The business of food security: A look at OPIC’s work in agribusiness
Earlier this week we highlighted OPIC’s growing portfolio of agribusiness projects that are helping increase food production and supporting small farmers. Here, John Aldonas, Deputy Vice President, OPIC Small and Medium Enterprise Finance, describes some of OPIC’s strategies for reaching the smallest farmers who are so critical to advancing food security.
OPIC has seen significant growth in its agribusiness portfolio over the past decade. How was this accomplished?
Recognizing that the world is facing extreme pressures on its limited natural resources, OPIC has in recent years initiated an extra effort to support sustainable ventures in renewable resource sectors, beyond renewable energy to include projects in agriculture, water and sustainable forestry. It has been forecast that the world will need to increase agriculture production by 60 percent by 2050 to keep up with a growing and urbanizing population, and productivity-enhancing private investment will be key to meeting this tremendous challenge. OPIC works with knowledgeable partners in the private and nonprofit sectors that are able to deliver not only financial support to small farmers and agribusinesses, but also technical training to help them improve their yields and market linkages.
OPIC talks about this sector in terms of agribusiness rather than agriculture. What is the distinction?
We need to produce more food in order to reduce hunger and malnutrition, but producing more food is not enough. If the farmer cannot get the food to the right offtaker or processor it is going to go to waste, the farmer will lose money and will also lose any incentive to invest in productive improvements. One example of a successful project was a dairy processing facility in Georgia that we supported with financing. The processor was able to establish a network of milk collection facilities throughout the country so that thousands of isolated small producers could generate income on a consistent basis. The more you can invest downstream in various processing and transportation operations, the more you can help assure that farmers will be able to reliably generate revenue.
Food security is a vast topic. What is the best role that OPIC can play in addressing the challenges?
In developing countries, a lot of food is produced by small-plot farmers, and OPIC is not usually able to reach them individually. But we can provide flexible long-term financing to local intermediaries and microfinance institutions that have a more extensive presence in these regions, and their financing is often coupled with training and other services that make the financing more effective. Recently, for example, we committed financing to a lending facility designed to support small businesses in Mongolia. One of the businesses it supported with a small $1 million loan was Tumen Shuvuut, a chicken feed production facility that is creating the feed for poultry producers at a lower cost. This is the sort of investment that will improve local chicken producers’ productivity.
When we facilitate financing for individual farms or local agribusinesses, we are able to help them improve output by investing in quality inputs and modern technology. Our support of the Kilombero rice and maize farm in Tanzania has enabled it to install advanced irrigation systems, buy additional processing equipment and even construct new rice-husk gasification units to generate power for the farm from biomass.
What are some of the biggest challenges of investing in agriculture?
So much of the agriculture production in developing countries is less-intensive and dispersed, spread among very small farmers, and it has a lot of inefficiencies built in. That, combined with the lack of infrastructure to get product to market, diminishes margins and profitable return, which in turn means these farmers are high risk for lenders and investors. To the extent that small local farmers are able to aggregate and seasonally store their production, they can gain efficiencies and perhaps borrow more capital to continue improvements in their productivity. If we can support those small farmers with an opportunity to increase their income and reinvest in farm improvements, we can help them produce more.
Producing more food is not enough. If the farmer cannot get the food to market it is going to go to waste.
Think of a small farmer who has just two acres. Often these farms are pretty inefficient. If we are able to help them double their output, we’ve helped them double their income, which creates tremendous incentive to produce more food.