At ImpactAssets, we’ve identified global sustainable agriculture as an area of both tremendous need and opportunity for advisors and clients interested in impact investing.
Over the next 30 years, the planet will add nearly two billion people. In order to feed this growing population, we will need to increase food production by 70 percent, according to the United Nations Food and Agriculture Organization. Global agriculture accounts for 70 percent of the world’s water usage and reliance on today’s industrial farming with its focus on monocrops and toxic fertilizers could further deplete water supplies and erode topsoil.
Investing in sustainable agriculture can fuel both systemic change and meaningful impact. Supporting the world’s 450 million smallholder farmers is the right start. Smallholders represent 70 percent of the world’s poor and provide over 80 percent of the food consumed in many parts of the developing world, yet are among the poorest and most food-insecure people in the world.
The local knowledge and experience of smallholder famers is key to the practical solutions that can create a more sustainable and equitable global food system. Yet underinvestment and marginalization leaves smallholders vulnerable. Increasing support can help feed a growing population while promoting sustainable land and water use.
Globally, consumers are increasingly demanding organic and Fair Trade products including coffee, chocolate and quinoa. Consequently, corporations like Starbucks, Nestle, Green Mountain Coffee and Cargill are turning to smallholders for raw materials.
Confectionary giant Ferrero, for example, has pledged to sustainably source 100 percent of its palm oil by 2015 and all coffee by 2020. These types of corporate commitments motivate intermediaries and smallholders to meet demand for organic and Fair Trade products. These higher standards and better connections between buyers and growers lead to increased investment opportunities.
The need for smallholder investment is estimated at $450 billion. Formal debt financing from local lenders in the developing world is approximately $9 biller, meeting less than 3 percent of the total demand.
Yet despite growing demand, smallholders face weak market linkages and insufficient access to capital. They’re considered too small, too risky and too remote for local commercial banks. At the same time, smallholders that have formed organizations and grower cooperatives are too large for microcredit.
Fortunately, there’s proof that investing in smallholder farmer grower cooperatives can create growth and productivity for its members. Root Capital, Alterfin, Oikocredit and other pioneers show measurable evidence that direct investing in such organizations, combined with technical assistance, can increase smallholder productivity and help build local markets, linkages to developed economy buyers and associated fair trade premiums.