Chilli pepper farming – China

Key Facts

• Client: Chongqing Agricultural Chain Corporation Ltd (“CACC”)
• Term: 3-year loan
• Guarnatee instrument: Pari passu guarantee
• Guarantee exposure: 50% of loan value
• Effective date: December 2020

Deal Summary

AGRI3 is supporting the mobilisation of USD 10m from Rabobank Shanghai for CACC.

The client is a division of Chongqing Agricultural Production Material (Group) Co., Ltd (“CQNZ”), a large supplier of agricultural inputs. CACC mainly trades in agricultural inputs, comprising fertilizer (main product), pesticides and seeds which are sold both to local farmers and international companies.

Impact Rationale

In collaboration with village authorities, CACC has developed a project which provides seedlings, inputs (e.g. fertiliser and pesticides), technical advice and training (e.g. on fertilizer application, soil fertility management and water management) to smallholder farmers to grow and harvest chilli pepper, which CACC will then purchase from those farmers at a guaranteed price. This is expected to significantly improve farmer incomes, raise the productivity and volume of chilli that the client can process (dry) and support their sale into the provincial market.

Rabobank has provided a loan to CACC to source the farm inputs, invest in drying equipment and to sell – in-kind or on pre-finance basis – the inputs to the local village committees or cooperatives (on behalf of the farmers) and after harvest purchase the final product.

CACC will work with partners to provide advisory services to farmers – including training on fertilizer application, soil fertility management and water management. The project builds on a pilot that was undertaken by CACC during 2019/20.

The transaction offers the potential to enhance smallholder incomes, productivity, and skills for up to 3,500 individuals. Moreover, the transaction presents an opportunity to train (1,200) farmers in more sustainable practices, aligning with internationally relevant standards over a three-year period. Furthermore, the arrangement provides market access for farmers by developing an existing production facility and agreeing offtake with farmers.

Despite its small scale, the transaction stands out for its innovation and could serve as a pilot model for scaling up in one of the world’s largest chili growing region.

The AGRI3 Technical Assistance Facility (TAF) will also provide additional support to CACC to address and improve the E&S risk management and impact monitoring of the project.

Impact Targets

Sustainable Agriculture

533ha of land planted with chilli and 1,200 farmers enrolled and trained in cultivation plans which meet the IFC EHS guidelines, reduce pesticides and trial biological pest control

Rural Livelihoods

Farmer’s income increased on average by 20% and trained in new production techniques