Independent assessment of the AGRI3 Fund proposal

At the request of the Dutch Ministry for Foreign Affairs (‘Inclusive Green Growth’ department), SEO conducted an independent assessment of the request for funding for the AGRI3 Fund. At the time of writing, AGRI3 was a fund proposal formulated by Mirova Natural Capital (MNC) and partners. The assessment consists of two parts: an assessment of the additionality of the fund and a cost-benefit analysis.

The main conclusions related the fund’s additionality are as follows:

1. The input additionality of AGRI3 relative to the market is high. The fund facilitates the supply of financing that is not offered by the market. The market does offer financing, but not on terms that match the needs of the target group.
2. The input additionality of AGRI3 relative to other comparable funds is mixed. The AGRI3 fund is not the only fund that facilitates ‘blended finance’, but it is unique in the prominent role played by a commercial bank.
3. The development additionality of AGRI3 relative to the market is high. The AGRI3 fund facilitates a change in the business models of commercial investors. In addition, the fund stimulates sustainability at the client level, because the fund sets higher social and sustainability requirements than regular financiers when providing loans or guarantees.
4. The development additionality of the AGRI3 relative to other comparable funds is mixed. The AGRI3 fund focuses on a combination of environmental and social impact targets. These targets are in some cases more conservative than the targets of other funds. Due to the large ‘scaling potential’ and the possible changes in the business models of banks and commercial investors that the fund can bring about, AGRI3 can still achieve a large(r) impact in the long term.
5. Potential demonstration effects of AGRI3 are high at the fund and commercial bank levels. The financial structure and overall set-up of the fund are innovative, which means that the fund by definition has the potential for high demonstration effects. This applies to parties that may set up a comparable fund as well as to other commercial parties that invest in the AGRI3 fund.
6. Potential demonstration effects are lower at the level of corporates and smallholder farmers. In the short term, the demand for financial resources needed for sustainable investments exceeds the supply of funds such as AGRI3. When the long-term profitability of sustainable business models is demonstrated and financing options increase, the demonstration effects at the farm and small-scale farmer level can be realised.

The conclusions with respect to the cost-benefit analysis are as follows:

1. The impact of the AGRI3 fund as calculated in the Grant Proposal can be considered realistic. SEO considers the six business cases on which the impact calculations are based to be credible. In addition, SEO also sees these six business cases as a realistic reflection of the fund as a whole. Given the current high demand for sustainable investment opportunities, financial extrapolation is also plausible.
2. The overall benefits of AGRI3 outweigh the overall costs. Based on our cost-benefit analysis, we find an overall positive net present value of at least USD 130 million. This is about 10 times higher than the total net cost for the Ministry of Foreign Affairs (USD 13 million). Moreover, this estimate does not yet include a number of other benefits that are not possible to qualify.
3. The world as a whole is the most important benefactor. Around three quarters of the total net benefits result from total CO2 benefits (worth at least USD 90 million). Borrowers and lenders are other stakeholders who benefit from the fund. Investors in the fund with senior debt and junior equity, on the other hand, lose out on balance because the expected return is lower than the discount rate of 3 percent.