Africa’s smallholders represent the largest climate-vulnerable population on the planet. Their livelihood is entirely reliant on the environment, extremely vulnerable to even minor changes in temperature or rainfall. As a result, climate change threatens to have devastating humanitarian and ecological consequences.
Building climate resilience for these farmers requires a massive improvement in Africa’s agricultural value chains. Adopting climate-smart, high-value crops improves smallholder resilience; however, underfinanced value chains limit their access to the inputs and markets they need to shift away from staple crops that are vulnerable to climate change. Commercial banks see African agricultural SMEs as too risky, driving a USD 65 billion investment gap that prevents best-in-class SMEs from emerging and scaling.
A value chain is only as strong as its weakest link; thus, the SRF will address multiple market failures simultaneously.
SRF’s synchronized approach will increase capacity at each link of a given value chain and create profitable opportunities for smallholders as they transition to climate-resilient crops. The approach will consist of:
- Aggregating smallholder production via One Acre Fund’s client base and rural infrastructure.
- Deploying capital to established SMEs in the value chain, alongside technical assistance to de-risk investments.
- Where investment-ready SMEs do not exist, design and launch new SMEs via a venture studio to fill market gaps.
Improved value chains will expand smallholder access to quality inputs, training, processing, and market opportunities for high-value and climate-resilient crops. These crops restore nutrients into depleted soils and enable farmers to achieve sustainable yields and profits, bolstering their resilience to climate change. Further, the millions of new trees planted via the SRF will sequester CO2, helping to mitigate climate change.
In the pilot phase, the SRF seeks to prove its ability to de-risk the Rwanda avocado value chain and thereby encourage more private sector investments into SMEs in subsequent years.
“By partnering with the Lab, One Acre Fund sees an opportunity to de-risk and attract value chain investments that will enable mass numbers of smallholders to achieve higher incomes and greater climate resilience. One Acre Fund also hopes to establish a new precedent for successful and replicable private investment opportunities in African agriculture,” – Eric Pohlman, Rwanda Country Director, One Acre Fund.
The synchronized investment strategy ensures coordination between SMEs along a value chain, which also reduces investment risk. It also addresses each market gap to ensure that farmers have access to the inputs and markets they need to profitably adopt climate-resilient crops.
Targeted SMEs include input suppliers, processing companies, supermarkets, and exporters. The SRF will target SMEs that require between USD 0.25-2 million, offering a combination of equity, working capital, mezzanine debt, and senior debt.
New investment-ready businesses will be launched from an agri-SME venture studio to fill value chain gaps, such as marketing smallholder produce to international buyers that demand sustainably and ethically sourced products.
To ensure farmers remain the ultimate beneficiaries, the fund will only invest in SMEs that can obtain premium pricing for crops and pay fair prices to farmers.
Photo: Esta Kanyombwe, a smallholder farmer and One Acre Fund client since 2016 from Senjele village in Tanzania. Credit: One Acre Fund
|Amount (USD)||Role of Capital|
|Pilot to experiment and de-risk||Grants
(Foundations and other donors)
|USD 2.0 million (SRF)
USD 2.2 million (venture studio)
|SRF and venture studio start-up and operating costs
Blended debt, equity, and working capital in new and existing SMEs
|Total Pilot||USD 4.2 million|
(Foundations and other donors)
|USD 5-10 million||Ongoing technical assistance for SMEs and smallholders
Venture studio operating costs
(DFIs, impact investors)
|USD 20-40 million||Synchronized investments in subordinated debt, equity, and working capital|
(Institutional investors, commercial banks)
|USD 30-60 million||Synchronized investments in senior debt, equity, and working capital|
|Total at Scale||USD 55-110 million|
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