Opportunities for food sector growth: DBJ unlocks financing for agriculture
THE Development Bank of Jamaica (DBJ), in an overview of financing for the agriculture sector, notes that challenges faced by farmers and entrepreneurs include the lack of collateral that lenders require to secure loans.
Other roadblocks are lenders who are cautious about making loans to agriculture because of the various risks that can impact cash flow.
The agriculture sector (which includes agribusiness) in Jamaica provides food security and is a large employer of labour and provider of livelihoods.
The sector presents opportunities to reduce food import, increase hotel and export sales, linkages, increase processing, value added, adoption of technology, productivity, research and development, access to markets.
On the part of those investing in agriculture projects, the development bank notes that a major barrier to small agriculture entrepreneurs is their inability to produce financial records and projections or a plan to demonstrate how the business will repay a loan.
There is also the difficulty that farmers experience in collecting for goods supplied and the perennial challenge of financing their next crop/working capital.
Milverton Reynolds, managing director of the DBJ, told the Jamaica Observer that in 2022 the bank is committed to the development of the country including the agriculture sector, stating, “The Development Bank of Jamaica has a mission to provide opportunities to all Jamaicans to improve their quality of life through development financing and technical assistance solutions.”
The DBJ supports agriculture, agro-processing, and agri-tech through debt, grant and equity financing, incentivising and encouraging financial institutions to finance the sector, provide technical assistance and supporting innovation and youth involvement.
Over the last 10 years the DBJ has facilitated 14,358 loans valued over $9.7 billion (in loan financing) to entrepreneurs and businesses in the agriculture sector through DBJ’s approved financial institutions and microfinance institutions. This financing has supported the establishment and expansion of crops as well as livestock by farmers across the island.
The DBJ also provided 32 loans valued at $1.2 billion to the agro-processing sector which is a critical part of access to markets for the agriculture supply chain.
One hundred and seven agriculture-based businesses (agriculture and agro-processing) utilised vouchers valued at $21 million in grants to access businesses development services.
DBJ also recently accredited Agro Investment Corporation as a business development organisation to accept DBJ vouchers and assist farmers produce business plans and bridge the gap between farmers and financial institutions.
Supply chain support
Under the supply chain project, the DBJ has provided grants of over $500 million that have supported more than 400 small farmers and fishers operating across 20 agriculture supply chains.
The project has allowed small farmers to identify and implement to increase productivity through capabilities upgrading, training, and infusing technology.
To date, Reynolds outlined, this intervention has seen improvements in areas such as increased output consistency of supply, improvement in the quality of products in quality and increased sales to larger anchor firms.
The agriculture supply chains that have benefited from this support have included peppers, condiments, coffee, lobster, onions and fresh vegetables and produce.
Another challenge identified is the difficulty that farmers experience in collecting for goods supplied and the difficulty of financing their next crop/working capital.
To alleviate this challenge, the DBJ has implemented the Reverse Factoring programme where groups of small farmers who supply goods to a larger buyer on a regular basis will be able to get faster payment for goods delivered allowing them liquidity to reinvest in the next production cycle.
Reynolds outlined, “This also saves the small farmer the challenges of trying to borrow funds to establish the next crop and assure the larger buyer of consistent supply. This is being done for a small discount that is based on the credit rating of larger buyers and is lower than the cost at which the small farmer would have to borrow.”
New SME fund
Under the DBJ’s Access to Finance (A2F) Project, Actus Partners Ltd, a management consultancy firm focused on alternative Private equity & venture capital solutions, based in London, England, has been selected to establish and manage a new small and medium-sized enterprises (SMEs) fund, based in Jamaica to support Jamaican SMEs, including SMEs in the agriculture sector.
Actus Partners, which has more than 100 years of combined experience in global private equity, has established the Jamaica Actus Small & Medium Enterprises Fund I (JASMEF) which will provide growth and risk capital financing to invest in high-growth SMEs in Jamaica, in addition to other investments undertaken in the Caribbean.
