Agriculture has been the backbone of the Nigerian economy providing employment and means of livelihood for the increasing population as it contributed 25.08 percent to the GDP of Nigeria as at 2017. As a major source of livelihood for rural dwellers, a strong and efficient agricultural sector has the capacity to enable a country feed its growing population, generate employment, gain foreign exchange, and improve the standard of living.
The agricultural sector also has the potential to be the industrial and economic pedestal from which a country can experience speedy development. Through agriculture, environmental benefits such as sustainable management and renewal of natural resources, preservation of biodiversity, land conservation over and above contribution to the development andviability of rural areas can be derived. At micro and macro levels, the agricultural sector is strategically positioned to have a high multiplier effect on the nation’s quest for socio- economic and industrial development as it creates employment opportunities.
While the majority of Nigeria’s population live in the rural areas and depends on agricultural production, the supply of financial services to the sector is inadequate, which on the average, accounts for a mere 5 percent of domestic resources being allocated to the agricultural sector.There are development funds that exist in Nigeria like the Agricultural Credit Support Scheme (ACSS) managed by the CBN, Commercial Agriculture Credit Scheme (CACS) and Agricultural Credit Guarantee Scheme Fund (ACGSF)which are the initiatives of the Federal Government and the Central Bank of Nigeria; with the aim of fast tracking the development of the agricultural sector in Nigeria by giving loans and support to agricultural business owners.
The primary objectives of these schemes are to fast-track the development of the agricultural sector of the Nigerian economy by providing credit facilities to large-scale commercial farmers at a single digit interest rate; enhance national food security by increasing food supply and effecting lower agricultural produce and products prices, thereby promoting low food inflation; reduce the cost of credit in agricultural production to enable farmers exploit the untapped potentials of the sector; and increase output, generate employment, diversify Nigeria’s revenue base, raise the level of foreign exchange earnings and provide input for manufacturing and processing on a sustainable basis.
A case study of Root Capital and Serendipalm in Ghana shows how development funds schemes can drive sustainable agriculture and impact livelihood in the rural community.
Root Capital is a social investment fund that uses agriculture to improve rural livelihoods in poor, environmentally vulnerable places in Africa, Latin America, and Indonesia. The fund seeks to reduce poverty by increasing access to agricultural markets.To do this, Root Capital provides loans and technical assistance to small agribusinesses that operate as aggregators and buy from small-scale producers in their communities. Increasing credit to these enterprises means that they can buy more products from the farmers as well as invest in community services like health clinics, schools, and electricity.
Serendipalm is the world’s first and largest fair trade and organic palmoil farm. Located in Ghana, the company was startedin 2006 by the personal care product company Dr.Bronner’s, which uses sustainable palm oil in its soaps.The trees are cultivated by 670 farmer members who, by learning organic practices, are able to achieve higher yields and premium prices for their goods.
Serendipalm also operates a processing mill, which employs over 240 people at wages 25 percent higher than comparable local wages. Root Capital became the company’s first external lender in 2014, and continues to provide financing to pay farmers in a timely fashion and grow Serendipalm’s operations. Together, they are demonstrating that palm oil production can, in fact,be done in an environmentally and socially sustainable manner, rather than through land grabbing.
Through funds from Root Capital, Serendipalm which started by persuading a group of 200 small farmers to switch to organic cultivation was able to grow its business and at the same time improve the livelihood. Serendipalm’s success with the production and sale of organic palm oil, and their useful local impact show that responsibly-run trade and production can indeed be at the heart of sustainable rural development: by getting small farmers to switch to more sustainable and more profitable cultivation, and by realizing fair trade development projects that motivate local communities.
Food and agricultural systems therefore provide numerous entry points for financing much more sustainable, long-term solutions to feed a crowded planet while generating community health and wealth within ecological limits.Taking a total portfolio approach to sustainable agriculture provides investors with a constructive way to grapple with the widest array of investment opportunities because each asset class presents its own specific opportunity set related to food and agriculture — whether financing small-scale local food systems or intervening in large-scale global supply chains.
As interest in sustainable food systems and agricultural value chains grows, increasing numbers of investors are beginning to explore high-impact investing opportunities in food, farming, and forestry across asset classes.
Equity investment can help finance sustainable agricultural technology (AgTech) companies and other businesses in the food and agriculture sector. Private equity and venture capital investors can provide critical seed and growth equity financing to private companies in the sector, and they can often become highly engaged with management to ensure that positive social and environmental impact is being measured, managed, and maximized. As for public equity managers, they can invest in small and midcap companies working on AgTech innovations, assess their portfolios for climate, water, and other sustainability risks, or use shareholder engagement strategies to hold companies accountable for their often large-scale social and environmental impacts across the value chain.
Some investors may choose to invest in small- and mid-cap companies that provide exposure to innovative AgTech, ranging from efficient water irrigation to smart transportation that reduces food waste through increased efficiency in distribution. Other investors may seek exposure to large-cap food and beverage companies, either as a pro-active investment or as a target for shareholder engagement on environmental and social issues.
Real assets provide some of the most direct forms of investing in agriculture through ownership of farmland, forests, and fisheries. They can give portfolio additional stability while offering a hedge against inflation. Real assets can also provide investors with revenues from two sources: capital appreciation and income from active land management.
Several real asset managers run strategies focused specifically on sustainable farmland and ranchland management, both in the United States and around the world. These funds tend to utilize practices such as regenerative agriculture and holistic planned grazing in order to mitigate climate change through carbon sequestration and building healthier soil with greater resilience to erosion and extreme weather. These funds generally have strong environmental impacts, and varying degrees of social impact, for example, investing in sustainable, pasture-raised beef and dairy farms.
In addition to farmland and ranchland, sustainable forests also offer compelling social and environmental impact investment opportunities. When managed responsibly, timber, a renewable resource can provide a source of income for generations.
From conventional asset classes such as cash, fixed income, and public equity to alternatives such as private equity, venture capital, and real assets, opportunities to invest in sustainable agriculture with positive impact now extend across diversified portfolios. The nature of impact investment opportunities is by no means equally developed across all asset classes. In some cases, such as farmland and ranchland, investors can get very direct exposure to sustainable agricultural production trends, like the growing market for certified organic crops or pastured livestock. In other cases, investors can focus on financing sustainable AgTech innovations or engaging with publicly traded companies that drive social and environmental impact trends across global value chains.
