Beats | August 9, 2017

Smallholder farmers are investable

The team at


By Michael Von During, Matt Shakhovskoy, and Dan Zook

Inclusive agriculture is defined as agricultural markets and value chains that are inclusive of the world’s half-billion smallholder farmers. Such models link these farmers with larger economic actors, ultimately improving agricultural productivity, expanding markets and trade, and increasing the economic resilience of vulnerable rural communities.

A recent review by the Initiative for Smallholder Finance (ISF) of investments in smallholder agriculture shows a maturing market with clear investment opportunities at different stages of the agricultural value chain and varying stages of financing. The review, which collated transactions appearing in ImpactAlpha’s #Dealflow, highlights the need for more capital, more developed market intermediaries, and improved transparency and intelligence gathering related to impact investments targeting inclusive agriculture sector growth.

To understand the nuances of inclusive agriculture, ISF reviewed ImpactAlpha articles reporting investment deals and the launch of new funds focused on inclusive agriculture between January and June 2017. This review also served to validate the insights ISF had shared in its latest briefing note, “The Fund Manager Perspective: Moving the Needle on Inclusive Agribusiness Investment.”

Research from ISF and ImpactAlpha found that investors have been slow to embrace the agriculture market because of high risks and uncertain returns, and relatively few funds focus on small rural enterprises and smallholder farmers. Additionally, if sector-shaping initiatives can take hold, the team’s research suggests an emergence of impact-driven agribusiness funds combined with public and private capital could align financing for inclusive agricultural market growth.


The proliferation of technology as a key enabler in inclusive agriculture emerges as a key trend from the review of international capital flows within the impact investing sector.

Indeed, a number of the transactions covered by ImpactAlpha over the last six months target the development of agricultural technology platforms connecting smallholder farmers to markets. Examples include Agruppa in Colombia, GreenFingers Mobile in South Africa, and AgroStart and Waycool in India.

Agruppa connects farmers and retailers in Colombia

Other digital platforms focus on sharing farming equipment, like farMart in India, or improving access to finance, such as FarmDrive in Kenya. Note, that venture-oriented funding driving the explosion of technology-based smallholder solutions is well documented by the RAF learning lab and GSMA m-Agri program.

Safaricom backs FarmDrive to improve small farmers’ access to credit

Financing spectrum

ISF’s latest briefing note introduces five fund types, grouped by investment size and approach to generating impact. The review of recent transactions provides some interesting examples of investments made by different fund types.

1– Wholesale Funds are large pools of capital targeting a specific theme. Though few exist, such funds hold the largest amounts of available capital. Investments in large agribusiness companies, such as Finnfund’s financing of Ethiopia’s Agflow Poultry or Rise Fund’s backing of Dodla Dairy in India, aim to strengthen the market and generally “rise the tide.” Investments by other funds — such as AgDevCo’s backing of macadamia farms in Malawi and mushroom farmers in Rwanda — appear to more directly target smallholder farmers.

TPG’s Rise Fund’s second deal is a $50 million investment in an Indian dairy

2– Niche Impact Funds invest with the aim to achieve a targeted impact. For example, the Tropical Asia Forest Fund (TAFF) purchased 85% of the Mekong Timber Plantations in Laos to develop a sustainable hardwood plantation, highlighting a growing prevalence of such funds focusing on agroforestry and sustainable land use.

New Forests acquires a majority stake in Laos plantation to boost sustainable timber

3– Regional and Local Funds target specific geographies and are generally run by local managers. Such funds continue to successfully raise seed funding. For example, FAFIN and the Yield Uganda Investment Fund announced new capital investments in the last six months (but have not yet had deals reported by ImpactAlpha.)

Nigerian agriculture gets $31 million boost, but don’t call it an impact fund

4– Early Stage Venture Funds drive innovations and business models that connect smallholder farmers to markets and better technologies. Mercy Corps’ Social Venture Fund’s backing of Agruppa, for example, connects farmers and retailers in Colombia. Aspada’s funding of Waycool aims to connect more small Indian farmers to markets.

Aspada backs Waycool to connect more small Indian farmers to markets

5– Frontier Plus Funds continue to prospect for the truly last-mile investments. One example is Elevar Equity backed Samunnati, a Chennai-based agriculture finance company focused on agricultural value chains.

Samunnati raises $4.5 million to extend small ag finance in India

Growing the flow

The deals featured above demonstrate how different types of impact investment funds are applying their investment strategies to cover various portions of the inclusive agriculture market. Still, the total amount of funding currently mobilized falls far short of the estimated $200 billion needed for smallholder farming, not to mention the much larger amount required by rural enterprises.

Inflection Point: Unlocking growth in the era of farmer finance

As an emerging niche market characterized by relatively small volumes and high risk, agriculture-focused impact investing remains highly opaque and hard to define. This is particularly true for inclusive agriculture deals aimed at developing small-scale family-owned farms, often with subsidies that reflect the convergence of public and private interests in smallholder farming activities.

In contrast, traditional investment sectors such as real estate, energy, mining, or manufacturing have generated a dedicated intermediation infrastructure (e.g., sector-specific investment firms, capital advisors, and industry associations) which effectively acts as a repository for industry knowledge, relationships, financial structures, and transactional data.

Such effective intermediation is needed to move inclusive agriculture from niche to mainstream. To be successful, these initiatives will require more sophisticated intermediation efforts that bring the right stakeholders and investors together around the design and development of effective financial structures and service delivery models. (Disclosure: ISF has positioned itself to play this role of intermediary and capital advisor in the inclusive agriculture space.)

There is a strong need for a number of sector-shaping initiatives, specifically:

  • Transparency: Developing transparency around individual transactions, funding flows, and gaps in the market will require a concerted effort from existing actors in the industry. A willingness to share information about their operations will support a better understanding of the risks and sustainability related to investments in inclusive agriculture projects. Industry standards will ultimately encourage the financial participation of new actors.
  • Pipeline generation: Developing more strategic partnerships and brokering channels can strengthen the way deals are sourced and developed. The key for finding investment pipeline while making efficient use of investment officer time is to develop aggregation and referral networks, including NGOs and technical assistance providers that can provide leads and pre-screen investments.
  • Design support: Providing additional early stage support for blended deals and complex partnerships can mitigate the complexities arising from the coordination of different actors and the required alignment on objectives.

In recent years, ImpactAlpha has positioned itself as a key resource for recording and reporting on specific transactions and trends, contributing to the expansion of the impact marketplace through robust journalism and compelling media. ISF’s review of deals reported by ImpactAlpha demonstrate the need for more sector-wide transparency and intelligence gathering related to impact investments that target inclusive agriculture sector growth. The ISF will be partnering with ImpactAlpha to strengthen the cataloging and analysis of inclusive agriculture investments. If you know of new deals we encourage you to send any information to [email protected].

For questions related to this data, please reach out to Matt Shakhovskoy at the ISF ([email protected]).