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?
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.
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.