AgDevCo is a specialized subsidized impact investor and project developer that focuses on early-stage small and medium agri-businesses that contribute to food security, employment and climate resilience for smallholder farmers in Sub Saharan Africa. Subsidized impact investors get their capital primarily from concessional sources e.g., donors/ foundations/ private donations. They typically require subsidies to remain sustainable, but some do end up making financial returns. Most have the ability to utilize TA funds (usually in-house funds, but some outsourced TA models exist. It deploys long-term capital and technical assistance (USD 2-10 million) to build sustainable and commercially viable businesses. AgDevCo currently has a presence in Sierra Leone, Ghana, Cote D’Ivoire, Rwanda, Kenya, Malawi, Mozambique, Tanzania, Uganda, and Zambia.
For example, in 2016 AgDevCo’s investment established Saise Farming Enterprises Ltd (SFEL), the first commercial seed potato producer in Zambia. Before this, potato market in Zambia completely relied entirely on imported seed potatoes from South Africa. This investment is part of AgDevCo’s larger strategy to help develop an agricultural hub in Northern Zambia, by injecting USD 14M into the region and catalyzing an additional USD 23 million of third-party investments to establish irrigation over 250 ha, secure power and purchase farm equipment, sheds, cold stores and machinery. The establishment of Saise, to produce seed potatoes supplied by Europlant (a German seed potato provider) changed the market by introducing locally produced, high quality seeds. Seed potatoes are high-quality tubers which are used to multiply the next generation of potatoes. Seed potatoes need to be grown under specific conditions to produce disease free, high-grade tubers. As such, seed potatoes are a key input for Zambian farmers growing potatoes for consumption (ware potatoes). The potato farming is secured by irrigation during droughts and allows the growing of potato in winter as well when disease risk is at minimum. The cold chain allows storage in climate-controlled warehouses and sold next year.
Stage of Implementation
As per the annual reporting of AgDevCo to FCDO, in 2019, 53% of the total capital leveraged was private funding and 47% was from DFIs, which shows a positive shift towards leveraging a greater proportion of capital from outside the conventional international development sources.
- DFIs: AgDevCo is funded by the UK Foreign, Commonwealth and Development Office (FCDO)-Africa Division which has disbursed 90% of the total committed expenditure of GBP 154,211,173 towards AgDevCo. DFIs play a role in de-risking this instrument through a variety of approaches including through a first loss sub-ordinate investment.
- Impact Investor: AgDevCo is a majority shareholder and has invested USD 1.7 million in equity, USD 1.6 million in long-term debt, as well as working capital loans. Such impact investment has a potential for uptaking best practices and crowding-in investments in the entire value chain.
- Project Developers: Saise is Zambia’s first seed potato producer and one of the only commercial farms in the region. Project developers like Saise have a relatively high-risk appetite, do not generally have climate mandates, and have limited independent capacity to raise capital at scale.
- Project pipeline: Countries with significant pools of investable project pipeline in agriculture are strong candidates. This pipeline can be informed by a strong policy environment where adaptation projects are identified and prioritized and there is sufficient climate risk analytics capacity to ensure the projects meet set climate adaptation criteria.
- High smallholder demand: Key underlying component for the success of commercial agri-businesses is the smallholder demand. Often smallholder farmers do not have available cash nor commercial appetite to invest which can become a constraint.
AgDevCo currently has a presence in Sierra Leone, Ghana, Cote D’Ivoire, Rwanda, Kenya, Malawi, Mozambique, Tanzania, Uganda, Zambia. As measured by employment in agriculture as a percentage of total employment, there is likely additional high smallholder demand in Burundi (86%), Somalia (80%), Chad (75%) and Niger (72%) – all of which have shares employed in the sector above 70% – though caveated that availability of sufficient project pipeline informed by a strong policy environment may be challenging.