Independent assessment of the AGRI3 Fund proposal

At the request of the Inclusive Green Growth Department (IGG) of the Ministry of Foreign Affairs (MFA), SEO has conducted an independent assessment of the request for funding related to the AGRI3 Fund Grant Proposal submitted by Mirova Natural Capital (MNC) and its partners. This assessment consists of two parts: (1) an assessment of the additionality of the fund; and (2) a cost-benefit analysis.

The main conclusions with regard to additionality are as follows:

1. The input additionality of AGRI3 relative to the market is high. The input additionality for smallholder farmers derives from the ability of AGRI3 to offer more affordable financing to farmers than available in the market. The input additionality for larger commercial farmers mainly derives from the ability of AGRI3 to offer longer term funding than available in the market.
2. The input additionality of AGRI3 relative to other funds is mixed, and mostly originates from its partnership with Rabobank. AGRI3 is not the only fund to offer a form of ‘blended finance’, but it appears to be the only fund in which a commercial bank is providing senior debt and a client network, with the explicit aim of achieving major sustainability impact, in countries such as Brazil where few other such funds are active and where the potential impact is significant.
3. The development additionality of AGRI3 relative to the market is high. In particular, the ‘seal of approval’ from the Dutch government has the potential to increase the chances that Rabobank will, in the longer term, truly change its business model in a way that no longer depends on particular individuals for support.
4. The development additionality of AGRI3 relative to other funds is lower in some respects, but broader in others. In particular, AGRI3 has a combination of environmental and social impact targets. While these targets are in some cases more conservative than the targets of other funds, this makes them also more realistic. Moreover, AGRI3 has a potentially larger systemic impact because it can potentially affect the business model of large commercial banks and their large corporate clients.
5. Potential demonstration effects of AGRI3 are high at the fund and commercial bank levels. Since this particular fund construction is quite novel, particularly for the Dutch government and other potential bilateral donors, it has by definition a high potential demonstration effect at the fund level. Similarly, since it is quite a novel construction for commercial banks such as Rabobank, the potential demonstration effect at this level is high as well.
6. Potential demonstration effects are lower at the level of corporates and smallholder farmers. This is because there are thus far few other funds that could offer similar access to finance as AGRI3. Once other such funds emerge or other commercial banks join in, the potential for ‘crowding in’ other corporates and smallholders increases as swell.

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 to be realistic. The six business cases that underpinned the calculations are considered to be both credible on their own and representative for the fund as a whole. The financial extrapolation is also considered to be realistic. Given the current high demand for sustainable investments, it likely that commercial parties are willing to invest in AGRI3 type projects.
2. The overall benefits of AGRI3 outweigh the overall costs. Based on our cost-benefit analysis (CBA), we find an overall positive net present value of at least US$130 million. This is about 10 times higher than the total net cost for MFA, which in net present value terms is US$13.3 million. Moreover, this estimate does not yet include a number of other benefits that are difficult to quantify, including the impact on ‘improved rural livelihoods’ which is currently not well defined.
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 US$90 million. Other net benefactors are the borrowers receiving loans and the commercial banks supplying loans. Junior equity providers as well as senior debt providers incur more costs than benefits (expressed in net present value terms). This is because they receive a return on investment that is lower than the 3 percent discount rate.