“Most institutions will not fund new agriculture initiatives even with experienced operators – they would prefer companies to have existing cash-flow,” said Cédric Garnier-Landurie, co-head of agriculture and managing director at Cordiant Capital. “Because we know the local agriculture industry and its productive potential, Cordiant understood that lenders needed to wait for the new crops to grow before they would receive payments. It’s that understanding of specific risks which means we can match the asset with the right finance and, ultimately, leads to the high performance of our funds.”

Over the past two decades Peru’s arid northern region – which boasts steady temperatures and abundant sunlight – has been transformed into a farming powerhouse, with locally-grown avocados, blueberries and grapes becoming staples in Western supermarkets. That’s because successive Peruvian governments tapped into aquifers and constructed a network of dams and underground rivers to redirect glacial water from the nearby Andes mountains. This “re-greening” of the desert harked back to an ancient past: the region’s Inca civilisation used stone-built canals – called amunas, from the Quechua word meaning “to retain” – to shuttle mountain water to lowland farms.

Thanks to Cordiant, the company is achieving something similar. Using the company’s existing farmland as collateral, last year Cordiant agreed to a $15 million, seven-year loan, segmented to encompass credit for seedlings, compost and drip irrigation. The latter, which allows farmers to ration inputs such as water and fertiliser, substantially cuts a farm’s environmental impact and considerably increases yields.

“We are all drip irrigated,” said Augusto Cilloniz, general manager at the Yarabamba fruit farm, another of Cordiant’s investees, in the north of the country. “Cordiant take an environmentally conservative approach. They work with independent third-parties to evaluate our environmental impact, including supervising the financing and completion of those requirements during the expansion process. They will then evaluate the use of water, reforesting, and plants as production expands.”

Previous experience in financing agriculture projects from scratch meant Cordiant could offer the citrus company crucial flexibility in the lending terms, such as repayment through commercial contracts. That contrasted with traditional lenders who demanded quarterly repayments, putting a squeeze on the company’s cash-flow which – like all farming businesses – fluctuates according to the season. Instead, Cordiant would only start being reimbursed once the fruit was sold to buyers, such as U.S. retail giant Walmart and France’s Carrefour.

“We get paid directly from the buyer in US dollars when they take the shipment of lemons. By taking payment after harvest, it removes a lot of the liquidity stress from the producer, some of whom may only have a revenue event once a year.”

Garnier-Landurie

It also included credit for a packing plant. Using Cordiant’s local contacts, the company plans to process neighbouring farms’ produce to ensure fruit is boxed and prepared for shipment. As a result, while the company is expected to produce some 40,000 metric tonnes of citrus, it will be able to get roughly triple that amount ready for sale to demanding buyers.

“Because of our agriculture expertise, we’re willing to offer bespoke solutions covering the value chain,” said Garnier-Landurie. “Banks can provide cash but the wrong kind. We bridge that gap between the need for capital and the reality of agriculture – and price it accordingly.”

It exports some 80% of its sugar, roughly 300,000 tonnes annually, to markets as diverse as North America and Africa from a port just 40 kilometres down country. But despite such tailwinds, Santo Antonio was hamstrung by short-term lending.

“We used to have a maximum of three years re-payment with our loans,” said Ernesto Gomes Maranhão Neto, the company’s managing director. “With Cordiant we can do six years – that’s better for us because sugarcane has a cycle of six years from planting to last cut. This way, we can have money to finance the whole cycle and can invest properly in growing production.”

Brazilian farmers are the global breadbasket’s swing producers. The Lusophone country is the single largest agricultural exporter in South America, the world’s second biggest farming region by value. Yet locals regularly face the equivalent of a financial drought: nearly half of them cite the lack of credit as a major constraint to boosting their harvests, according to the World Bank. That provides an opportunity for Cordiant’s deep on-the-ground expertise.

“A lack of credit hampers harvest growth not just in Brazil but worldwide – Cordiant provides that critical capital because we are willing to engage with the complexity and operational understanding that puts other investors off,” said Cédric Garnier-Landurie, co-head of agriculture at Cordiant Capital. “We understand farming cycles and the risks involved, so our financing can be much more flexible to accommodate weather and harvest-related timing changes, with full repayment achieved”. 

Using the company’s rich farmland as collateral, Cordiant structured a $60 million loan so it wouldn’t place undue pressure on Santo Antonio’s cashflow, which can oscillate wildly during specific months of the season. This meant that, instead of being paid back by Santo Antonio, the loan would be reimbursed directly by the company’s overseas sugar buyers, who pay in US dollars, when they took a shipment. In addition to providing crucial funding flexibility to Santo Antonio, this structure provides an important additional level of security to Cordiant’s fund investors as well.

“Cordiant have established a new standard,” said Maranhão Neto. “They even started to push other banks to deliver better conditions to us.”

In doing so, Santo Antonio also tapped into Cordiant’s knowhow in hedging and risk management to smooth the predictability of large, lumpy payments.

“At the same time as increasing our irrigation area of the sugar cane and the productivity of the fields, we have a monthly committee where we work with Cordiant to hedge the sugar pricing and exchange rates,” added Maranhão Neto. 

The results of this long-term, nuanced approach are dramatic: improved yields, better management of costs and a radically reduced environmental impact. The funding from Cordiant will enable Santo Antonio to recycle mill water with biomass back into the cane fields, creating a closed circle system. Consequently, Santo Antonio plans to grow output while using less water and roughly one third of the fertiliser compared to its historical practice of spraying crops with both. 

