The Investable Market For Fund Managers
For advisors, fund managers like Alterfin, represent a seasoned source of smallholder investment opportunities. Fund managers typically invest through grower cooperatives and production enterprises because they can efficiently disburse capital to their smallholder members. Considered the “base of the global value food chain,” smallholders tend to produce and process high-value crops such as coffee and cocoa with a growing market in North America and Europe.

Calculations based on the 10 percent of smallholder farmers who are part of structured organizations such as cooperatives, estimate their short-term financing (typically working capital loans in the form of trade finance) needs at $1,000/farm, according to Dalberg Global Development Advisors.  This puts the investable short-term market at $22 billion. The market expands when factoring in the need for long-term financing.

Direct investment to smallholders in 2011 via impact investment fund managers was just $354M according to Dalberg Global Development Advisors. Clearly, there’s still both enormous need and tremendous opportunity for impact investors.

The Latin American Coffee Market -- An Impact Investing Example
Impact funds focus on certain geographies and products for specific reasons. Crops like coffee especially in Latin America have existing certification infrastructures, such as Fair Trade and organic. Because certification usually requires organization and a level of due diligence, these crops are attractive to investors. Additionally, certification attracts the most progressive food companies in the world that are seeing demand for sustainable products.

The investable coffee market is approximately $1.7 billion. Impact investment funds disbursed $170 million in 2011 – representing 10 percent of the investable market, according to Dalberg Global Development Advisors. While coffee is a more mature market, the demand for organic and Fair Trade is growing, as is consumer demand for other high-quality organic Fair Trade commodity crops such as cocoa and quinoa.  

How Can Everyday Investors Access Global Sustainable Agriculture?

As awareness of the gap between demand for and supply of capital grows, more investors are discovering that supporting the base of the global food chain is both crucial and impactful. Yet it’s not always easy to identify and access a strong avenue for investment.

Fund managers such as Alterfin, Incofin, Oikocredit, Rabobank, Rural Fund, responsAbility Social Investments, Root Capital and Shared Interest are among the most actively engaged in global sustainable agriculture investing today and provide strong points of access for investors.  A handful of these managers are represented on the ImpactAssets 50 impact investment firm list.

The emerging nature of global sustainable agriculture investing reminds us of the beginnings of microfinance, which took time to gain credibility with investors. In 2004, Microfinance Investment Vehicles (MIVs) represented $200-$300 million, per Microrate.  At the end of 2013, the MIV market represented $10 billion, per Symbiotics, drawing the majority of funding from institutional investors.

Pioneering investment in global sustainable agriculture, while more nascent than the current microfinance market, represents a viable and timely investment opportunity that also can create lasting, positive change for the planet and its most vulnerable citizens.

Fran Seegull is chief investment officer and managing director at ImpactAssets, a non-profit impact investment firm with more than $200 million in AUM. Seegull has a bachelor's in economics from Barnard/Columbia University and an MBA from Harvard University.

 

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