Innovative Fund makes investing in smallholder farmers attractive, delivering ESG impact

On Tuesday 21 January 2020, IDH the Sustainable Trade Initiative – in coalition with Unilever, Jacobs DE, Mondelez and Rabobank – launched the world’s biggest ever impact fund for smallholder farmers finance. Starting with EUR 100 million, the IDH Farmfit Fund is expected to catalyze up to a billion EUR of commercial investments into smallholder farmers in developing countries. The IDH Farmfit Fund is facilitated by IDH and is backed by significant funding from the Dutch Ministry of Foreign Affairs and a guarantee from the US Agency for International Development.

“The lack of capital for smallholders to invest in sustainable practices leads to rural poverty and environmental damage. While climate change originates from emissions, the battle is on the ground. The catastrophes we have seen lately are heavily amplified by land management issues. The Fund will dramatically improve their ability to cope with the impacts of climate change and their possibility to earn a decent income,” said Joost Oorthuizen, Executive Director and Chairman of the Board at IDH.

A fuller picture of the IDH Farmfit Fund was revealed at Davos during the World Economic Forum Annual Meeting, in the SDG tent. Her Majesty Queen Máxima of the Netherlands in her role as “United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development” (UNSGSA) opened the event. She emphasized the need to go beyond business-as-usual to support smallholder farmers in improving their lives. Customer centricity and cross-sector partnerships are key for financial institutions to offer meaningful solutions while making a good business. It is also important to identify critical market linkages in supply chains to improve efficiency and productivity. Farmfit is going beyond business as usual, and is a great example of how businesses can help bring financial services to farmers.

The IDH Farmfit Fund will be guided by enabling resilient smallholder farming; having a positive impact on the environment, social and gender issues; supporting food security and climate protection; while supporting growth and financial innovation. The EUR 100 million Farmfit Fund will catalyze investments into ESG (Environmental, Social and Governance) impact by taking the highest risk positions in deals that directly improve smallholders’ livelihoods in Africa, Asia or Latin America. By doing so, the Farmfit Fund will pave the way for (commercial) investors, including banks, companies and institutional asset managers, to invest in a space that we up until now perceived as too risky or lacking the required scale.

The Farmfit Fund is the third element of the IDH Farmfit offering. Farmfit Business Support helps companies make their smallholder engagement models more effective and through Farmfit Intelligence, we share best practices. Farmfit Business Support is a USD 30 million investment from DFID (the Department for International Development in the UK) and BMGF (the Bill & Melinda Gates Foundation) which provides Technical Assistance support to Agri SMEs in order to develop and implement sustainable business models and increase their engagement with smallholder farmers. Farmfit Intelligence creates and shares data-driven and systematic insights into efficiency and sustainability of service delivery models leading to better-informed investment strategies. ​

Mr Oorthuizen added: “We expect the Farmfit Fund to represent a new generation of financing in the same way that microfinancing did 20 years ago. Farmfit’s innovative funding model coupled with a USD 250 million guarantee from USAID, covering senior loans to investment projects from the Fund, will make investments in smallholder value chains very attractive. The Fund will ensure significant financing at a significant reduced risk level. Thus the Fund will enable banks and financial institutions to make sound impact investments now – and help support sustainable smallholder farming while mitigating the impact of climate change.”

Marc Engel, Chief Supply Chain Officer, Unilever commented: “Smallholders are stewards of the land, soil and forests. Integrating smallholders into the value chain is critical to sustainable land use and in protecting forests and biodiversity. Smallholders often face financial barriers which is why public-private partnerships such as the IDH Farmfit are essential. There is a clear business case to enable farmers to invest in their farms, thereby increasing their yields and profitability. The ultimate investment in feeding the world’s growing population.”

Berry Marttin, member of the Executive Board, Rabobank said: “The focus on smallholder farmers and the use of blended finance in the Farmfit Fund is a strong and necessary combination. If we want to achieve our shared ambition of sustainably feeding a growing world population then it is essential that we improve access to capital for smallholder farmers. The IDH Farmfit Fund is perfectly aligned with our ‘Growing a better world together’ mission and that is why we are one of the senior partners in this fund. It is my dream that in 2030, smallholder finance will be the best yielding bonds on the NYSE.”

For more information and the live stream video recording of the session in Davos, click here.