This report was commissioned by the McConnell Foundation to inform impact investing in local sustainable food systems in Canada and to bring a fresh perspective to the topic as well as new tools that can help to catalyze change.
Specifically, the report set out to:
1. identify the realities faced by emewrging local sustainable food system entrepreneurs and to understand what role access to finance (along with cultural, social, regulatory and landscape conditions) has played in the success, challenges or failures of these entrepreneurs and initiatives;
2. identify ways in which impact investors can strategically intervene in Canada to help address some of the enterprise-level challenges and to encourage the local, sustainable food sector to strategically seize new opportunities, develop capacity and build resilience.
The report is based on interviews with 43 social entrepreneurs, 26 local and sector leaders and interveners, and 16 funders and investors. Interviews were conducted in the winter and spring of 2014.
Most of the food and farm entrepreneurs we interviewed operate small, often family-run, businesses and are looking for viable and meaningful livelihoods. Also included are mid-scale cooperative and incorporated businesses, as well as larger, scalable social enterprises, structured as for-profit or non-profit companies or co-operatives operating in this space.
All of the enterprises aim to balance profitability and returns on investment with the goal of building local, sustainable food systems. However, these entrepreneurs face significant inherent risks, costs and challenges due to the nature of the business:
unpredictable weather, a changing climate, pests and invasive weeds, perishable products, longer times to achieve profitably because of seasonal cycles and the lack of scale appropriate infrastructure. All of this decreases investor confidence and
We learned that local food system entrepreneurs have found a variety of ways to reduce their costs of production by minimizing waste, managing their risk with diversity, and increasing their profits by shortening and owning more of the supply
chain. They are building and using more flexible and direct market opportunities and “community-supported” arrangements that share risk and are developing supply chains built on trust. However, they face significant challenges in accessing
affordable productive assets (e.g., an affordable piece of land with the right characteristics for the enterprise) and securing appropriate, risk-taking and growth-oriented financing. Indeed, the largest challenge facing the start-up entrepreneurs we
interviewed was the requirement by almost all lenders that operating loans be fully collateralized. There is little interest from venture capital because the profit margins are too low.
The entrepreneurs who managed to secure operating capital – largely by hook or by crook- often continue to exist in very tight and chronically underfinanced circumstances. They struggle with cash flow for operations and income, primarily with inventory and seasonal up-front costs, and usually have limited personal incomes from their businesses and limited financing to develop the capacity and skills to manage the stages of growth or to undertake a succession plan.
At the same time, there are increasing numbers of investors who are interested to greater or lesser degrees in explicit nonmonetary impacts or returns on investments, such as sustainable agricultural production and natural resource use, or the
proliferation and strengthening of local sustainable food systems.
Our research highlights the opportunities and need for philanthropic, risk-taking, and mission capital in the local, sustainable food sector. Already, mission funds, community economic development initiatives, institutional investment vehicles, Slow Money and engaged systems-change funders are at work in this landscape. And these actors are operating across the three interconnected financing spaces – Seed Capital (developmental financing), Slow Money (relationship-based investing), and
Impact Investing (institutional scale) – that complement and drive each other like gears.
The research also shows that there is no shortage of investment opportunities in the local sustainable food system – whether they be big or small, local or scalable, involve value-chain partners or sector-wide initiatives. However, many of these opportunities need catalyzing, facilitation and development of capacity, both at the enterprise and the landscape level. Impact investors need to be prepared to take real risks and invest in the path finding, capacity building and facilitation necessary to allow enterprises to start up, to scale and to become sustainable. Impact investors could increase their impact and mitigate their risk if they were also to intervene in the “vulnerability context,” such as by addressing prohibitive political-economic contexts, as well as stifling and inappropriate regulations; encouraging necessary culture shifts and viable market development; and funding applied research, development and extension of practices, scale appropriate equipment and infrastructure that would help build viability and resilience.Download PDF