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Scaling-up Investment in Agribusiness is Helping Transform Asia and the Pacific

Article | 29 August 2019

Agribusiness is a potent way for countries to achieve almost all of their SDGs. ADB is working with private sector partners to have transformational impact on agribusiness in Asia and the Pacific.

Agribusiness has a huge potential to spur development in Asia and the Pacific. It needs sustainable levels of investment to help the region's developing countries achieve their SDGs. Development finance organizations like ADB have a critical role to play in scaling-up investments in agribusiness. 

Martin Lemoine, Agribusiness Unit Head in ADB's Private Sector Operations Department, outlines the challenges and opportunities facing agribusiness and shares ADB's future plans for the sector.

How does agribusiness contribute to development?

To meet the growing demand for food, Asia needs to invest $120 billion every year until 2050. Most of this money will need to come from the private sector.

Agribusiness is critical to economic development as it impacts all three sectors of the economy: agriculture, manufacturing, and services. Agriculture still accounts for more than half the workforce in most ADB developing member countries. But agribusiness also includes manufacturing; manufacturing of farm machinery, manufacturing of fertilizers, food processing, packaging, etc. 

Finally, services such as storage, transport, supermarkets, and restaurants complete the food value chain.

Overall agribusiness contributes as much as a third of the GDP in most ADB developing member countries. The sector is also critical for poor countries in terms of foreign currency generation through exports and foreign direct investments.

What are the main challenges facing agribusiness in developing countries? How can ADB help?

To meet the growing demand for food, Asia needs to invest $120 billion every year until 2050. Most of this money will need to come from the private sector.

Faced with huge demand, agribusiness companies have large and unmet financing needs, both long-term and short-term.

Long-term financing is needed to invest in plants, machinery, and infrastructure. Here, ADB has an important role to play as companies struggle to access long-term financing from commercial banks in many countries. 

But agribusinesses also have short-term working capital needs in the form of advances to farmers and huge inventory given the seasonality of the industry. Without working capital, there is no agribusiness. ADB helps agribusinesses obtain this capital by working in partnership with commercial banks.

What have been some of the main impacts of your projects since you began?

We have made 12 investments since 2012 totaling around $500 million. 

On a cumulative basis, these investments have impacted 1.5 million farmers and have directly created 50,000 jobs, including around 40% for women. Millions of consumers across the region have benefited from better access to more affordable and healthier food. 

Our projects have also promoted high-end technologies, which are particularly useful in helping farmers cope with climate change. We have financed 14,000 ha of climate-resilient farms, through modern greenhouses and drip irrigation systems.

What were the real impacts of ADB agribusiness projects on the lives of beneficiaries?

Our very first agribusiness financing in 2012 was a loan to a Bangladesh agribusiness called PRAN to finance a new glucose plant using cassava as raw material. 

To ensure availability and quality of raw material supply, PRAN engaged with 2,500 cassava farmers under a “contract farming” arrangement where PRAN provides technical assistance and guaranteed purchase of the crop. 

In 2017, an independent impact assessment found that the contract farmers had improved their income by 80%—compared to 40% for farmers who did not engage in contract farming. 

Based on this positive experience, in 2019 we decided to provide a second loan to PRAN to finance a new potato-processing plant. For this, PRAN will engage with a further 3,000 potato farmers under a similar “contract farming” arrangement. 

Because of this project, thousands of farmers and workers and their families are earning much higher incomes. This allows them to send their children to better schools, for longer, and gives them more money for essentials such as decent health care.

Where does ADB have agribusiness operations and why?

Agribusiness is a potent way for countries to achieve almost all of their SDGs.

Private sector agribusiness is a new area for ADB. We are open to support companies in all our developing member countries and are on the lookout for good investments with strong sponsors. 

We work in countries including Mongolia and the People’s Republic of China in East Asia; Armenia and Kazakhstan in Central and West Asia; Bangladesh, Bhutan, and India in South Asia; Cambodia, Indonesia, and Viet Nam in Southeast Asia. In the Pacific, we have operations in Papua New Guinea and Timor-Leste. 

How does agribusiness help countries to deliver on specific SDGs?

Agribusiness is a potent way for countries to achieve almost all of their SDGs. Specific examples include:

•    SDG 1 – No Poverty – As demonstrated by our PRAN financing in Bangladesh, agribusiness financing when combined with contract farming arrangements can lift farmers out of poverty. In many cases, contract farmers have almost doubled their income.

•    SDG 2 – Zero Hunger – Our financing to a dairy farming company in the People’s Republic of China, Saikexing, helped promote not only food security for millions of Chinese consumers, but also food safety.

•    SDG 3 – Gender Equality – In all our financings, we systematically push for gender equality. For example, our financing to a flower business in Viet Nam, Hasfarm, helped increase the percentage of women employees to 65% for all staff and to 63% for managers and supervisors. The company agreed to enhance its human resource policy through provisions on salary equality and prohibition of sexual harassment in the workplace.

•    SDG 8 – Decent Work – Our financing to a poultry company in the People’s Republic of China, Lihua, helped create decent employment to a huge number of low-income people in rural areas including 1,200 contract farmers and 1,500 farm workers.

•    SDG 12 – Responsible Consumption & Production – We have extended finance to Olam, a leading global agribusiness. Combined with technical assistance to Olam’s 13,000 coffee contract farmers in four countries of Southeast Asia and the Pacific, these funds support sustainable and ethical production and consumption of coffee and help coffee farmers improve productivity and crop quality. They can also obtain certification under sustainable and ethical labels which improves the marketability of their products.

•    SDG 13 – Climate Action – We have invested in a Bhutanese company, Mountain Hazelnuts. We’ve also provided technical assistance to the company’s 15,000 contract farmers so they can plant 10 million hazelnut trees on barren land to provide a sustainable source of income. The trees will help to reduce carbon dioxide emissions and farmers will be better able to manage the impacts of climate change, as hazelnut trees prevent soil erosion. 

What are ADB’s future plans for agribusiness? 

Our goal is to support agribusiness in all developing member countries of ADB. 

Strategy 2030 has elevated “rural development and food security” as one of ADB’s seven operational priorities, has set the objective that one third of the bank’s operations should be private sector operations by 2024, and has specifically called for ADB to “scale up its financing for agribusiness”.

We want to develop partnerships with the best agribusiness companies regionally and globally to bring these companies to frontier markets where they can have the greatest impact. 

We want to support the entire food and agribusiness value chain, “from seeds to supermarkets”, and have a transformational impact.

We want to bring governments and private sector together to address market failures and provide public goods through public private partnerships in the sector.

There is just so much to do to bring healthy food to consumers, prosperity to farmers, excellence to the industry, and sustainability to the use of natural resources in the region. 

We are working hard to do this; and believe ADB will become the partner of choice for agribusiness in Asia and the Pacific.