Mark Winters and Mark Johnson from Palladium lead a study on Impact investment in inclusive agribusiness in Southeast Asia. The study assessed the current status, including the trends and challenges of impact investment and provided recommendations.

1. September 2015
Impact investment into inclusive
agribusiness

2. © Palladium 2015
01. Introduction
2
Purpose of review
• Assess the current status of impact investment into inclusive agribusiness
• Provide recommendations on actions that could be taken by DFAT and Grow Asia to catalyse
greater investment
Methodology
• Stakeholder consultations and secondary research

3. © Palladium 2015
01. Introduction
3
Impact investment
“Investments made into companies, organizations, and funds with the intention to generate social
and environmental impact alongside a financial return” (Global Impact Investors Network)
Inclusive agri-business
“Approaches that promote development through “core” business activity. These approaches are
inclusive in the sense that they seek to bring poor people into the orbit of business activity as
suppliers, workers or consumers, without compromising commercial viability or
competitiveness” (Callen and Davies, 2012)
Applied to the agricultural sector…

4. © Palladium 2015
02. Current situation
4
The review looks at a number of factors in detail…
Three trends stand out in particular
1. Investment gap for early-stage agri-businesses
2. More generally, investors are looking for investees with similar characteristics
3. Family offices and HNWIs most likely to be valuable for early-stage financing
Key trends

5. © Palladium 2015
• At one level, the market is working
• However, there are problems in the market that prohibit its growth
03. Constraints
5
The problem in the core of the market
Key problem:
Limited pool of
‘investable’
agri-businesses
No shortage of
‘impact capital’
• Why does this problem exist and persist?
Supply:
Impact capital
Demand:
Agri-business
Market for impact investment
(for agriculture)

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03. Constraints
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Causes of the problem in the core of the market
A number of factors underlie the problem.
A. Constraints inherent to the impact investing business model
B. Constraints in the market system for impact investment
C. Constraints in agricultural market systems

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03. Constraints
7
A. Constraints inherent to the impact investing business model
In general, impact investor intermediaries work within a business model that creates
disincentives to investment in early-stage business.
Two dynamics visible to us:
1. A tension in investment criteria – commercial returns vs. additionality
2. Intermediary remuneration – incentives to accumulate and manage more assets
creates upward pressure on fund and deal size
Two implications of not targeting early-stage agri-businesses…

8. © Palladium 2015
03. Constraints
B. Constraints in the market system for impact investment
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• A limited pool of ‘investable’ agri-businesses is also a result of constraints in the
system that surrounds impact investors and investees.
Impact
capital
Agri-
business
Supporting functions
Rules
Market for impact investment
(for agriculture)
Limited pool of
‘investable’
agri-businesses…
…caused by
underperformance
in the surrounding
system

9. © Palladium 2015
03. Constraints
B. Constraints in the market system for impact investment
9
Market for impact investment
(for agriculture)
Supporting functions
Rules
x
Deal sourcing
x
Investor
community
marketing
x
Social
enterprise
status
x
Others
Impact
capital
Agri-
business

10. © Palladium 2015
03. Constraints
C. Constraints in agricultural market systems
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Market for impact investment
(for agriculture)
Agricultural market
x
Impact
investment
…caused by
constraints to the
growth of early-
stage businesses
in agricultural
markets
The problem in the
core of the market
- limited pool of
‘investable’
agri-businesses…
Agri supply Agri demand

11. © Palladium 2015
03. Constraints
C. Constraints in agricultural market systems
11
Agricultural market
x
Impact
investment
x
Professional
services for
early stage
companies
x
Processing
equipment and
leasing
Open data
x
x
Others
Agri supply Agri demand

12. © Palladium 2015
• Constraints at three levels –
• Where there are ‘gaps’ in market systems it can be intuitively attractive to plug these directly
with donor resources…
• However, these services (financing, incubation, deal sourcing etc.) are part of any functioning
market and should be performed, and paid for, by permanent market actors….
• While the road may be longer, working with and through systems – by nudging market actors to
take up new innovations and roles – is the route to more scalable and sustainable impact.
In this context, we suggest two distinct, but potentially complementary, options…
04. Programmic recommendations
Principles for intervention
12

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• Expand the pool of investable agri-businesses by creating greater connectivity between impact
investors and widest possible pool of potential investees.
• Identify and understand what is prohibiting that connectively / opportunities to improve the way
the market creates visibility and understanding between investors and potential investees.
• A portfolio of mutually reinforcing interventions would seek to stimulate market actors to adopt
innovations or new roles that address identified system level problems.
04. Programmic recommendations
Option 1: Development of the market system for impact investment into
agriculture
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• Expand the pool of investable agri-businesses by addressing systemic constraints to the
formation and early-stage growth of agri-companies
• Identify and understand what is prohibiting this from happening
• Likely to involve identifying supporting markets and rule systems that cut across individual
commodity/product markets, that play – or could play – an important role in supporting early-
stage growth
• E.g. Market for seed- and venture-stage funding in agriculture…. we recommend that
opportunities to encourage flexible and risk-tolerant forms of capital (e.g. family office/HNWI)
into this space be explored.
• A portfolio of mutually reinforcing interventions would seek to stimulate market actors to adopt
innovations or new roles that address identified system level problems.
04. Programmic recommendations
Option 1: Development of the market system for early stage inclusive agri-
business
14

15. Thank you