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Bridging the Gap Between Farming and Finance

When conceiving their new AI-powered agriculture financing venture Traive, cofounders Aline Oliveira Pezente SFMBA ’18 and Fabricio Pezente SFMBA ’18 were motivated by a startling fact. Global food demand will increase 70% in the next 30 years, with annual investments of at least $80 billion needed to keep up with the demand (according to a World Bank study). Much of the burden—and many of the opportunities for investment—lies with mid-range farming operations.

Aline Oliveira Pezente SFMBA ’18

Aline Pezente, who has spent her career in Latin America’s agriculture and commodities sectors, notes that small to medium-sized farms account for 70% of all commercial agriculture in Brazil and in the world. “Farmers in this category are particularly vulnerable to liquidity crises,” she says. “They are typically too big to qualify for significant government support, but too small for capital markets. Most traditional lenders view them as risky investments. Our goal is to bridge the gap between the borrowing needs of medium-sized farmers and the difficulties lenders face in collecting all the relevant data points necessary to risk assessments.”

Not one to one, but many to many

Fabricio Pezente SFMBA ’18

Lenders face two problems when considering these mid-range farmers, according to Traive CEO Fabricio Pezente. “This is a very complex sector,” he explains. “If you are not literate in how agriculture works, you will have no idea how to collect the data you need to assess credit worthiness. Then there’s the problem of connecting with these farmers. They’re widely scattered across Brazil, and it is very costly for banks to go out and find them.” Fabricio understands the lenders’ perspective well, having spent 15 years with Credit Suisse in Brazil before entering the MIT Sloan Fellows MBA program.

“Rather than tackling these challenges with one-to-one matching of farmer to lender, we’re utilizing artificial intelligence and machine learning algorithms to connect many to many,” says Fabricio. “Our platform uses AI tools to aggregate real-time agricultural data and to process the information for potential lenders. Because no lender wants to finance a single medium-sized farmer, we bundle investments across diverse sectors and scales— soybeans in Argentina, wheat in the U.S., coffee in Colombia, and corn in Brazil, for example.”

Technology that facilitates financing facilitates more technology
The main source of technology is the AI to process the credit risk assessment and generate the bundled portfolio of loans. The company is in the process of combining AI and a confluence of application programming interfaces (APIs) and microservices to create an autonomous platform that is equally accessible to financiers and farmers. “Because the execution of agreements and the transfer of funds are handled by blockchain solutions, our model reduces the friction and costs associated with traditional intermediaries,” says Fabricio. “And with continual updating of agricultural data and loan terms, the transactions are transparent for everyone involved.”

The other revolutionary aspect of Traive’s model, according to Aline, is how they approach the credit risk assessment to provide pre-planting financing. “Traditional agricultural bank lending in Brazil is based on what a farmer has performed in the past and not necessarily on their full potential. Under that model, the incentive for farmers is to cut costs before planting—cheaper seeds, less soil-friendly pesticides, and so on. None of which contribute to greater or more sustainable yields. With increased credit availability ahead of planting, farmers are more willing to invest in seeds, fertilizers, and other technologies that promote higher yields and more sustainable practices. It’s a fundamental catalyzer for the levels of production we need to achieve in the coming decades.”

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