Breaking new ground for a global approach
Most agricultural development investments are focusing on Sub-Saharan Africa, Southeast Asia and Latin America, leaving other regions of the developing world largely uncovered. Following a global approach for development investments in the agricultural sector, responsAbility has been working with producers and processors in the Caucasus, Central Asia and North Africa.
It’s not difficult to see why impact investors focused on agriculture in the developing world have traditionally directed their efforts towards sub-Saharan Africa, Southeast Asia and Latin America. The World Bank estimates the market potential of Africa’s food sector alone at USD 1 trillion by 2030, and many impact funds serve exclusively this region.
Mature Latin America, new frontier Southeast Asia
The coffee cooperatives of Latin America and mature, stable markets of the region represent the low-hanging fruit, while Southeast Asia is generally seen as the new frontier.
In truth, this makes sense. The three regions together are home to most of the world’s farmers and an overwhelming proportion of the world’s poor; many of their economies remain reliant on agriculture as a primary growth driver.
Foreign investment-friendly regulators and developed financial sectors also make it easier for impact investors to add value.
Despite the logic, this geographic prioritization leaves large swathes of the developing world uncovered. For example, the agricultural sectors in North Africa, the Middle East, Eastern Europe, the Caucasus and Central Asia in particular do not attract a lot of attention from impact investors.
One could argue that there are good reasons for that: outdated agricultural practices, the existence of local banking sectors already serving the sector, high political and country risk and challenging risk/return environments.
Ample opportunities for agricultural investments
But that does not mean the potential or opportunity doesn’t exist. 55% of the Georgian labor force works in agriculture and the country is the world’s second-largest exporter of hazelnuts, a crop primarily cultivated by smallholder farmers.
In Armenia, the agricultural sector represents 25% of GDP and has been growing at a fast pace as the country transitions away from an import-based centralized economy to one with local production. Over 30% of the population lives under the national poverty line, most in rural areas.
Hazelnuts from Georgia: export pre-financing prevents cash-flow bottlenecks
Mushrooms from Armenia: long-term financing for machinery promotes further growth
Agriculture: backbone of economic growth
The fragility of many former Soviet economies was exposed in 2015, as their over-reliance on oil and Russia dragged them down with both.
A need to diversify is apparent, and agriculture has already proven to be a powerful investment in economic growth and poverty alleviation.
Premium products from North Africa and the Middle East
It is often forgotten that the Middle East and North Africa are a historic breadbasket: Egyptian cotton, Tunisian dates and Palestinian olive oil – often cultivated by smallholder farmers – are premium products in European and North American consumer markets. The demand is there.
Dates from Tunisia: harvest financing enables producers and exporters to expand
responsAbility: a global approach
responsAbility’s investment approach for agriculture, after launching with a focus on the traditional hotspot of Latin America, has consciously shifted towards a more global lens.
Today, the investment universe spans over 40 countries, including in the Caucasus, Eastern Europe, the Middle East and North Africa..
Focus on private companies
An absence of traditional cooperatives puts the focus on private companies, in particular (but not exclusively) exporters who involve smallholder farmers in their supply chain.
responsAbility’s investments also span over 50 commodities, expanding the eligible investment universe and providing the fund with built-in diversification.