financing the global agribusiness value chain in...
TRANSCRIPT
Financing the Global Agribusiness Value Chain in Turbulent Times
Vipul C. Prakash Senior Manager, IFC Global Agribusiness Department
EAP Regional Agribusiness Trade & Investment ConferenceSingapore
July 30-31, 2009
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IFC FY08 Highlights
IFC – Member of the World Bank Group$75 billion in own financing and $30 billion syndicated for
4,000 companies in 142 countries since 1956• Largest multilateral source of loan/equity
financing for the emerging markets private sector
• AAA rated by S&P and Moody’s
• Equity, quasi-equity, loans, risk management and local currency products
• Takes market risk with no sovereign guarantees
• Promoter of environmental, social, and corporate governance standards
• Resources and know-how of a global development bank and flexibility of a merchant bank
• Holds equity in over 800 companies worldwide
Committed $11.4 billionSyndicated $4.8 billionPortfolio $40 billion # of companies 1,491# of countries 122
South Asia13%
Global1%
Sub-Saharan Africa17%
Europe & Central Asia
22%
Latin America
21%
Middle East & N.Africa
15%
East Asia and the Pacific
11%
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Agribusiness – an IFC Strategic Priority
By Sector$2.9 Billion Committed Portfolio As Of June 30, 2009 (includes Syndications)
By Region
World Bank Group Goal: US$ 6 billion in Agri-sector commitments.
Animal Processing
14.2%
Beverages5.4%
Grains & Milling7.0%
Dairy Products
3.4%
Fruits & Vegetables
5.7%Veg Fats &
Oils14.9%
Sugar17.4%
Other Food22.3%
Other9.9%
Portfolio: Sector w/Syndications June 2009Total: US$2.9 bn
Africa6.2%
East Asia10.2%
Mid. East/ N. Africa
1.3%
South America
39.6%Cent.
America11.1%
South Asia10.6%
Cent. & East.
Europe15.0%
Europe/ Cent. Asia
6.0%
CAG Portfolio June 2009w/Syndications (US$2.9 bn)
IFC Investment in the Agribusiness Value Chain Reached US$ 2.0 Billion in FY 2009
IFC’s Goal:Deliver development impact along the global agri-supply chain,
through investments and advisory services with the private sector, to create opportunities and improve peoples’ lives
FinancialInstitutions
Market Infrastructure
FarmProduction
Inputs Collection Processing Marketing Distribution
Risk Sharing Facilities
Pre-Harvest Finance Trade Finance
Fertilizers and other Chemicals
Land
Project/Corporate Finance
Food Retail
Infrastructure/Logistics
CIT – Access to Markets
Note: The aggregated amounts listed next to categories above denote potential IFC investment size, subject to approvals
165 730
764
154
3399
54
45
10
12
4
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Asia: Strong Regional ImpactUS$ 489 million in total investments
ChinaCentury Sunshine – Organic Fertilizer
Changyu - WineDequingyuan - Eggs
North Andre – ApplesZhengye – Meat processing
IndiaBajaj Hindustan – Sugar
Balrampur – SugarJain – Irrigation SystemsKamani Oils – Edible OilsModern Dairies – Dairy
Mahindra Farms – Farm servicesSuguna – Poultry
United Riceland – RiceTata Tea – Tea plantation
LaosLao Brewery - Brewing
VietnamSABCO – Soft Drinks
IndonesiaFugui Flour – Wheat FlourPT KAS – Instant Noodles PT PAS – Instant NoodlesPT SAS – Instant NoodlesPT TAS - Ready to Drinks
Wilmar – Palm Oil working capital
BangladeshPRAN – Packaged Food
SE AsiaEcom – Coffee Farms
KoreaHalim - Poultry
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Catalytic Role
• Technical assistance and advice
• Optimizing investment → demonstration impact
• Coordinating efforts and leveraging resources among partners GIF – crop insurance (IFC, EU, private insurance company) Doing Business in Agriculture (WBG, Gates Foundation) Land titling programs (multiple donor support) Climate change adaptation programs (multiple donor support) Crop financing for African farmers
• With IFC, AGRA, private African bank (see next slide)
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Sustainability: Setting Global Industry StandardsIFC/WWF Industry Sustainability Roundtables
Soy – Roundtable on Responsible Soy (RTRS)Approved “RTRS Principles” in Nov. 2006
1st Roundtable – Mar. 2005, Foz do Iguaçu, Brazil Moving forward quickly Key IFC Client members: Amaggi, SLC Agricola (Brazil), AGD
Palm Oil – Roundtable on Sustainable Palm Oil Adopted Principles & Covenants (P&C) in Oct. 2005, Mar. 2006 First certified products could go to market this year Key IFC Client : Wilmar (Singapore)
Sugar – Better Sugarcane Initiative (BSI) Will complete draft principles for a global sugar cane standard in 2008 IFC approved project supporting development of Better
Management Practice handbook for clients and industry
Cotton – Better Cotton Initiative IFC resumed support – hosted annual meeting Dec. 2008
Beef - Brazilian initiative supported by IFC (began 2007)
With IFC’s participation and the World Wildlife Fund’s leadership, global roundtables bring together stakeholders with a common goal of sustainable production for major global commodities
8888
Indicator Portfolio (CY07)
Portfolio (CY08)
New Business Expectations FY09*
Employment 138,900 281,027 98,093
Number of Farmers 538,300 1.4 million 179,760
Number of MSMEs Reached
57,000 81,120 28,600
* FY08 expectations projected through 2014
Agribusiness Sector has Strong Development Impact
Overarching issues and themes impacting the agribusiness sector
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Water Scarcity Will Become a Major Constraint on Agribusiness Globally…
FarmersLand Traders ProcessorsLogistics/
Distributors Consumers
Water Conservation
• Assist clients in water efficiency
• Effluent treatment standards
Increase Awareness
• Build awareness of water issues
Land Use• Invest in areas where
water issues can be mitigated
• Invest in crops that use water efficiently
• Work with World Bank on PPPs in irrigation
• The real scarce resource globally is water
• Agriculture is the highest user of water ~ 70%
Global Water Withdrawal, km3
Supply constraints
may not allow this trajectory
to continue
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… As Will Other Issues Related to Climate Change
• Agriculture accounts for 15 percent of global GHG emissions* • Adding deforestation raises this estimate to 30 percent.• Whether or not deforestation is included, most of the emissions from
agriculture are from developing countries.• However, agriculture presents opportunities for greenhouse gas
reductions:
Negative Impacts
Deforestation
Energy Use in planting,
harvesting, distribution
Inputs (Fertilizers, etc.)