JASMEF will receive an investment of US$5 million from the DBJ, through the A2F Project, and will be required to raise additional funding of a minimum of US$10 million, in order to meet the DBJ’s objective of having a minimum level of funding dedicated to Jamaica-based SMEs.
The DBJ is currently offering MSME Recovery loans of up to $10 million at five per cent for eight years also available for agriculture and agribusiness, refinancing and debt consolidation. Loans of up to $30 million can be accessed at 8.25 per cent with larger loans at 8.75 per cent.
Recognising that entrepreneurs and farmers often lack the collateral that lenders require to secure loans, the DBJ established a partial guarantee product called the Credit Enhancement Facility (CEF).
The CEF provides guarantees of up to 90 per cent or $10 million of a loan for small farmers to secure loans from DBJ approved financial institutions. Under the CEF, DBJ has provided 257 guarantees of $830 million allowing small farmers and agro-processors to access $2.0 billion in loans.
This includes $816 million of loans made by lenders not using DBJ funds confirming that the CEF guarantee has encouraged lenders to step out and support agriculture using their own funds. Farmers needing larger loans can access guarantees to support up to $30 million or 80 per cent of the loan amount.
Reynolds admitted to the Business Observer, “Despite this support DBJ is aware that lenders are still cautious about making loans to agriculture due to the various risks that can impact the reliability of cash flows and along the value chain from establishment of crops to reaping, sale, collection and loan payment.”
Lenders also complain that a major barrier to small agriculture entrepreneurs seeking financing is their inability to produce financial records and projections or a plan to demonstrate how the business will repay a loan.
It was to address this problem DBJ established its voucher for technical assistance product that allows small enterprises to access any of up to 30 services including business support services including business plans, financial statements, marketing plans, shelf-life studies through from over 60 accredited business development organisations (BDOs).
The DBJ pays 70 per cent of the cost of these services up to a maximum of $300,000.
The DBJ also supports the National Business Model Competition with notable successes including Herboo Enterprises, which is an herbal personal care company that manufactures a line of personal care products that are ‘natural’ and ‘straight’ from “Nature’s Route”.
Two others are: Rapido Spices, a company that uses plant-based products to produce a unique blend of seasoning, and Genesis Way – created an all-natural plant based ‘Ackee butter’ made from the national dish; and STOTARE which developed a system that produces tubers in a more cost-effective and efficient manner. Roo-tube is a system that enhances the growth rate, quality and quantity of root tubers.
A fourth company emerging was Vene Vitae, which focuses on revolutionising the way people view nutrition by using ‘moringa’, a scientifically tested herb that has a wide range of health and nutritional benefits. This herb is used as a platform to deliver affordable proper nutrition.
A fifth is BeascTech which is an agro-tech startup company that seeks to solve agricultural challenges in developing countries. The team has developed an integrated technology to assist farmers to better manage the beet armyworm infestation in their crop.
Sixth is JaBioplastics which provides a natural alternative to non-biodegradable plastics by using plant matter to prepare a degradable, compostable, water soluble and edible plastic alternative.
The seventh is Sweelevia Tea Company which was developed based on the demand by consumers for products made including natural sweeteners.
The DBJ notes that through its IGNITE Programme and Innovation Grant Fund, DBJ provides grants of up to $7 million and up to $14 million, respectively, to support the expansion of innovative projects.
Under the IGNITE Programme, nine innovative agri-tech and agro-processing businesses have received grants totalling $41 million to establish their products. Notable awardees included Develop Digitally, FarmLinkr Limited, Linga Ya Farms, Elsa Blend and Outland Hurders Creamery, and Farmstead.
Under the Innovation Grant Fund 2 innovative agro-processing businesses have been among the first five awardees receiving grants totaling $23 million to establish their products. These have included Bare Nutrition and Sherwood Coffee Farm.
The DBJ works with Angel Investor Networks (FirstAngelsJa) to help entrepreneurs access equity financing. In this regard, Turner Innovations, a recipient of DBJ grant support, was able to attract angel investment to expand into processing and export of Jamaican sorrel.
Herboo Enterprises (the 1st NBMC winner in 2014) accessed angel investing that was used to upgrade the brand and grow its overseas customer base and product line.
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