The world’s population is expected to grow by 30% by the end of the century. The global food system needs to scale up production to feed a rapidly growing population, while reducing its carbon footprint, preventing deforestation and restoring ecosystems to meet global climate, biodiversity and land degradation targets.
The AGRI3 Fund is aiming to address this challenge by seeking to mobilize USD 1 billion in capital from commercial banks, development finance institutions and institutional investors to finance sustainable agricultural practices. AGRI3 does this by providing credit enhancement tools, in the form of partial risk guarantees to partner financial institutions, that provide credit to support eligible sustainable agriculture projects.
While AGRI3’s pipeline was initially developed with Rabobank, who designed and established the fund, the fund was created as an open architecture fund, with the aim to expand the partnerships to other financial institutions. AGRI3 is now expanding its partnerships to a range of financiers including local and international banks, microfinance institutions, development banks and other commercial banks. Expanding the partner financial institution network enables AGRI3 to support a range of finance institutions (FIs) to scale up finance.
AGRI3 is supporting the shift to sustainable agricultural practices by derisking parts of transition finance loans that fall outside the partner financial institution’s usual risk appetite, whether this be due to the type of project, the tenor of the loan or the quantum of the loan. By providing forms of risk mitigation, such as partial credit guarantees, AGRI3 is shifting business as usual thinking and embedding environmental and social (E&S) risk management, impact and broader sustainability requirements within debt facilities provided by banks and other financial institutions.
To date, AGRI3’s focus has been on the key sectors of soy and beef in Brazil, due to the significant role these agricultural commodities play in driving deforestation. Brazil is home to some of the most world’s most valuable ecosystems, notably in the Amazon and Cerrado, as well as being one of world’s largest producers of food. With 80% of deforestation in the Amazon being driven by the cattle sector, innovative financial mechanisms are required to incentivize and support a transformational shift in agricultural land use. Facilities such as AGRI3 provide the enabling financial instruments required to accelerate investment in environmentally and socially centered commodities production.
By providing guarantees and subordinate loans, the AGRI3 Fund is working towards closing the estimated USD 78.9 billion finance gap required to implement the two central policies for sustainable agriculture in Brazil, the Brazilian Forest Code and the Low Carbon Agriculture Program, and scaling up sustainable agricultural practices throughout Brazil.
One such example of this is AGRI3’s support for a loan provided to the Lindolpho Pio de Carvalho Dias (LPCD) Group to improve the sustainability of their cattle operations on three of the group’s cattle farms in Tangará da Serra in Mato Grosso State. LPCD currently manages over 48,000 ha of land in Mato Grosso state, of which 6,800 ha of this land is dedicated to cattle operations.
According to Gabriel de Carvalho Dias, the Managing Partner of the LPCD Group, before receiving support from the AGRI3 Fund and Rabobank Brazil, “the pasturelands were degraded and supported only two animals per hectare, generating little income. After investing in the soil and the infrastructure, the land can now support 8 animals per hectare.”
Implementing sustainable cattle intensification practices reduces the environmental impacts of cattle farming while increasing productivity per hectare. However, these changes take time to deliver results. In 2020, AGRI3 provided a guarantee to de-risk a USD 5 million loan to support LPCD’s transition to sustainable intensification from partner financial institution, Rabobank Brazil, enabling the commercial bank to issue a longer-term loan than what they otherwise be able to provide in Brazil.
By enabling finance that supports farms to transition to more sustainable agricultural practices, the AGRI3 Fund and Rabobank are providing a key intervention to close the finance gap, reduce deforestation, restore degraded lands and improve rural livelihoods.
“In 2020, with the help of Rabobank, we started to restore the pastureland. One of the main reforms was to put in place water pipes,” said Mr de Carvalho Dias. “This was something that created a big impact on our farm and it really improves cattle performance. The involvement of Rabobank and AGRI3 allowed us to speed up the pastureland reforms and to put in place the infrastructure to channel the water.”
The AGRI3-backed loan will primarily provide for pastureland renovation for cattle intensification, forest protection and reforestation accelerating compliance with forest code and improve rural livelihoods by conducting farmer field days and developing a school and workers accommodation.
“The LPCD transaction is a great example of a farmer investing in the recovery of land and the ecosystems that surround it, whilst at the same time building a strong business, economically and environmentally,” said Nick Moss, Managing Director of the AGRI3 Fund.
The AGRI3 Fund has a robust impact and E&S framework, which was co-developed with UNEP’s Climate Finance Unit. The framework allows partners and stakeholders to comprehensively assess impacts of the fund and its transactions against pre-established key performance indicators (KPIs). The expected E&S impacts of the LPCD project are:
Forest protection and restoration
- Investment in the preservation of 2,300 ha of native forest to accelerate compliance with the Brazilian Forest Code
- Restoration of 265 ha of Areas of Permanent Protection (APP) through isolation or reforestation
Sustainable land use
- Renovation of 1,200 ha of low-medium degraded pastureland to complement an intensified semi-confinement system
- Intensification and renovation activity is expected to improve the total capacity to 53,000 heads by 2023 and improve the rearing capacity from four heads to eight heads per ha
- LPCD intends to maintain the quality and sustainability of the pastureland throughout the life of the 10-year loan
Rural livelihoods
- Rebuilding of a school with a nursery and elementary school in Mato Grosso state, all of which will be accessible for disabled children (capacity of about 32 children in year one)
- Conduct three farmer field days for other farmers that may have degraded pastureland to spread the system to other farms that may have degraded pasturelands (~30 farmers and stakeholders trained)
This transaction demonstrates an initial ‘proof-of-concept’ of how the need to increase agricultural production to feed a growing population can be achieved by implementing sustainable agricultural practices that contribute to meeting global objectives under the Paris Climate Agreement, the UN Sustainable Development Goals and the UN Decade on Ecosystem Restoration.
Transactions such as this prove that it is feasible to build a profitable portfolio of positive impact investments and will help to demonstrate the rationale for mainstreaming long-term E&S impacts throughout agricultural project finance.
AGRI3’s focus is now on replicating this kind of sustainable business model to scale up the E&S impacts and create systemic change across Brazil’s agricultural sector. To achieve this, AGRI3 and Rabobank Brazil have launched a new, 10-year standardized loan product for pastureland renovation called Renova Pasto, to enable farmers to restore the health of their pastureland whilst simultaneously accelerating their compliance with the Brazilian Forest Code and achieving nature positive impacts at scale.
Watch the Renova Pasto film found here to learn more.
