Opportunities, challenges and evidence needs for investing in smallholder farming

Abstract

Commercial Agriculture for Smallholders and Agribusiness (CASA) is a flagship programme financed by the UK Department for International Development (DFID), which seeks to increase economic opportunities for smallholders to step and trade into growing commercial markets. The programme aims to increase investments in agribusinesses which source from smallholder farmers and to generate new evidence and research that amplifies the case for doing business with smallholders. During the inception phase, CASA conducted a survey of 25 investors and investing support stakeholders, to determine key constraints, opportunities and evidence needs for unlocking investment opportunities in agribusinesses and smallholder farmers globally, and to identify information needs and seeking behaviours. The three top constraints identified were: limited availability of investable agribusinesses; low productivity of smallholder farmers; and existing gaps in infrastructure and value chains. The main opportunities for increased investment are: investing and improving infrastructure; incubating and supporting early stage businesses with donor funding and technical assistance; and supporting shareholder services like aggregation and mechanisation initiatives. The main evidence gaps identified through the survey are: case studies and examples of profitable and impactful business models; a mapping of actors involved in agricultural finance; and crop and country specific data on productivity and impact. Despite the widespread agreement on the key issues, the survey also identified divergent opinions: inappropriately applied grants and donor subsidies create uneven competition for commercial investors and can harm value chains, while less commercial investors emphasised the importance of these subsidies for derisking their investments. There was agreement among investors that technical assistance needs to be used appropriately and not to finance operations, while this observation was not mentioned by investment support stakeholders. Additionally, having a minimum ticket size was mentioned by investors as a critical factor, while this was not such a priority for investment support stakeholders. One of the main priorities emerged from this survey, and with the aim of achieving additionality of existing investments, would be to produce a map of investors, types of investment and support service in specific countries, as well as a list of investable agribusinesses. This resource could potentially be co-financed and shared by investors targeting smallholder agribusinesses, which would help them reduce the time and cost needed to identify direct and indirect investment opportunities. New partnerships with on-the-ground networks combined with technical assistance, incubators, and grant funding would also help reduce some of the current risks related to investing in smallholder farmers and agribusiness.