While there has previously been a lack of investable opportunities in food and agriculture in emerging markets, there are now many innovative companies in need of capital, ResponsAbility has said.
“For private and public investors based in developed markets, sourcing an investible pipeline in emerging markets can be challenging,” said Suhasini Singh, ResponsAbility’s head of sustainable food debt.
However, there are now many scaling or innovative companies in the food and agriculture sector in emerging markets that lack access to medium- or long-term capital, she told Environmental Finance.
ResponsAbility has attempted to address this with its sustainable food and agriculture strategy, which recently raised $106 million from investors such as Bank of America, Calvert Impact Capital and Ceniarth alongside development finance institutions.
This provides long-term ‘expansion debt’ to food businesses across Asia, Latin America and Africa, which target climate adaptation, mitigation and productivity increases.
Opportunities and themes vary across regions, Singh explained, and typically focus on different parts of the food system. In Latin America, for example, a major theme is how production of the raw materials needed for the food supply chain could be sustainably intensified.
Other investment opportunities, across various regions, include ‘value added’ processing– a way of production which could enhance the value of the end product e.g. organically grown food - , healthier food producers and providers of climate tech to the food system.
This shift towards rapidly growing, larger companies marked a strategy change for ResponsAbility, which previously focused on smaller companies. “We realised we need to have exposure to companies who have a degree of sophistication to be able to have medium to long term climate impact,” Singh said.
Similarly, its previous debt strategies focused on short term exposure. However, Singh said ResponsAbility realised this was not conducive to delivering positive climate impact, and it would need to provide more long-term debt to see substantial change.
Singh noted however that the current macroeconomic environment, with high inflation in many emerging market countries, has had an effect on the strategy. Cost inflation, especially around fertiliser prices, has been relevant for many businesses in the strategy and impacted their cost structure and profitability.
Supply chain costs are coming down, however, and Singh said she expects this to stabilise over the next year. Instead, the investor is mainly looking at potential risks posed by downturns in global demand, as many of the companies in the strategy are large exporters.
Given the nature of food and agriculture businesses, ResponsAbility said it also has to be aware of weather phenomena, particularly El Nino which has led to record temperatures across Europe and the Americas this summer.
Singh said she was positive however that food and agriculture will continue to grow as a major theme in terms of investment opportunities and investor interest.
“Many have come to the realisation that food systems contribute to – and fall victim to – climate change, and so it will need to be part of the solution,” she said. This has particularly been the case since the pandemic, during which supply chain and food globalisation risks were thrown into the spotlight.
“There’s been a lot of interest in finding investable opportunities, whether in funds or directly with companies,” she said.