Impact investment:A milestone deal for Vanuatu & the Pacific Islands

May 14 2018

For more information about impact investment contact

Leata Alaimoana-Roberts

Impact Investment Manager

In April 2017, Vanuatu coffee producer Tanna Coffee announced it had secured an A$656,000 impact investment – a milestone deal for Vanuatu and the Pacific Islands. One year on, we take a closer look to understand how the investment came about and the impact it has made so far.

Impact investing refers to investments made with the intention of generating a measurable, beneficial social or environmental impact alongside a financial return. There's an increasing rise in impact investors and businesses in the Pacific Islands, which are well suited to benefit from this new investor class versus traditional investment methods.

In April 2017, Vanuatu coffee producer Tanna Coffee announced it had secured an A$656,000 impact investment - a milestone deal for Vanuatu and the Pacific Islands. One year on, we take a closer look to understand how the investment came about and the impact it has made so far.

Tanna Coffee traditionally grows, harvest, processes, roasts and distributes premium, single-origin coffee on the southern island of Tanna in Vanuatu. Pacific Trade Invest (PTI) Australia has worked with Tanna Coffee since 2009, helping to develop their export market potential.

As part of an Australian DFAT sponsored program, PTI Australia became aware that The Difference Incubator (TDi) was looking for social enterprises in the Pacific Islands - businesses that were making a positive social and/or environmental impact that potentially provide a meaningful market return for an investor. Tanna Coffee was one of the Pacific Island enterprises PTI Australia introduced to TDi.

TDi is an intermediary working with businesses to get them ready for investment. After an initial meeting with owner Terry Adlington and the team at Tanna Coffee, TDi spent considerable time learning and understanding the business (model and management), their social and environmental impact as well as what required in terms of investment. TDi could see that Tanna Coffee presented great potential for impact investment.

Through this process Tanna Coffee was provided with an overall assessment of their entire business - its strengths, weaknesses and gaps, along with a plan for moving things forward. This included an assessment of the potential valuation of the company (necessary for equity investment), a prospective return to the investors and a final buy-back position.

Over the next 12 months, TDi worked intensively with Tanna Coffee to prepare them for an eventual pitch to an investor and achieve an investment outcome. This included:

  • helping Tanna Coffee to address gaps and assumptions within their business model;
  • clarifying their overall social and environmental outcome, framework and metrics;
  • conducting financial modelling and preparing relevant documentation for investors;
  • clarifying the businesses preferred investment plans, terms and conditions;
  • helping Tanna Coffee to understand if these aims and objectives were realistic.

Terry Adlington said although the process took him well outside of his normal comfort zone and was really quite demanding, ultimately it brought him better clarity and renewed confidence in his business moving forward.

"The work with TDi gave me a far greater insight into Tanna Coffee, that helped me to dive deeper into the details of my businesses, then I had before. I have always had a strong vision for Tanna Coffee; however, I've never sat down and articulated it in such detail. The financial component regarding profit and loss statements and forecasting was an area where I and Tanna Coffee really grew with TDi's coaching. It's these figures and the forecasts that impact investors need to provide confidence that they are investing in a solid, sustainable business.

"Also the logic model they helped develop around our social impact and how we can monitor this over time, was also really eye-opening. Each day we see the direct impact the business has on all of our farmers and their livelihoods. The logic model took this aspect to the next level, where we can now confidently prove the actual socio-economic impact we have to our Australian investor and our newly formed board of directors."

Every impact investor and investment is different. The key areas that Tanna Coffee were able to demonstrate, substantiate and articulate in their pitch to secure their investment, were:

  • a realistic risk-adjusted market-rate of return;
  • a development plan substantiating a high level of environmental responsibility their Mission, model and management (demonstrating that they are a sustainable and investible business);
  • strong support from the community, overcoming diversity, passionate management, and resilience;
  • confidence in the buy-back position, so the equity can eventually be returned to Tanna Coffee;

The impact investment of A$656,000 is being provided in three tranches. The initial tranche has been used to grow Tanna's operations following the devastation that tropical Cyclone Pam brought when it hit Tanna Island in 2015.

This included recovery and rehabilitation of almost 200,000 damaged and destroyed coffee plants, whilst supporting around 1,000 small-holder coffee farmers who had lost their only source of cash income.

Tanna Coffee has now implemented a board of directors and is working hard to expand and develop its production base to satisfy and fulfil current demands from overseas. This will be done through utilising and redeveloping a previously planted (but now abandoned) former 200-hectare coffee plantation through the allocation of individual one hectare commercial blocks to participating smallholder farmers.

Mr Adlington said the investment has been crucial for Tanna Coffee.

"After Cyclone Pam, we had very limited options available to us to rebuild the business that had been destroyed. The impact investment has enabled us to not only get Tanna Coffee back on track (post cyclone), but also provide a great depth of accountability to our business.

To other Pacific businesses looking at impact investment, my advice is that you need to be prepared to be pushed well outside of your comfort zone; as it takes a lot of hard work to ensure you have your business model and financials in order, and it's the work in progress that takes most time. For auditing purposes, we now have a full-time accounts person.

"It is certainly worth the effort of what we have put in, to see the positive results of what we've been able to achieve with the first tranche, that ultimately makes it all worthwhile."

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Published April 2018

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