FINANCING AGRIBUSINESS PROJECTS

1
FINANCING AGRIBUSINESS PROJECTS

• INNOVATIVE VENTURE FINANCE
• FOR
• INDIAS AGRIBUSINESS SUPPLY CHAINS
• _
• ASHOK C KHOSLA
• Agribusiness Consultancy July 29, 2009
  agrioils_at_vsnl.com

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AGRIBUSINESSES DEFINED

• AGRICULTURE IS SURROUNDED BY AGRIBUSINESSES
• AGRIBUSINESSES DETERMINE THE PURPOSE OF
  AGRICULTURE
• THE FARM BUSINESS CHAIN
• VALUE CREATION CAN ONLY TAKE PLACE AT THE FARM
  ITSELF
• VALUE ADDITION TAKES PLACE IN PROCESSES
  PROCESSING
• VALUE CAPTURE TAKES PLACE WHEN CONSUMPTION
  OCCURS
• ALL THREE EVENTS MUST HAPPEN FOR EACH ITEM OF
  PRODUCE

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THE AGRIBUSINESS OPPORTUNITY

• INDIA HAS ABOUT 120 MILLION INDIVIDUAL FARMS
• PRIMARY PRODUCTION ORIGINS ARE WELL DISPERSED
• VAST OPPORTUNITIES EXIST FOR
• PRODUCTS
• PRICE LEVELS
• TECHNOLOGIES
• FUTURE GROWTH
• COMPETITIVENESS
• COMBATING WASTE
• CLEARLY, INDIA NEEDS WELL DIRECTED SUPPLY CHAINS
  BUT HOW?

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AGRI SUPPLY CHAINS

• THE FOUR FUNCTIONS OF FARM SUPPLY CHAINS
• SUPPLIES
• PAYMENTS
• OWNERSHIP
• INFORMATION

FOOD PROCESSORS
FARM GROWERS
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FARM SUPPLY CHAINS IN INDIA

• SUPPLIES
• GROWER
• AGGLOMERATOR
• MANDI TRADER
• WHOLESALER
• SUPPLIER
• FACTORY

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THE PAYMENT VALUE CHAIN

• CONSUMER
• RETAILER
• DISTRIBUTOR
• WHOLESALER
• TRADER
• AGGLOMERATOR
• FARMER

20
15
12
10
7.5
3
6.0
3.5
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ISSUES WITH AGRIBUSINESS PROJECTS

• MOST PROJECTS ARE IN THE SMALL TO MEDIUM SECTOR
• INVESTMENT SIZE IS Rs 1 cr to Rs 10 cr
• PROMOTERS ARE OFTEN FIRST TIME ENTREPRENEURS
• START-UP CAPITAL IS CONSTRAINED BY HIGH COST OF
  BORROWING
• EXPERIENCE OF LINKAGES WITH THE FARM SECTOR IS
  POOR
• RESTRICTIVE POLICIES ENJOY A WELL-ENTRENCHED
  FOLLOWING
• PROJECT FINANCE FROM THE CAPITAL MARKETS IS
  UNAVAILABLE

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SMALL FARMERS AGRIBUSINESS CONSORTIUM

• A PPP CREATED IN 1992-93 BY THE THEN FINANCE
  MINISTER
• THE SFAC MANDATE
• ASSIST FACILITATE DEVELOPMENT OF AGRIBUSINESS
  PROJECTS
• PURSUE INNOVATIVE IDEAS FOR INCOME EMPLOYMENT
• PLAY A CATALYTIC ROLE IN PROMOTING OF
  ENTERPRISES
• AND FOR INVESTMENTS BY THE FINANCIAL INSTITUTIONS
• _
• 10 YEAR ACTIVITY SUMMARY ONLY 3 NEW PROJECTS
  COULD BE CREATED

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THE STRATEGY IDENTIFIED FOR SFAC - 2004

• THE CATALYTIC ROLE
• PROVIDE SIGNIFICANT VENTURE CAPITAL ASSISTANCE
• TO QUALIFYING AGRIBUSINESS PROJECTS
• ADDITIONALLY, PROVIDE PROJECT DEVELOPMENT
  ASSISTANCE
• TO FARMER GROUPS ENTERING THE VALUE CHAIN

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QUALIFYING AGRIBUSINESS PROJECTS

• THE 4 ESSENTIAL CRITERIA
• ARE DEPENDANT UPON AGRICULTURE OR ALLIED PRODUCE
• PROVIDE DIRECT ACCESS TO PRODUCERS AS ASSURED
  MARKETS
• ENCOURAGE FARMERS TO DIVERSIFY INTO HIGHER VALUE
  CROPS
• ARE ACCEPTED BY LENDING BANKS FOR GRANT OF TERM
  LOAN

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VENTURE CAPITAL ASSISTANCE

• SINGLE WINDOW RELATIONSHIP ENTREPRENEURS BANKS
• VENTURE CAPITAL ASSISTANCE LIMITS
• 10 OF TOTAL PROJECT COST
• 26 OF THE PROJECT EQUITY
• A MAXIMUM OF Rs 75 Lakh
• VENTURE CAPITAL DIRECTLY DISBURSED VIA PROJECT
  LENDING BANKS
• VENTURE ENTRY AFTER TERM LOAN DUE DILIGENCE
  PROMOTER STAKE
• VENTURE EXIT AUTOMATICALLY AFTER TERM LOAN IS
  FULLY REPAID (4-6 Years)
• VENTURE EXIT VALUATION AT PAR WITH ENTRY COST

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THE SFAC VC SCHEME IN ACTION

• SFAC VC SCHEME BECAME OPERATIVE FROM JUNE 2005
• 101 PROJECTS ASSISTED IN THE FIRST TWO YEARS
• THESE PROJECTS ARE SPREAD OVER 15 STATES
• 50 PROJECTS WERE INDEPENDENTLY EVALUATED IN 2007
• THE THREE KEY STAKEHOLDERS HAVE VISIBLY BENEFITED
• BETTER PRICES, BETTER SKILLS, BETTER BORROWING
  POWER
• ABOUT 80 PRODUCE BUY-IN, SELF-MONITORED
  RELATIONSHIPS
• PROJECT INVESTMENTS BENEFITED BY REDUCED
  COLLATERAL NEEDS

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THE LATEST SCORECARD

• OVER 275 NEW PROJECTS SET UP IN 15 STATES
• PRIVATE INVESTMENT IN PROJECTS EXCEEDS Rs 550 cr
• VC DISBURSED IS ABOUT Rs 50 cr
• ABOUT 60,000 FARMERS ARE DIRECTLY LINKED
• SCHEME HAS ABOUT 20 PARTICIPATORY BANKS ON BOARD
• ABOUT 30 NEW PROJECTS ARE ENTIRELY PRODUCER LED

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IN THE FINAL ANALYSIS .

• UNIQUE DEVELOPMENTAL ROLE FOR TRADITIONAL VENTURE
  CAPITAL
• FRONT-ENDED ASSISTANCE, NO PROCESSING FEE
• REVOLVING PAYBACK WITH MINIMAL ADMIN LOADING
• NON INVASIVE PARTNERING WITH KEY STAKEHOLDERS
• TRACEABLE IDENTITY FOR LINKED PROJECT FARM GOODS
• IMPLEMENTATION OF FOOD-SAFE FARMING STANDARDS
  GETS REWARDED