🌱 What can we learn from Agri Fintech in Latin America? 🚀

Welcome back to the Agri Fintech Newsletter and a warm welcome to the 33 new subscribers since my last issue.

In this Issue

🧐 Thoughts [Agri Fintech in Latin America]

🗞 Relevant News [Growers Edge, Acre Trader, Oxbury, Dimitra, Olam ].

Reach out and say hi 👋 and please do share the content with people in your network by sharing on Twitter or on Linkedin

Agri Fintech in Latin America

I get major FOMO.

Everytime I visit LinkedIn, my feed pops up celebratory announcements from the Agri Fintech companies in Latin America such as Traive, Agrolend, Terra Magna... and I get major, major FOMO.

Throw in 2 languages I don't speak (Portuguese and Spanish) and it just becomes provocation.

To put myself at ease, I sat down with 3 amazing founders from the sector - Traive, Agree and Campo Capital - and they delivered some fantastic insights for any entrepreneurs, teams, or investors in the space. 👀

This is a MUST read and a MUST view. Each time I view it I learn something new.

You can download the entire clip from HERE.

It is impossible to cover every insight so I have picked some key themes in this issue of the Newsletter to zoom in on:

✳️ The Ecosystem;

✳️ Sustainability; and

✳️ Markets poised for growth.

First, let's introduce the fantastic panel ⤵️

The Ecosystem

I've been singing the praises of the Latin American ecosystem for a while.

🎵 The VC investors, the Debt providers, the Agri vertical in the Brazilian Fintech Association 🎶.

Did this analysis stack up?

Investor sentiment

First up, it is worth highlighting some investor comments from Francisco Jardim, of SP Ventures, the Brazilian VC firm, who have invested in several of the Latin American cohort.

On the Future of Agriculture podcast last December, Jardim referred to the tailwinds that helped his Agri Fintech investments when COVID-19 hit, including increased digitisation but particularly government pressure on finances.

It's not an option for the government to be able to tax and subsidise wealthy farmers any more... What has happened is that private lenders, private credit have picked up the slack... and they see farming as being a very healthy post COVID sector because Balance Sheets are healthy and there are Dollar denominated revenues

This is fantastic context and - I bet he will claim otherwise - but little did Jardim know the Government would announce a scheme to help deliver credit to rural areas by using the Agri Fintech players just last week. (I told you, we were missing out!)

The Yield Lab are another prominent investor in Latin America and have backed a strong portfolio of companies including Agree, who take part.

How did the entrepreneurs see the ecosystem?

When I put the question to the panel, Fabricio Pezente from Traive gave a candid take on my rose-tinted view.

When I asked about the supportive ecosystem in Brazil he advised there was still a lot of market education required on the agriculture sector, despite the sophistication of some of the wider financial infrastructure.

When you reach the asset managers and the hedge funds in Brazil with Ag opportunities

1/ they don't understand it,

2/ they try to compare it with other industries

3/ they think that agriculture is a sector where the delinquency is 20%, 30% and then they see the interest rate they say "oops, I thought I would be seeing something closer to consumer credit"

In fact, Traive have been witnessing delinquency rates of around 2% using their technology, which surprised many of the local financial institutions.

Pezente advised that these low default rates represented an opportunity for international investors in Brazil as well as the local investors.

This financial ecosystem inefficiency in Brazil was also what led Campo Capital to establish their Peer to Peer (P2P) platform, which allows smaller investors to access agriculture projects directly.

In fact, they stumbled upon a sweetspot for sustainability linked finance or 'greeniums' (covered here) which Isadora Caixeta discusses in more detail below.

--

In Argentina, the opportunity presented itself slightly differently.

Agree.ag came across the problems experienced by growers to access the right capital at the right time and the barriers faced when interacting with the local banks.

Alejo Valverde Lyons outlined:

The financial institutions are very traditional with a lot of bureaucracy and a lot of problems, so while we look at the growers as the end user and in the commercial chain as our customer.. we solve more problems for the commercial dealerships than for the growers. They are the bottlenecks for business across the whole value chain.

💡 As it turned out, I learned in a separate conversation that Agree were able to tap into the financial ecosystem in a different way to just about any other fintech on the planet -> -> -> by placing a listed instrument in local capital markets.

Less 💡and more 🤯. Seriously, who does that??

The process Agree went through to create this will be covered in a separate issue with insights from the Agree CFO.

I feel my early assessment gave the 'ecosystem' way too much credit and not enough to the builders who were pioneering their own solutions.

The message was clear: in Argentina, like Brazil, it was the entrepreneurs who were developing structures around an organised agriculture sector and finding the right investors to back them.

We are early in the ecosystem game, so that is what it takes to succeed.

Sustainability

In the past, I have been optimistic that Agri Fintech companies building now will represent the future of sustainability linked finance.

The bad news is I am no longer optimistic. The good news is I'm absolutely certain.

Sustainability is one of the main long term driving forces behind Agri Fintech as I discuss in "Why now for Agri Fintech" and it was great to cover this topic with our panellists.

As mentioned above, I discovered it quickly became a key focus for the Campo Capital P2P model.

Caixeta informed us that 60% of their investors were attracted by their focus on ESG standards in the agriculture projects they financed and that was the number ONE reason they invested.

This opened the possibility to provide financial incentives for sustainable practices, or greeniums, to growers which have proved a win-win.

[Investors] accept a lower interest rate.. but it is going to be bigger than the interest rates that banks are paying them.

Farmers are persuaded to try the service by these cheaper interest rates. Further, there is a younger generation of farmers who are equally open to innovation and credit innovation and they make up a large part of the borrower side. With demographics, that is only going to grow.

