A joint World Bank-UNCTAD study

Presented by:

Duncan Pringle: Consultant to the World Bank

A Retrospective View of Investing in Agribusinesses and The Practice of

Responsible Investment in Larger Scale Agricultural Investments

1

Everything changed in 2008

2

Agric Commodity Prices – after

falling in real terms for decades,

started climbing

Share prices collapsed,

by agriculture investment

held value

Significant increase in

interest investment in

Agriculture, globally

It’s a Land Grab !!!

No its not!!!

Yes it is!!!

Part on an on-going commitment by IAWG to generate empirical knowledge to inform stakeholders

3

Investing in Agribusiness

WBG

Trends & Impacts of FDIFAO

Alternatives to Land IFAD / IIED

Contract FarmingIFAD /TNS

Land Grab Dev. or Opportunity

Making the Most of Agri InvestmentsFAO/IFAD/IIED

Practice of Responsible Investment Principles in Larger Scale Agricultural

InvestmentsWBG/UNCTAD

Mature Investments

Applying Field Lessons into Contracts

IISD/WBG/UNCTAD

Field Lessons from Applying Principles to new investments

UNCTAD/FAO/IFAD/WBG

Revisiting 8 investment –deeper & wider IWBG/UNCTAD

Inter-Agency Working Group: FAO,

IFAD, UNCTAD and the World Bank

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The Principles: What do the PRAI consist of?

1. Land and natural resource rights of existing land users are respected

2. Investments do not jeopardise food security –rather strengthen it

3. Policy framework ensures transparency & accountability

4. Agreements based on extensive consultations with all potentially affected communities

5. Investors respect the law (e.g. human rights) and other best practices (e.g. industry specific)

6. Investments generate broad social benefits for all surrounding communities

7. Investments are environmentally sustainable

“The more distant we look into the past, the farther we can see into the future.”

Winston Churchill

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50 year time line, + 179 agribusiness investment made by the Commonwealth Development Corporation (CDC) of which 122 were in Sub Saharan Africa and 57 in East Asia

Development Impact: sustainable livelihoods, achieve development goal

Equity Returns: dividends & capital gain to shareholders

Financial Viability: creation of financially self-sustaining enterprises

Technical Results: achievement of production targets

Fail: total or substantial project collapse during implementation or shortly

after completion

Moderate Fail: some positive achievements, but far fewer than planned

Moderate Success: substantial on-going benefits although fewer than

planned

Success: main objectives achieved or exceeded

Although African projects were slightly less successful than in Asia – the most significant difference was between generating sensible equity returns (only 13% success, and 13% moderately successful), and the fact that ultimately most of the investments (70%) finally delivered a long term economic benefits

African vs. Asian Investments

Africa

Asian0

10

20

30

40

50

60

70

80

Return onEquity Financial

Viability DevelopmentImpact

Africa Asian

African Investments

0

10

20

30

40

50

60

70

Equity returns FinancialViability

DevelopmentImpact

Success

Moderate success

New start ups are significantly more risky than when investments are being madeinto existing agribusinesses. ‘Turn arounds’ might ultimately result in a sustainablebusiness generating economic benefits, but financially the risks are high.

% Financial Viability : Success & Moderate Success

% Development Impact : Success & Moderate Success

0

10

20

30

40

50

60

70

80

90

100

New Rehab Exis ng

ModSucces SuccessAsia

Nucleus estates (NES) with out growers provided the most successful businessmodel – but for a limited range of industrial crops (oil palm, sugar, tea, rubber),followed by processing. Pure out grower schemes were broadly about assuccessful as estate farming operations. Asian out grower schemes workedparticularly well.

% Development Impact : Success and Modest Success

% Financial Viability : Success and Modest Success

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

Estate NES Outgrowers Processors

Moderate Success

Success

Africa

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

Estate NES Outgrowers Processors

ModerateSuccessSuccess

Asia

0.0

20.0

40.0

60.0

80.0

100.0

Estate NES Outgrowers Processors

Moderate Success

Success

Africa

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

Estate NES Outgrowers Processors

ModerateSuccess

Asia

Causes of financial failure in projects in Africa & Asia broadly the same level in both ‘Flawed Concept’ and ‘Bad Management’. Major difference being higher level of ‘Bad Luck’ in Africa. Particularly Government Policies and Civil unrest.

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

Africa Asia Combined

28.2324.53

27.1

12.90

1.89

9.6

8.87

5.66

7.9

50.00

67.92

55.37

Successes

BadmanagementBad luck

Fatallyflawedconcept

Percentage of projects that succeed and failed in

Africa & Asia, by cause of failure

-

20

40

60

80

100

%

19

37

9

12

5

19 Bad Mgt

Mkt issues

Civil unrest

Govt. policy

Flawedconcept

Unknowableflawedconcept

Breakdown of causes of

failure %

Key Take-aways from the CDC retrospective study

• High degree of risk in agricultural investing. Start upsparticularly so.

• Most investments (+70%) ultimately delivered the planneddevelopment impact, but often after 2-3 failed investors & anaggregate investments that couldn't be justified financially.

• Nucleus estates where the least risky, but a self selectedsample (i.e. industrial crops mainly). Expanded to outgrowersafter the large farm business model proven

• Key message, it is irresponsible to expose the smallholder tohigh initial risks. Shouldering initial risk is a key role of theprivate sector

• Every so often private investments changes everything, andhas a spillover effect on the overall economy far beyond theinvestment itself.

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Advice For Policy Makers: Agribusiness Investments

DoKnow what development you

want,

Be more choosy about the investor, Business model, enterprise,

Set up process, review investments systematically

Encourage alternatives to large scale land investments,

Support 1st movers, but not at scale,

Have a plan B for failure,

Don’tOffer more incentives to

foreign investors than local.

Do mega land deals,

Make multiple gambles on same new business model,

Allow people to have land without making productive investments

Short cut existing land regulations

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Thanks, for listening