May 20, 2015

By Alexandre Fernandes de Oliveira, Inter-American Development Bank

Earlier this year at the inaugural AgroLAC 2025 meeting international experts flew into Sao Paulo, Brazil to promote new financial instruments that could connect with innovative solutions to expand and develop sustainable agricultural production across the region.

The timing couldn’t be more significant. Experts predict that global food production must increase by 60% in order to feed the nine billion people who will inhabit our planet by 2050. And we need to accomplish this as farmers and producers worldwide confront the growing effects of climate change and increasing competition for land and water.

Long-considered a rich and abundant region, Latin America is now being voiced in many circles as the “Next Global Breadbasket.” And no doubt. In recent years, it has taken the lead as the largest net food exporting region worldwide. It also boasts a third of the world’s fresh water and more than a quarter of the world’s medium to high potential farmland. With the region forecasted to pick up in growth by 2.2% in 2015, the potential for expansion is only projected to increase.

As a finance expert in IDB’s private sector lending arm, I work with large and midsized agribusiness companies every day finding innovative solutions to increase productivity for my clients while promoting a sustainable management of natural resources along the entire supply chain.

I see many noteworthy trends unfolding for 2015 and beyond:

1. Investing in “futuresque” technology is not so far away:

We are witnessing a growing trend with agribusiness companies in Latin America that are investing beyond traditional technologies – many of which were still in ideation phase only a few years ago. For instance, in Uruguay a start-up company has created a new rechargeable collar that allows dairy farmers to detect changes in animals’ physiological parameters and isolate disease outbreaks as soon as possible, as well as monitor potential thefts in real time on their cell phones. Similarly, the IDB partnered with dairy farm Estancias del Lago to provide long term financing to develop an integrated free-stall and powdered milk project, which includes adopting a new bio-digester system – mainstreamed in Europe, but very new to Latin America – to recycle cattle manure to produce self-supply renewable thermo energy to power its powdered plant.

2. Climate-smart agriculture – not just for early adopters:

An increasing number of companies in Latin America – and not just first movers – are investing in climate-smart agricultural practices. Rising temperatures and increasingly erratic precipitation patterns are affecting how producers adapt to changing conditions. In fact, four of ten countries most affected by extreme climatic conditions between 1992 and 2011 were in Latin America. Despite this trend, we are seeing that more companies recognize the financial value of investing in climate-smart and other sustainable practices. For instance, in Brazil the IDB is working with pulp and paper company Klabin and its Puma Project to finance the construction of a new mill. Connecting Klabin’s forests to the new mill without impacting biodiversity was a key challenge, especially considering the large number of pumas, capivaras and other large fauna. Through IDB’s Climate-Smart Agriculture Fund, Klabin will invest in building underground passageways following best practices used in Europe and North America to improve habitat connectivity.

3. Forging new public-private partnerships for inclusive supply chains:

In recent years, public-private collaboration is becoming an important vehicle for sustainable agribusiness. Many companies are turning to local and regional governments to collaboratively boost agricultural productivity and identify local solutions. In Brazil, the U.S. Agency for International Development, the Walmart Foundation, Wal-Mart Stores, SEBRAE — Minas Gerais, and Fair Trade USA partnered to create linkages between 12 cooperatives representing more than 30,000 Brazilian coffee farmers through Fair Trade Certified products.

The $2 million project provided thousands of farmers with training in cooperative governance and processing best practices, as well as grants for infrastructure upgrades.

Forums like AgroLAC 2025 provide a valuable space for agribusiness experts in the public and private spheres to discuss, debate and develop new ideas. Yet, the biggest challenge is how do we go from ideation to implementation? Fortunately for us, many agribusiness companies in Latin America are already taking the lead.

—

The Inter-American Development Bank is a sponsor and exhibitor at Global AgInvesting 2015 at the Waldorf Astoria in New York City, April 27-30. For more information, please visit www.iadb.org/agribusiness.

Alexandre Fernandes de Oliveira is a Division Chief in the IDB’s Structured and Corporate Finance Department. He overseas a team of investment officers responsible for originating investments in a range of industry sectors in Latin America and the Caribbean. Previously, he worked in the International Finance Corporation and in investment banking at J.P. Morgan and Deutsche Bank in New York.