Santander, Gaia, Belterra and Conexsus team up in joint R$ 17 million operation that will finance 4,500 producers without access to traditional lines
By Ilana Cardial for Capital Reset on Jan 26, 2023. Link to original publication.
Getting credit for sustainable agriculture or for the regeneration of degraded areas has always been a challenge for small rural producers. But, little by little, mechanisms are emerging to expand the supply of financing and encourage agroforestry and the maintenance of the forest standing.
An issue of R$ 17 million in Agribusiness Receivables Certificates (known as “CRA”) maturing in three years will provide working capital for 22 community-based businesses, with crops such as cocoa, nuts and acaí, and four small and medium-sized companies with an impact in the regions North and Northeast of Brazil.
Of this total, R$ 10 million goes to Belterra, a startup that develops agroforestry systems (SAF), and R$ 7 million to Conexsus, a civil society organization (CSO) that fosters community-based businesses, which will distribute the amount according to the needs of each business, varying between R$80,000 and R$600,000.
Loans usually follow the harvest period, around 12 months, and will have interest of 12% per year for producers - below the CDI and well below the cost for these community businesses, which would be around 40%.
Common in agribusiness financing, CRAs aimed at financing the bioeconomy are still rare. In this case, another unique component was the presence of a large bank in the operation: Santander was the lead coordinator and filed part of the issuance, which also included Gaia, responsible for structuring, as an investor.
"We are raising capital to invest in standing forests, in the Amazon, in the Cerrado and in other biomes, and in the restoration of degraded areas, restoring the forest where it should never have left", says Valmir Ortega, CEO of Belterra Agroflorestas.
Blended finance
At CRA, philanthropic capital, coming from Fundo Vale and the Good Energies Foundation, was essential to reduce the risk of the operation and guarantee an attractive value for borrowers, within the concept called 'blended finance'. The modality that has been gaining traction within the impact environment in Brazil consists of raising money on a non-refundable basis or that accepts returns below those of the market to mobilize capital that seeks return on capital, expanding the scale of the operation.
The operation was set up in four series, with different degrees of risk and returns, and four series. The maturity periods differ from each other and the rates vary from 3.3% (for philanthropic capital) to CDI + 2.1% (equivalent to approximately 15.75% per annum) for commercial capital. Santander and Gaia contributed with their own resources, while Belterra and Conexsus served as a vehicle for philanthropic resources from the Vale fund and Good Energies.
"The cool thing about bringing these guys [banks] to invest with us is the weight of hacking the system for good from the inside. You have to pull this group to invest together", says João Pacífico, CEO of Gaia, specialized in investments in impact. “Today, the vast majority of CRAs, 99.9% of them, are not sustainable. The system encourages something that is not sustainable".
Cocoa in the lead
Belterra and Conexsus are fellows. Ortega is a co-founder of Conexsus, along with the current executive director, Carina Pimenta, and it was from the work done in the organization that Belterra was born.
In the first, contact is made with cooperatives and extractive communities, to ensure that there is income generation and economic benefits from keeping the forest standing. In the second, the challenge is to recover what fell to the ground, with direct work with farmers and a “much more intensive” model in capital, says Ortega.
When arriving at a new biome, Belterra's path is to understand the local conditions and look for which species allow for a scalable economic model. In the Amazon and Atlantic Forest, for example, the set of species has already been traced. In the Cerrado and Caatinga, the work is still “almost a research and development program”, says Ortega.
The CRA will allow the production of bananas, cassava, cupuaçu, pupunha and other species in degraded areas, but it is cocoa that stands out as a crop that will pay the bill over time. "We chose cocoa because Brazil has enormous potential for expanding the species. We don't produce cocoa even for our own domestic consumption, we import cocoa beans."
The Amazonian fruit also combines with agroforestry systems because it likes shade at the beginning of development and with small and medium producers, given the need for labor and intensive activity.
The work has been increasing so that the models are competitive with any other monoculture. "Our models based on cocoa SAF, for example, which this CRA finances, give a net return per hectare, four to six times higher than soybeans", says Ortega.
Belterra has already implemented 1,800 hectares of agroforestry, with 1.5 million cocoa seedlings, 2 million cassava, among other foodstuffs.
Expertise
Conexsus has already carried out several financing operations, "but this is the first time we do it in the capital market with an innovative structure", says Pimenta. which means the money paid can go to new producers - the impact can be even greater.
In addition to financing instruments, Conexsus operates in the development of projects, providing advice on business management and market access. Support is essential for the successful introduction of credit. "Only those who had a good historical cycle of using credit with us in other operations entered this CRA, and who work very well with an advisory, see this as a contribution to the business", says Pimenta.
Head of innovative sustainable businesses at Santander, Leonardo Fleck, also highlights this Conexsus expertise as a differential in the operation. "What motivated us [to enter] was to support companies emerging with great potential, with great capacity to reach, from cooperatives, to provide scale for financing sustainable agriculture", says Fleck, who affirms that the bank's experience in this area is still new and makes it difficult to make such a move directly.