Impact of COVID-19 on agribusinesses for investors

Abstract

Evidence from this assessment indicates that, without deliberate support from impact investors, banks and development finance institutions (DFIs), large numbers of agricultural small and medium enterprises (agri-SMEs) will not be able to continue operations following the lockdowns imposed in response to Coronavirus Disease 2019 (COVID-19). The COVID-19 pandemic has had significant negative effects on the operations of agri-SMEs. It has made capital less available, as impact investors and financial institutions take a more cautious approach to extending credit and making investment decisions. Supply chains have been disrupted, resulting in delayed access to inputs (such as seed and fertiliser for smallholder farmers) and in fewer or no deliveries for agri-SMEs. The closure of restaurants and schools has decreased consumer demand. Some agri-SMEs have experienced labour shortages due to restrictions in the movement of people, although some have benefited from family labour as people moved back to their rural homes. The disruptions have created uncertainty for impact investors and financial institutions, which have been compounded by their inability to conduct in-person due diligence assessments for new investments. This evidence report seeks to assess the impact of COVID-19 on agri-SME operations by analysing emerging global evidence and insights from six countries. These are Commercial Agriculture for Smallholders and Agribusiness (CASA)'s three focus countries (Malawi, Nepal and Uganda), as well as Ethiopia, Ghana and Nigeria, which (along with Malawi) formed part of a rapid market assessment (RMA) between April and May 2020. This was carried out by Agricultural Policy Research in Africa (APRA), a research programme funded by the Foreign, Commonwealth and Development Office (FCDO). APRA seeks to understand which pathways to agricultural commercialisation are the most effective at empowering women, reducing rural poverty and improving food and nutrition security in Sub-Saharan Africa. The report uses a market system lens to analyse impacts and craft recommendations for intervention, as agri-SMEs are linked to other value chain actors - such as farmers, impact investors and regulatory authorities - that govern the functioning of the system. The report focuses on the effects of COVID-19 on impact investment and especially on agribusiness impact investors, given their key role in supporting the growth of these enterprises. While the profit motive is paramount for impact investors, the current consolidation and recovery phase calls for investors to take a longer view on returns: they should shore up their investees and build a robust pipeline for after the recovery. A business-as-usual approach to activities such as due diligence will not work given current travel restrictions. Digital and drone technologies, however, offer alternatives and could be ramped up to close the face-to-face gap created by the pandemic.