October 18, 2021

By Lynda Kiernan-Stone, Global AgInvesting Media

Recent activity by the Development Bank of Japan (DBJ) reflects how the bank continues to break ground as an investor. Within the span of two weeks in September, DBJ began fostering a shift in Japan’s investment landscape through its commitment to the TIR Europe Forestry Fund II, and became the first investor in Japan to agree to invest in a food-focused private equity fund by backing a fund managed by Proterra Investment Advisors (Proterra Asia). 

Through these investments, DBJ intends to not only stimulate activity in the timber, food, and agriculture industries, but to also seize on global trends and industry best practices, contributing to the next phase of growth in these respective sectors, while also addressing the challenges being faced at home. Of DBJ’s total 13 trillion yen (US$114.4 billion) in assets, 1 trillion yen (US$8.8 billion) is earmarked for infrastructure and energy, of which agriculture is considered a sub-asset class. 

GAI News was given the opportunity to sit down with Mr. Seiji Tomosada, Managing Executive Officer, in charge of Corporate Finance Department, Division 3, Sustainable Solution Department, Hokkaido, Niigata, Tokai Branch with DBJ, to discuss the bank’s approach to agricultural and natural resource investment, and its goals for the future. 

Unlike mainstream commercial banks, DBJ has a unique structure. In 2008 the institution became a joint stock company, however, Mr. Tomasada explained to GAI News that there is currently only one shareholder holding 100 percent of the company – the Japanese government. 

Without deposits, DBJ procures funds from various sources, including from the government, which it then invests or allocates toward loans. But even this activity varies from the ordinary. While Japan’s banks are regulated by a law called the Banking Law, DBJ operates in accordance with different regulations set for under the Development Bank of Japan Act – giving DBJ the ability to invest up to a 100 percent of a company’s shares, while commercial banks are restricted to 5 percent. 

However, despite this freedom, DBJ operates within established parameters toward pre-determined benchmarks. In May of this year DBJ released its Mid-Term Management plan. First established in 2008, this is the bank’s fifth five-year plan outlining its goals and plan for achievement. 

Challenges abound. In Japan, the average age of agricultural workers is 67 years, and between 2015-2030 the number of self-employed farmers in the country is expected to decline by 40 percent. 

Compounding this issue is the highly fragmented nature of Japan’s farmland, with the average cultivated area under management being just three hectares (7.41 acres) per household; dietary changes resulting in the yearly decline of rice consumption leading to paddy fields being converted to low-profit crops such as feed rice, wheat, and soybeans, and little shift toward higher margin crops that can support the maintaining of the country’s farmland. 

Additional factors to consider are a relatively low labor productivity level of Japanese agriculture as compared to other developed countries, the urgency of responding to the effects of climate change, and the damage being perpetrated by soil and water pollution. 

“We are now thinking of concentrating our efforts on this target,” said Mr. Tomosada. “In this context, of course, investment related to agriculture, such as SDGs, is becoming a trend, and when we think about the world as a whole in the future, there is a demand for immediate action.” 

He continued, “In terms of such opportunities, there are still very few in Japan. I don’t know if it is because there are not enough agriculture-related projects, or if it is because there is not enough awareness, or recognition among people to tell them that it is possible to do agriculture-related investment projects in this way.” 

In response, through its fund investments, DBJ is aiming to utilize information garnered from partners through overseas best practices as a way to give back to Japan’s food and ag industries by providing the opportunity for the country’s existing players to collaborate by leveraging the bank’s vast network. 

“When we invest, especially when we invest in a fund, we make sure that the fund manager has a good track record, which is a matter of course,” commented Mr. Tomosada, who went on to explain that collaboration is also a means of mitigating risk in investment, saying, “It takes a lot of courage and risk to invest in a completely different field from the investment business that I have been involved in. Therefore, we are looking for synergies between our existing business and the new business.” 

DBJ also controls risk through multiple means of diversification. 

“The basic idea is to diversify investments in both regions and areas,” explained Mr. Tomosada. “Therefore, we do not concentrate only on the United States. It can be in Europe, it can be in Australia, there are no geographical restrictions. In that context, we look for investment opportunities and make decisions based on the fund manager’s track record and the ability to bring benefits to the domestic market.” 

But what it all comes back to is what DBJ calls the Japan Story – the benefit that any given investment can bring to bear for Japanese companies and Japanese projects in the future. Mr. Tomosada equated ag investment in Japan to energy infrastructure, stressing that until recently, there was a lack of energy infrastructure investments in the country. However, today, the private sector, financial institutions, and commercial banks are widely involved in such projects. 

“As for us, we are also interested in agriculture-related investment,” said Mr. Tomosada. “Like the energy infrastructure investment, it may be in the current state at first, but we hope that in a few years, agriculture-related investment will become a common practice. Whether this will happen in five years or seven years may depend on our future efforts, but I would like to do my best.” 

– Lynda Kiernan-Stone is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, as well as HighQuest Group’s Oilseed & Grain News. She can be reached at lkiernan-stone@globalaginvesting.com.