IFC Insights: Ripe for Growth

Written by Monica De Leon of IFC

PANAMA CITY, Panama — In Talamanca, a region in Costa Rica close to the border with Panama, Demetrio Layan, part of the Bribri indigenous community, works on his two-hectare farm. Together, community members grow and harvest bananas that will later be turned into puree and exported to food companies around the world.

Until a few years ago, Layan and his community harvested bananas for their own consumption and to feed livestock. That changed when they began working with Costa Rica-based Paradise Ingredients, which sources 100 percent of its bananas from local communities. The company processes the bananas into 47,000 tons of baby food puree, juice, dairy products, and cocktail mixers that it ships annually to Australia, China, Europe, Japan, New Zealand, Russia, South America, and the United States.

The community farm is a crucial part of food processing company Paradise Ingredients’ supply chain. For Layan and his fellow community members, it’s something more, too – a way for families to work together while preserving the environment. Layan says:

We really love our land and what we do, and it fills us with pleasure to continue the work of our ancestors, protecting the environment, because this is our legacy for the next generations.

Banana producers from Talamanca, Costa Rica, are a crucial part of Paradise Ingredients’ supply chain. ©IFC

This farm’s evolution from local producer to part of a global supply chain did not happen by accident. Paradise Ingredients was acquired in 2016 by the Central American Small and Medium Enterprise Investment Fund (CASEIF), an IFC client, whose focus is to support the growth and expansion of small businesses in the subregion. With the funding and operational support from CASEIF, Paradise Ingredients has grown from a small business to the largest banana processing company in the region.

While some global private equity firms have a reputation for being driven primarily by returns, a different model exists in this small corner of Central America. The model, most often found in private equity investments in emerging markets, combines equity financing, active governance, and operational and managerial support. Andrea Onate, Senior Private Equity Investment Officer at IFC, says:

The key to success for doing private equity in emerging markets is for the fund manager to be an active investor. The fund needs to provide more than just capital. It needs to create, promote and monitor value creation plans that will help businesses grow successfully and sustainably, and to ultimately become market leaders.

An appetite for growth

With its new partnership with CASEIF, Paradise Ingredients made changes to senior management, significant investments to update its equipment, and standardized and optimized its production processes. The company also recognized the importance of working closely with small-scale banana farmers to supply the raw product they need to create puree. These improvements resulted in a 12.5 percent increase in production. Paradise Ingredients has also launched new lines of products to serve brands such as Coca Cola, PepsiCo, Gerber, and Nestlé.

Jorge Oruno, who leads the Association of Small Producers of Organic Bananas (UCANEHU), which represents over 200 local farmers and more than 1,500 families, says:

Paradise has changed the way we approach production, to make it better.

Private equity is an important force in financial markets, accounting for about $800 billion in investment worldwide each year. But only 12.7 percent of it reaches emerging markets.

IFC estimates that 75 percent of small businesses in Latin America and the Caribbean lack access to finance. That means an important source of capital isn’t being invested where it is needed most. This is even more relevant in the context of COVID-19, because small companies need liquidity to continue operating and protect jobs, while also looking for new and faster ways to adapt.

“Returning dynamism to companies”

CASEIF becomes involved in the governance of its investee companies both at the Board level and as part of executive and operations committees, said Hugo Chaves, CASEIF Investment Director and current CEO of Paradise Ingredients. Another key focus of the fund is to help businesses become cer