can be made for the direct financing of smallholders, more often, there are more efficient and effective ways to finance them.
The Root Capital Approach to Investing in Rice, Soy and Maize • Introduced the Food Security & Nutrition Portfolio • New lending window for Root Capital, financing SMEs all along domestic and regional agri-food value chains to deepen our impact as follows: • • • •
Impact for Rural and Agricultural SMEs Impact on Smallholder Farmers as Producers Impact on Smallholder Farmers as Input Consumers Impact on Low-income Africans as Food Consumers
Root Capital Approach
Inputs
Production
PH-Handling & Processing
Distribution
Seeds & Plant Material
Smallholder Farmers
Granaries
Wholesalers
Soil Health
Nucleus Farmers/ Out Growers
Warehousing
Franchisors
Pest Control
Farming Cooperatives
Agro-Processing
Traders
Irrigation
SME Farmers
Machinery
Large-Scale Commercial Farmers
Crop Insurance
Exporters