Fertile Dialogues: Navigating Agrifood Innovation Financing
Insights from the FAO Agrifood Innovation Finance Debate
©Amaati Group
The Agrifood Innovation Finance Debate provided a dynamic platform for small and medium-sized agrifood enterprises (SMEs) and investors to explore diverse perspectives on the financing obstacles and opportunities, with a particular focus on Africa and Asia. The event was hosted as part of the SDG Agrifood Accelerator Programme, an initiative by the Food and Agriculture Organization of the United Nations (FAO), supported by SEED. The discussion revealed the critical need for a diverse toolkit of financial instruments to support SMEs in the various stages of their development to help them respond to the various environments and value chains they operate within, and to ensure targeted financing for accelerating the Sustainable Development Goals (SDGs) at a local level to bring about global impact.
New Business Models vs. New Technologies: Which innovations are more promising for financers?
With a focus on Africa, the first debate centered around the pivotal question of whether new business models or new technologies present more promising prospects for financers. Moderated by Mirko Zuerker (SEED), the panel featured Keith Wallace of Hivos Impact Investments, who argued that innovative business models are of priority interest for investors, as when developed by local people they bring together the various elements to best enhance success on the local market and address local challenges, demonstrating real need and applicability. This was supported by Lawrence Zikusoka of Gorilla Conservation Coffee (Uganda), which has developed a new franchise model for its coffee. The company sells and exports branded coffee from their gorilla conservation reserves, to specialty distributors globally. The added-value of this branded product enables them to pay local farmers a premium price ensuring the conservation of the forest woodlands and prevention of activities like poaching. Yvonne Ofosu-Appiah, from Sahara Impact Ventures (Ghana), argued that as investors they are looking for companies which are future-proofed. This need is often fulfilled through the use of new technologies - for example to improve yields, reduce water use and reduce food waste. Speaking on behalf of Amaati Group (Ghana) CEO Abdulai A. Dasana provided the example of how the use of new threshing and harvesting technology has helped Amaati to quickly scale their businesses, as it renewed the interest of local farmers in cultivating indigenous fonio grain. Ultimately the debate observed that new technologies are often a key ingredient of new business models and in turn can bring about new business models through their application.
Impact First vs. Profit First Models: What makes a difference in attracting commercial financing for agrifood SMEs
The second debate, moderated by Hajnalka Petrics (FAO, Office of Sustainable Development Goals) delved into the dichotomy between impact-first and profit-first models in attracting financing for agrifood SMEs in Asia. Panelists including Michal Gorczewski, of Nexus for Development (Cambodia) and Suresh Krishna of Yunus Social Business (India) converged on the need to balance growth and impact. Gorczewski underscored that economic sustainability is critical to the overall sustainability of an enterprise, including for the responsible use of resources and the need to find the right market strategy and products and service fit, so that a business can sufficiently respond to needs and be brought to scale. Krishna argued that even when pursuing impact first, there is still a significant value in financial sustainability and profitability. However, he also emphasized the need for “patient capital”, as many social enterprises have longer gestation periods before becoming profitable.
They were joined by entrepreneur Pradeep P S of FarmersFZ (India) who illustrated the concept of backward linkages, emphasizing that even in pursuit of profit, businesses can generate backward externalities such as educational and community-related impacts. Hatta Kresna, shared the experience of Rahsa Nusantara (Indonesia), where their pursuit of providing a impactful products and services first and their wider environmental and community considerations have ensured their customer loyalty and business growth.
Loans vs. Grants: Which instruments are better to build-up agrifood innovations
The third and final debate explored the choice between loans and grants as instruments for building up agrifood innovations. Mirko Zuerker (SEED) guided the discussion, which featured Emmanuel Imbula from Stanbic Bank (Zambia), who, as a respective of a commercial bank underscored the need for a robust framework to ensure transparency and accountability in utilizing financial resources. He also acknowledged that this stance doesn't negate the value of grants in the larger financial landscape. Sriram Appulingam of NABARD (India) echoed this sentiment, articulating that grants can serve as a strategic bridge, enabling businesses to access commercial financing at a later stage. Entrepreneurs Harry Malichi, Wuchi Wami (Zambia) and Pradeep P S, FarmersFZ (India) enriched the discourse by sharing their firsthand experiences. Malichi emphasized that grants played a pivotal role in creating attraction and establishing a viable business model. Within Wuchi Wami for example, grants have enabled them to create the systems and processes to manage their risks and to fulfil the governance and procurement requirements set by commercial banks, for accessing other financial instruments.
Concluding the discussion, Massimo Pera of the FAO Investment Centre underscored the intricate interplay between financial instruments and the broader socio-economic impact of agrifood enterprises, emphasizing the need for a nuanced and holistic approach to financing. He highlighted the role of the FAO Investment Centre in facilitating the scaling-up of financing for SDG-focused SMEs by designing methodologies to be used by financial institutions to identify investment opportunities and invest in a sustainable way.
Fabrizio Bresciani of FAO’s Office of Innovation, provided actionable insights to inform the future of the SDG Agrifood Accelerator Programme and an innovative financing agenda. He emphasized the importance of partnering innovative SMEs with impact investors to enhance their professional capabilities and facilitate scaling up for access to commercial loans. He highlighted as a key takeaway the need to incentivize grassroots investments in SMEs within key value chains and sectors crucial for SDGs impact, which includes the agrifood sector. He referred to the global impact investment market which has grown significantly over the last decade to $1.5 trillion, with a positive shift towards including the food and agricultural sector in low and upper-middle-income countries which presents a unique opportunity for leverage. These pioneering efforts of impact investors are at the forefront of creating innovative approaches that national development banks can later scale up. FAO’ Office of Innovation sees facilitating access to innovate financing as one of the key levers to supporting the uptake of technologies and innovations for agri-food system transformation and is helping to build partnerships, networks and documenting innovative financing models to support this shift towards impactful financial instruments catalyzing large-scale development initiatives.