“Usina San Antonio is a great example of our target investment – a medium sized company which is looking for a partner with deep sector experience who can help them operationally,” said Benn Mikula, Cordiant Capital’s co-chief executive. “With our specialist knowledge we saw the opportunity to restructure their debts and provide flexible finance which others were reluctant to do. But it’s not just about changing their balance sheet. We work together to help them grow and become a sounding board for new ideas.”

One such idea is expanding Santo Antonio’s green power output. The farm currently produces some 15 megawatts of renewable energy from boiling the crushed fibrous cane pulp – called “bagasse”- and using the steam to drive generators. But bigger and more predictable harvests could eventually see that metric rise to 35 megawatts, enough to make the farm self-sufficient and sell surplus green power to Brazil’s national grid.

“This is only possible with the right finance and expertise in place,” said Garnier-Landurie. “It enables them to think longer-term.” 

There have been unexpected benefits too. By boosting yields on flatter, easier-to-harvest fields, workers can stop planting on more marginal, hilly areas, which account for about 30% of Usina’s 35,000 hectares site. In time, that will lead to a “re-wilding” of a parcel of Mata Atlântica, the verdant stretch of woods which runs along Brazil’s Atlantic seaboard, double the size of France’s second city Lyon. Within the decade, Santo Antonio wants to use this regenerated forest to lure visitors from the region’s pristine beaches and generate revenue from tourism.

“When we do business with investee companies, we start with the view that making money is not the only goal,” said Garnier-Landurie. “We want our investment to have a positive impact and Santo Antonio is a great example of this. Agriculture is uniquely positioned to have large scale impact on carbon sequestration and natural based solutions – that are profitable”.

Peru’s agricultural sector is booming. A favourable climate and swathes of available land have enabled fruit production to soar. In under a decade Peru has become the world’s second largest producer of blueberries, which along with avocados (and followed closely by citrus) has driven the country’s agricultural exports. Yarabamba is one of the companies leading this surge, producing high-demand nutritious fruits whilst remaining dedicated to improving the local environment and generating much needed employment, fundamental pillars of the company’s strategy. 

Operating in the Lambayeque region of Northern Peru, in the Valley of Zaña, the areas surrounding Yarabamba are steeped in rich historic and biodiverse significance, a source of pride for the producer of Hass avocados, Salvador and Matias blueberries, and Tango mandarins. It is in this region of natural riches that Yarabamba focuses on three core facets of sustainability–reforestation, water saving and conservation–and local community development. 

The region, in the last few decades, has become best known for producing half of the sugar cane crop of Peru and providing the majority of the rice crops consumed within the country. With well-structured non-dilutive capital solutions and sector expertise provided by Cordiant to support the business, Yarabamba was able to implement the use of a modern drip irrigation system within 100% of its farmed areas. This technology has helped Yarabamba move away from the traditional crops of the region, focusing instead on producing fruits for export. The crop switch and the technology has delivered meaningful environmental impacts. Now able to ration inputs and distribute them with greater precision, Yarabamba has been able to realise significant savings in its water use whilst also achieving significant reductions in overall emissions, due in part to fruit having a comparatively low-emissions harvest, as well as the cessation of industrial operations required for sugar cane and rice. Yarabamba’s crop switch has led their sustainability focus to shift from environmental risk mitigation to active environmental conservation and positive impact creation. 

Today, as a leading company involved with the Asociación Pro Cuenca Zaña (Zaña Basin Association), Yarabamba seeks to protect and care for its surrounding environment, taking major steps to reforest the upper area of the valley, specifically in the area of Udima in Cajamarca. 2300 meters above sea level lies the natural reserve, Udima Cloud Forest. A forest reserve with immense biodiversity wealth throughout its altitudinal gradient. The Forest plays a key role in supplying clean water to the entire valley and the cities that sit on the coast of Lambayeque. With the support of the community, and joint efforts between private and public institutions in the area, Yarabamba has been able to reforest more than 400,000 pine seedlings over 400 hectares. Future plans are even more ambitious, with Yarabamba seeking to reforest >10,000 hectares in the uplands of the river basin, where water feeds into the valley. Working with the Olmos Tinajones Special Program, the public-private alliance has enabled the installation of a local nursery, that will allow the future seeding of at least 400,000 seedlings per year by the local community. 

Yarabamba aims to reinforce and support the natural cycle of water.  By reforesting the uplands, the environment can naturally improve the flow of water, as the forest transmits water into the atmosphere, helping regulate rainfall, which the rivers and streams will carry to the coastal valleys. These reforested areas will additionally help protect and conserve the biodiverse region, contributing to the health and maintenance of the ecosystem. The new forests provide a much-needed sanctuary for all forms of wildlife, made even more important as this unique area is home to native endemic species, many of which are in danger of extinction. 

Alongside these positive environmental impacts, the Company’s third sustainability pillar, local community development, is centred around knowledge dissemination and education. For instance, after implementing drip irrigation systems, the Company began using its influence to promote water-saving knowledge to small producers in the valley–many of which have, or are planning to, implement these irrigation systems themselves. Yarabamba has made great efforts to educate surrounding communities, exemplified by the establishment of programmes such as the Education and Training Programme and a Technology Update Centre. The Company even conducts ‘cleaning days’ in the district of Cayaltí, aiming to promote a culture of respect for the surrounding environment.