Biodiversity
Positive Impacts
Reforestation / Plantations
Bioenergy / Biomass /
Cogeneration
Methane Capture
Resource Conservation (Water use)
* Source: UN Framework Convention on Climate Change
Agribusiness outlook, and impact of financial crisis
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Present situation• Tight credit situation constrains agricultural credit, access to inputs and international trade. Food
supply expected to drop.• Drop in global demand in the short term, deleveraging of investment funds, US dollar recovery
result in general fall in commodity prices and freight rates.• Delayed input (fertilizer, energy, chemicals) price adjustment puts pressure on production
margins; Volatility of input/output prices is testing risk management controls in corporates.• Government intervention to protect consumers and/or producers (price controls, export/import
controls, subsidies, etc).• Macroeconomic risks in key countries (e.g.. Indonesia, Ukraine, Argentina).
Outlook and Trends• Long-term fundamentals remain favorable for agribusiness and global food supply will be
challenged to meet increasing demand – productivity increase and the mobilization of fertile land in some regions (Latin America, Eastern Europe, Africa) remain critical to global food supply.
• Sustainability issues in agriculture remain at the forefront of public concerns.• Most Agri commodity prices remain above their long term trend and are expected to adjust in the
long run. Input cost variations and unexpected weather-related shocks will induce volatility. • Oil price variations will remain an important determinant of soft commodity prices, production
costs and margins.• Weakened financials and lower valuations will provide significant consolidation opportunities
particularly in sectors that have expanded fastest in recent years (e.g.. sugar/ethanol in Brazil, meat in Russia, etc.) .
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Agribusiness Outlook
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• Goal: Business driven by market, capital constraints and opportunities presented by the global financial crisis.
• Situation: Clients’ investment programs scaled back and lower demand for traditional IFC capex financing.
• Counter-cyclical Strategy / Crisis Response:
Optimize Agribusiness portfolio mix (short term, medium term, quasi-equity and equity) to reflect current and future potential IFC capital constraints.
Building/rebuilding relationships with top tier companies.
Risk sharing with Banks to leverage IFC capital.
Focus on Short Term Facilities to finance working capital intensive global and regional food supply chain players.
Work through established platforms (Trade Finance, Commercial Banks, etc.).
Leverage and pool resources from International Finance Institutions, Sovereign Wealth Funds and other financial sources.
Quasi Equity / Equity Opportunities.
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Agribusiness Strategy: Short-Term Adjustments
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• Growth : Investing in Global Food Supply Chain for Development impact Disciplined growth to meet IFC’s Corporate objectives and WBG goal of $6 bln in Agri sector commitments. Broaden the range of instruments to respond to clients’ needs. Wholesale Short Term finance facilities through existing platforms (IFC and other financial institutions).
• Increasing Focus on Africa, IDA and Small Countries: Prioritize resources to Africa, IDA and small countries. Focus on investments with high development impact and upside. Use wholesaling to increase geographical reach of small farmers and MSMEs. Widen the range of instruments and services to better serve IDA countries needs. Innovate with willing partners (e.g.. Gates Foundation, Standard Bank).
• Sustainability: Supporting the emergence of Global Standards of Sustainability. Increasing support to Better Management Practices through Commodity Roundtables. Encouraging clients to participate in Commodity Roundtables. Using Facilities to address global public goods (GHG mitigation and adaptation, Water use efficiency).
• Integrating Advisory Services and Investments: In collaboration with Advisory Services Business Lines:
Cleaner Production projects Corporate Governance focus on family-owned companies. Supply chain linkages – promoting practices for quality, reliability, traceability. Water footprint mapping.
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Agribusiness Strategy: Medium and Long-Term