Traive have also excellent pedigree in green finance and in late 2021 launched their first Green Certificate.

For Pezente, sustainability and risk management go hand in hand, a point which was echoed by Campo Capital. Pezente commented:

When you are assessing a farmer for sustainability, you make such a deep dive. You don't talk only about sustainability, you talk about the whole operation.

When you assess sustainability you asses much more the risk of the farmer. It is effectively a risk mitigation process.

I couldn't agree more - could you?

Since we spoke in late July, Traive have participated in an $11m second Green Certificate along with a string of impressive partners including Sustainable Investment Management Limited and UK based supermarkets Tesco, Sainsbury's and Waitrose, which Pezente also referenced in our conversation. 👏👏

The next markets?

Our panellists represented Brazil and Argentina extremely well, but I also wondered if there were other markets that we should be keeping an eye on.

At a regional level, Agree have an active radar and put this down to the fact that, although Argentina was a large market, it was also small enough to warrant companies to look beyond its' borders early in their development.

Valverde Lyons suggested that the US and Brazil were the most obvious markets to explore for companies in the Agri Fintech sector due to their size.

However, for Agree sticking to their Latin roots made more sense and hence, the company looked at Brazil and Mexico as two sizeable opportunities.

On Brazil he cautioned:

Brazil to me is not a country, it is a continent. You don't go to Brazil. It's like I'm going to land in Europe. Which country? Europe as a whole... If you go to Matto Grosso region you can travel maybe 40-50km and you have the same farm on your side. ... You just don't go to Brazil, you need to pick a region.

He added, the competitive landscape was also different in Brazil with a lot more competition, which reduced the attractiveness to them as an outsider.

Mexico, despite some differences had many similarities especially when leveraging the commercial dealer network.

The lead dealership networks are the key players there and our model has a lot of fit in partnering up with them and solving a lot of problems.

Agree have also been encouraged by innovation in risk assessment by the existing Mexican input dealers, who are already employing satellite information to make credit decisions for their growers.

Yet, despite this optimism, Alejo made one of the most important points of the entire interview that should resonate with entrepreneurs everywhere: Every market is different ⤵️

Traive on the other hand already had a foothold in the US as well as Brazil. The business was originally set up in the US to access technology, talent and a thriving VC investment ecosystem.

In terms of exploring local markets, they concurred with Alejo's view that Brazil was sizeable and there was plenty of room for growth.

However, the US market also represents a growth opportunity for them, possibly partnering with some of the commercial agricultural banks. In the US, they see the chance to grow what they have already built by replicating and adapting the agronomic data models they have developed in Brazil, with some local tweaks.

There is also an active market from the technology perspective with Data, API consumers and - very importantly - financial institutions willing and able to use these and pay for them.

---

Closing thoughts

Wow... this has been a journey and there is a lot to digest.

Firstly, I think the companies profiled above have done an excellent job of leveraging their existing circumstances. My ecosystem thesis still stands - Latin America is strong - but the Entrepreneurs are driving it, not the other way round.

Secondly, I'm actually amazed at how far ahead some Agri Fintech players are in sustainability linked finance.

Traive and Campo Capital have highlighted both the retail and institutional investor appetite for these instruments and have brought major retailers into their structures.

It shows there are multiple routes for incentives and not just carbon credits.

Finally, it is encouraging to see more of the Fintech primitive models like Peer to Peer finance appear in the Agri Fintech sector from companies like Campo Capital. There are numerous examples of this now - AcreTrader in the US, HeavyFinance in Europe and countless others.

---

Again - you can download the entire clip from HERE.

All I can say is if you enjoyed this and do want more thoughts please subscribe and share 🤲 with your network.... after checking out some of these items of note. ⤵️⤵️

📰 News

There is an interesting blend of products, acquisitions and fundraising in the News section in this Issue.

⦿ Growers Edge have been busy this summer.

In the past few weeks they announced a collaboration with Valley Ag and AgVend for Platinum Financing and also collaboration with Iowa based Landus for financing facilities.

Growers Edge also recently announced the upgrade of the Crop Plan digital experience.

🤔 This is more than just a client announcement for Growers Edge. The background collaboration with AgVend on the Valley Ag announcement could be interesting for both companies and may possibly lead to further collaboration down the line.

Eitherway, they are clearly paving the way for a big season. 🌱

⦿ Acre Trader acquire Agvaluation to build out its' land valuation capacity.

The AgValuation tool has been used by Farm Credit's, Community Banks and Private Equity firms to provide reliable collateral valuation and hence will come with both scalable technology and an interesting set of clients for AcreTrader as they seek to expand the ecosystem around their platform.

⦿ Oxbury raise more funds, this time £25m to bolster their Tier 2 regulatory capital position. This was not equity funding and likely some sort of subordinated debt facility.

This investment was directly from the UK government investment arm and will support their UK based lending activities.

If their model works as well in other markets, one problem their clients might have is keeping their Balance Sheet in line with growth. 😅😀

But... that's a nice problem to have indeed.

⦿ Dimitra who recently partnered with Ocean Protocol have secured a $20m capital commitment from Gem Digital.

Dimitra launched a token last year so this fundraising commitment will bolster their ongoing efforts to build out their blockchain based platform globally.

⦿ Olam have raised not one but two sustainability linked finance notes. The first appears to relate to their shipping activities with the second relating to the main Olam Food Ingredients business

"The interest margin on the Facility is linked to the achievement of sustainability targets". That's clear enough for me.

*** If you operate in the sector and want to share updates, please do as I am more than happy to receive these.

THANK YOU!