ACT Fund (CIIF)

Investing in SMEs at the heart of transforming global agriculture

International trade, which has boosted economic growth and improved access to new innovations and technologies, has played a significant role in reducing extreme poverty in the past, and it can do so in the future. But while trade can lift economic growth, the poor do not automatically benefit from new trade opportunities. Many people simply face too many obstacles to benefit from increased trade. This is more so at a challenging time like this.

At a time when poverty is crawling back, instead of receding, there is a large section of smallholders face higher production, marketing costs and are less able to access financial services. Despite improvements in some developing countries, even the poorest sectors of the population still face financial costs for basic services, and uneven public service delivery translates into higher costs in remote rural areas. Given the reduced access to concessional capital experienced by smallholders and the simultaneous need to insure against higher risk push smallholders into short-term selling to middlemen or increase side selling among organized producers.

Indeed, in times of economic downturns, smallholders in the agricultural sector often fall into poverty without any type of social safety net. And more than 40% of the extreme poor live in fragile and conflict-affected areas, creating a major hurdle for the poor to reap the gains from trade.

This is why CFC is working for last three decades to provide an avenue to commodity producing smallhodlers to benefit from trade using a smallhodlers and SMEs (small and medium enterprises) nexus.

With over 500 applications in a year, the Common Fund of Commodities (CFC) is convinced that this is the time to move ahead with this new fund-the Agricultural Commodity Transformation Fund (ACT Fund) with due approval from our Governing Council, the highest plenary of the CFC.

ACT is a US$ 100 million+ impact fund that will invest in SMEs in developing countries at the nexus of smallholder livelihoods, biodiversity and climate action. ACT will unlock the potential of agri-SMEs to create income and climate resilience at scale while preserving natural capital.

ACT focusses on enabling viable small and medium sized enterprises (SMEs) to create greater economic opportunity in the communities around them, while strengthening the climate resilience of their value chains and growing the incomes of the smallholder farmers they work with. By enhancing the relationship between SMEs and smallholders, ACT will support rural development that alleviates poverty.

Now is the time to ACT

Small and Medium-sized Enterprises (SMEs) in developing countries play a critical role in linking small farmers to high-value markets. However, these agri-SMEs face challenges to fulfill this role due to a lack of capital and knowledge. This limits their ability to invest in expansion and productivity improvement, increasing incomes and creating jobs needed, often being the only formal employers in rural areas.

ACT Fund investments will drive profitability, enhance incomes and strengthen resilience in times of global market volatility. They will also drive the transition to climate-resilient regenerative agriculture and focus on providing liquidity (the single biggest barrier to growth) to high potential agricultural SMEs.

ACT’s combined offering of short-term liquidity, long-term investment capital and technical assistance unlocks the potential of agri-SMEs to be the backbone of rural economies and ultimate drivers of positive change in agricultural value chains.

Inclusive Regenerative Agriculture

Inclusive regenerative agriculture is at the heart of ACT’s transformative investment thesis. It drives economic, environmental and social impact. It offers a holistic approach to farming which not only regenerates soil health but also revitalizes local communities and enhances positive effects on biodiversity conservation.

Investment Model

ACT will build upon the CFC’s three decades of experience financing commodity value chains, backed by its commitment to contribute US$ 20 million in first-loss capital and offering expertise in Impact Investment and Technical Assistance management. ACT will have direct access to CFC’s proprietary and established deal flow which includes more than 500 plus loan requests per year.

ACT will deliver an attractive balance of impact and returns to investors offering returns ranging between 1%-5%, coupled with high levels of verifiable impact. ACT will invest in established SMEs with annual revenues of over US$ 1m through a range of short and long-term loans. This will primarily be in the form of trade finance, working capital and Capex loans, but ACT will also deploy smaller amounts of quasi-equity. The portfolio will be demonstrating CFC’s strong commitment as sponsor and advisor to the fund.

US$20 million

CFC contribution in first loss capital

Access to US$10 million

Technical Assistance Facility

A deal flow of more than 500 applications

for finance each year

ACT Fund will be managed by an experienced Fund Management team composed of professionals with a track record in agricultural impact investment and Technical Assistance. To complement the teams, CFC will provide ACT with a wide network of specialists in cross-commodity issues including climate finance, carbon markets and supply chain management as well as broader management support. As the fund size ramps up, CFC will make experts available from its own capacity to the ACT Fund Management Team to manage the growth of the investment and TA portfolios, but also in the supporting areas of portfolio management, compliance and legal.

Michael van den Berg – ACT Investment Director

Michael has two decades of impact investing and financial management experience with a focus on mobilising, managing and deploying funds in food and agriculture across Africa, Asia and Latin America.

Connect with Michael on LinkedIn

Generating sustainable impact

Since pivoting to direct impact investing, CFC successfully executed 50 loans with a total value of US$ 52 million.

The borrowers operate in a wide variety of commodities, ranging from staple crops such as sorghum to commercial crops such as coffee and cocoa. With these loans CFC impacted the lives of 400,000 people in countries across Africa, Asia and Latin America. Aside from this, ACT Fund will build upon CFC’s extensive experience as an LP investor in leading agriculture and biodiversity impact funds.

Technical Assistance

CFC’s in-house TA expert team currently manages TA facilities totalling US$ 14 million for several leading agri- and biodiversity impact funds. The team has managed over 100 projects ranging from designing outgrower schemes around climate-smart practices for smallholders to the implementation of business improvement practices for investee SMEs.

SDG-aligned impact is at the centre of ACT

ACT is classified as dark green in alignment with Article 9 of the Sustainable Finance Disclosures Regulation (SFDR), combining impact with securing a financial return on investments. ACT targets investments that contribute to the United Nations’ Sustainable Development Goal (SDG) #1 No poverty, SDG #5 Gender equality, SDG #8 Decent work and economic growth, SDG #13 Climate action and SDG #15 Life on Land.

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DISCLAIMER

Neither the Common Fund for Commodities nor any of its Member Countries, nor associated companies make any representation or warranty as to the accuracy or completeness of the information contained in the ACT Fund Placement Documents and nothing contained in the Placement Documents is, or should be relied upon as a promise or forecast as to the future. Any prospective investor should rely solely on its own due diligence, judgement and business analysis in evaluating subscription to Participations in ACT Fund.

The Placement Documents do not constitute an offer to sell, or the solicitation of an offer to buy Participations in any jurisdiction neither by any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.

Nothing in this document may be considered to constitute legal or tax advice and each prospective investor should consult with their own legal counsel and advisors as to all matters concerning an investment in the Participations. Each investor must rely on its own evaluation of the investment and the terms of the offering, including the merits and risks involved, in making an investment decision with respect to the Participations.

Nothing in this document constitutes a waiver of immunity with regard to the assets of the CFC and the assets of Member Countries held by the CFC as stipulated in the Agreement Establishing the CFC. Therefore, no claims can, inter alia, be made to the Share Capital of the CFC, including promissory notes of the CFC, or against any Member States of the CFC, or against the provident fund moneys, if any, held by the CFC for its staff members, or against any other resources held by the CFC not explicitly allocated to ACT Fund, by any party nor for any reason on the basis of, or in connection with the Placement Documents.

Neither the ACT Fund nor the Participations have been registered in The Netherlands, The European Union or in any other jurisdiction. Specifically, any (future) offer of Participations would be exempt from the Netherlands Financial Supervision Act (Wet op het Financieel Toezicht, Wft) and would accordingly not be subject to supervision by the Netherlands Financial Supervising Authority (Stichting Autoriteit Financiële Markten, AFM).

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The Agricultural Commodity Transformation Fund (ACT)