Agri or not agri: there is no question

December 15, 2022

Agriculture and farming are the bedrock for our civilizations, providing us with food, clothing, and other essential goods that we need to keep our societies functioning. Continued investment in agriculture is essential to ensure that farmers are able to produce the crops that we need in order to sustain life on Earth. Moreover, agriculture is the key to unlocking the potential of rural areas and providing economic opportunities for those who live there.

That being said, investments in agriculture and food systems are often complicated decisions for many banks and funds, particularly in frontier markets, where investments in financial institutions and clean energy projects can provide quicker, more stable returns with some measure of incremental positive impact for the planet or people.

Favoring finance and energy projects without incorporating agricultural elements, or otherwise ensuring that agriculture stands to significantly benefit from such investments, however, is short-sighted. While impact measurement remains an area that is subject to a certain amount of subjectivity depending on industry and region, it should by definition include an assessment of potential value-add or value-loss to the local, regional and global agricultural value chains. Below are our observations.

• Development goals need to be reconciled with investment goals.

The primary goal of investing in agriculture is to ensure that farmers have access to the resources they need to produce enough to feed their own families and communities, while also having extra income or crops with which they can support themselves financially. Additionally, sustainable agriculture investments can help ensure that farmers have the right tools and knowledge to reduce their ecological footprint while still producing enough food for their families and communities.

While investing in clean energy can itself be considered an impact investment where SDG goals are reliably measured and attained, each investment needs to be weighed against the risks that such projects pose (human, operational and environmental, for example) and the opportunity cost of not placing that capital elsewhere. In favoring a small incremental benefit in one area, what positive impact opportunities will be missed somewhere else?

For example, investing in clean energy or financial institutions in frontier markets generally presumes that the country or region in question has already developed to the point of consistently needing reliable grid or bank access. Investing in a large-scale solar development to support a major city full of paying customers will likely be an easier business case than investing in mini-grids in rural regions, which tend to face strong development challenges and have weaker macroeconomic fundamentals.

In terms of incremental positive impact, however, those mini-grids will make a much bigger difference in the lives of rural communities — to support water pumping, newborn and maternal health and making agriculture less tedious, thereby allowing farmers (particularly female) more time with their families. Unfortunately, most funds do not look closely at these investments, assuming that development banks and aid agencies will support.

When assessing impact, it's not just a question of ticking SDG boxes. It's about finding ways to best allocate capital in order to support the most vulnerable communities with the greatest needs and potential for growth. That means making sure that investments are made in a way that meets both development goals and investment return expectations, and that includes investing heavily in agriculture projects or matching investments in finance and energy with investments in agriculture.

• Invest in fair trade, but do not overemphasize non-essential commodities.

In addition to investing in agriculture, it is also important to support fair trade initiatives. That said, it is also important to be mindful of not overemphasizing non-essential commodities such as coffee and chocolate, as these can sometimes have unintended consequences for local farmers and economies.

For example, in Ghana, cocoa farmers are struggling to make ends meet in part because of overproduction due to increased demand for chocolate, resulting in a glut of cocoa beans and lower prices. Equally, in countries such as Colombia, where farmers are increasingly turning to coffee production for a secure source of income, the industry faces immense challenges in securing fair prices from buyers, who benefit from tremendous economies of scale.

Both Ghana and Colombia are examples of countries that have invested heavily in producing exported commodities, which over time has resulted in strong pressure on prices. The solution for small-scale farmers in these countries is not only in improving the pricing and financing terms of their sales and operations through fair trade initiatives, but also providing them investment opportunities with returns that can support diversification into other crops, activities and revenue streams.

Ultimately, the message is clear: agriculture isn't just a way forward for development, it's essential. Investing in sustainable agriculture projects that generate reliable returns while meeting local communities’ needs should be at the heart of any impact investment strategy. Doing so requires careful consideration of where to best allocate capital and which projects have the greatest potential, but the rewards – both in terms of financial returns and social impact – are immense. Such an approach not only ensures that rural communities have access to food, it also gives them a chance to create more secure livelihoods and build much-needed resilience against climate change.

• Health is the first wealth, and it begins with food.

Ensuring access to nutritious foods – from both local and global sources – is essential for achieving human development outcomes. Investing in agriculture can help us fulfill this goal by improving the nutritional quality of diets available to people in developing countries, providing a reliable source of income, and improving the environment.

Unfortunately, many funds in the health sector often ignore the implicit health benefits of food, preferring to invest R&D funds in lucrative treatments for diseases that can often be cured, or otherwise significantly treated, through lifestyle changes. What would happen if every fund investing in insulin treatments also allocated funds to provide free, healthy meals for the populations most at risk of diabetes? Not only is that not happening enough, but funds are investing billions each year on health treatments for pets and cosmetic surgery. This is what is profitable, but it's not a healthy investment for humanity.

Humanity needs to invest in sustainable agricultural practices that improve yields and ecological diversity. We need to invest in education, so farmers know the right techniques to use the land sustainably and make a living off of it. And we need to find ways to improve access to markets and resources for farmers, so they can continue their work without fear of exploitation. Investing in agriculture is more than a way to alleviate poverty – it’s a way to improve the health of our planet and ensure that all people have access to nutritious food. It should be included, at least in terms of assessment, in every impact project.

CPM