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New Fund Focus: Moringa Targets Agroforestry in Latin America

24 March 2014

By Martin Poulsen, Partner, The Moringa Partnership

One of the underlying issues of land use in Latin America is that huge areas of natural forest, converted over a few decades into pasture land, have failed to produce income that is sustainable over the longer term. This issue, combined with a growing local population, means that residents are trapped in a vicious poverty circle. New thinking is needed to break this trend and revive local economies.

“Cattle grazing has always been the main source of income here,” explains Baudelino Gonzalez, whose father owns a ranch in the municipality of San Vincente del Caguan, on the Colombian Amazon Basin. “With one cow on every ten hectares, a family needs at least 100 hectares to live. But yields and market prices are falling. People understand that they will need to change their approach to land use.”

This creates an opportunity for investors with the vision and necessary technical skills to invest in projects that deal with environmental and social challenges. One such vehicle, the Moringa Fund, believes that partnerships with local people to implement carefully designed agroforestry projects will produce profitable investments, increased incomes for local smallholders, and significant environmental and social benefits.

Although no investments have been made to date by the Moringa Fund in Latin America, the first transaction (in Central America) will be presented to the Moringa Investment Committee imminently. With a pipeline of additional opportunities across the region, Moringa plans to leverage their four local offices and experience in private equity, forestry, agriculture, and operations to make one to two investments during the course of 2014 and a total of 10-15 during the five year investment period of the Fund.

When the father of Gonzalez settled down, his ranch was completely covered by native tropical forest. The finest trees had been harvested a decade ago and today, the edge of the Amazon forest has receded to over 25 kilometres away. This loss of forest cover has led to increasing soil erosion and a decrease in soil fertility.

Jean-Guénolé Cornet, Director of ONF Andina, a specialist forestry and agroforestry consulting group with offices in Colombia, Chile, Brazil, and Peru, and the technical partner of the Moringa Fund comments: “This part of Colombia has great agro-ecological potential, with steady rain, high sunshine levels, and huge pieces of land suitable to agriculture or forestry.”

A few years ago, Gonzalez joined the local association of latex producers, which promotes the growth of rubber trees, supported by ONF Andina. Cornet said, “We confirmed that San Vicente del Caguan has a clear competitive advantage for rubber tree production and decided to assist in the promotion of this sector, alongside the local community and local government.”

Gonzalez confirmed: “We believe that conditions exist to make a profitable business and create strong social and environmental benefits. Associating rubber trees with cattle in a classical agroforestry model will help this community break out of the poverty trap.”

A family with only five hectares of rubber tree plantations can live better than with 100 hectares of cattle managed in the traditional way, deriving higher incomes from more sustainable land use.

However, a significant issue for rubber tree plantation development comes from the high investment cost and the 6 to 7 year period local farmers have to wait before getting first revenues. This is where private equity funds like the Moringa Fund operate, offering equity investment focused on this kind of agroforestry project.

Hervé Bourguignon, partner at the Moringa Partnership, the investment advisor of the Moringa Fund, said: “Other forms of agroforestry also have great potential in Latin America, most notably coffee or cocoa grown under tree shade. Through more effective land-use, agroforestry has the potential to produce increased long-term income for investors and local people. We see a compelling investment opportunity and the potential to deliver attractive financial returns as well as strongly positive environmental and social impact via our investments.”

Moringa sees opportunity beyond Latin America as well. The Fund is also active and at a similar stage of maturity in sub-Saharan Africa, where the context is clearly different, but where agroforestry has a major role to play in developing sustainable, climate-appropriate approaches to land use.