IDH begins prospecting for Farmfit Fund investment opportunities in Brazil and Colombia

Roel Messie, IDH’s Global Investment Director, isited Brazil and Colombia in July for a round of meetings with IDH’s local teams. He comments on the scenarios for the application of Farmfit in both countries.

What does Farmfit brings as a differential for partners and rural producers?

RM – Farmfit Fund brings financial instruments, focused at smallholder farmers, that are not available elsewhere in the market. The fund provides high risk financing, that will de-risk co-investors. For rural producers this could mean that they will be able to access credit at reasonable rates, without having land title and Agri SME could borrow with less strict collateral requirements.

What is your perception regarding the interest of investors in allocating more resources into agribusiness in Brazil? What can be done to enable this access to funding?

RM – There is a lot of capital available for Brazilian agriculture, both within the country as well as internationally. However, there is a mismatch in terms of risk and transaction size in relation to financing smallholder farmers and Agri SMEs. The Farmfit Fund can reduce risks for interested investors, so more capital can flow to small scale agriculture.

How do you see Brazil and Colombia positioned for the coming years in innovative climate finance solutions?

RM – Not sure whether I’m well positioned to comment on this. For sure there is a lot of interest of climate and forest oriented investors, given the enormous importance of the Amazon for the world. So there is significant capital available. During my trip to Brasil and Colombia I have encountered a number of Agtech and Fintech companies, with a strong focus on climate solutions. For instance, a company using on farm sensors and remote sensing to support farmers with climate and weather related information as well providing E&S/climate reports to larger agri businesses.

There is a lot of talk about the need for funding in the Amazon, but how does Farmfit see the other needy regions of continental Brazil? Cerrado and semi-arid, for example?

RM – The Fund has a strong focus on farmer income impact, with important lenses on climate and gender. The focus is not primarily focused on forest preservation, restoration or land use, but rather takes the farmer as the staring point. For this reason, the Fund is fairly agnostic on regions/states within Brasil. We would favor investments where we could realise our farmer impact objectives and where we could be most transformative, these could potentially be in any state.

Credit risk companies are rating Brazil better, for example Fitch, as the country’s economic performance has been better than expected. Do you think this could facilitate/attract resources to areas seen as high risk for investors?

RM – Possibly yes, but only in combination with de-risking instruments.

You know several countries where Farmfit Fund operates. What makes Colombia and Brazil different?

RM – Compared to African countries and some Asian countries, a much more developed financial sector. Compared to many countries, a bigger scale of investments (in particular Brasil). And in Brasil much larger farm sizes. Surprisingly, the ag/fintech sector in Africa seems to be more developed, possibly driven by the large amounts of grant funding available.

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