Javier Delgado is former director general of Mexico’s Capitalization and Investment Fund for the Rural Sector (FOCIR). In this exclusive interview, he discusses his role in transforming Mexico’s agricultural sector.

Javier Delgado, former director general of Mexico’s Capitalization and Investment Fund for the Rural Sector (FOCIR), pioneered the concept of using investment funds to support agricultural projects in rural Mexico. He was recently awarded the title of Knight of the Order of Orange-Nassau by the Dutch government for his innovative work in developing a system of greenhouses, based on the Dutch model, to provide food for urban areas in Mexico. At a recent United States-Mexico Chamber of Commerce event held in New York City, Mr. Delgado sat down with Ricardo Haneine to discuss FOCIR’s successes and vision for the future.

Ricardo Haneine: Can you tell us a little bit about how FOCIR came into existence?

Javier Delgado: FOCIR was launched in 1994 to provide rural areas in Mexico with additional financial tools for securing credit—to give entrepreneurs the extra support they need to get their ventures up and running. It was the brainchild of then-secretary of treasury Pedro Aspe and Luis Téllez, who was undersecretary of agriculture.

FOCIR evolved in two stages, with the first taking place from 1994 to 2002. During that time, FOCIR was investing capital in a minority capacity directly to rural companies. As a minority investor, it could only invest up to 25 percent. As it turned out, FOCIR was committing all of its capital to these companies without having a properly defined profile. In 2002, FOCIR did a review of results and decided to redefine its strategy, essentially becoming a “fund of funds” for the countryside. We took a look at all the projects we were funding and analyzed why some had been successful and some had failed, an important exercise because it showed us that the governing factor in all was the business owner.

In the second phase of its development, FOCIR established a new business model. We began creating capital funds to finance small to medium-sized businesses. The first fund was the Agribusiness Equity Investment Fund, or FICA. Because there were no operators that specialized in capital funds for the countryside, FOCIR temporarily became the administrator of this fund while private fund operators were being assembled. This meant we had a dual role because we were investors in a fund of funds on one hand, and on the other, we had a group that did the front office for those capital funds.

We launched FICA in 2006, the first agribusiness fund. FICA began with a capital objective of 900 million pesos. By 2008, we were able to create a fund for the Southeast, called FICA Sureste, which had a capital objective of 500 million pesos. In 2009, we created a third fund, Activa, which specialized in any project involving protected agriculture, mainly high-tech greenhouses. Those three funds—FICA, FICA Sureste, and Activa—were the ones that launched the current operating model for FOCIR.

Ricardo Haneine: Was one of your objectives, then, to transform traditional agriculture?

Javier Delgado: Yes. We weren’t trying to be a massive financier. Institutions such as Financiera Rural and Trust Funds for Rural Development (FIRA) often implement what they call “working capital loans” during each farming cycle. They need to recoup those loans that same year. FOCIR’s contribution has been to adopt a longer-term view. It takes selective long-term projects and shows how they can be successful. The business model is different in the countryside.

For example, we chose to focus on various aspects of agroindustry because it serves as an umbrella for all of the producers. A single agroindustry business can have a direct impact on hundreds, sometimes thousands, of producers. The model FOCIR implements spotlights examples of how to be successful at the national level.

Ricardo Haneine: What kinds of initiatives were you involved in?

Javier Delgado: For the largest program, the strategic projects, FOCIR put 200 million pesos into select projects. One such project is the agroparks initiative. With FICA Activa, we created an agropark of high-tech greenhouses on 805 hectares, of which 300 have already been sold, and showed a profit for the past seven years.

I also worked on a longer-term initiative with Wageningen University of the Netherlands to create regional development models and push the producer to align with the market by developing metropolitan food clusters and agroparks integrated with the industry. It’s a model the Dutch have used for 30 years, but we hadn’t tested it in Mexico because we were following the agricultural model of the United States—trying to create large lots.

I became convinced that we were closer to the European model because the size of individual lots here is small, similar to what you find in Europe. Investment is intensive. For example, the greenhouses we built in Queretaro cost about half a million dollars per hectare. But production is also very high: In a single greenhouse, you can get 10 to 30 times the production that you get in open fields. The Queretaro greenhouses produce bell peppers and tomatoes, and the production is 10 to 15 times higher than what can be achieved in the open field. In addition, the quality of the product is far superior because it’s grown in completely controlled conditions. Furthermore, these facilities are productive all year round. For example, tomatoes are currently produced from January to December.

Ricardo Haneine: What did you do in the social sector?

Javier Delgado: When we began, we had to show that the model would be successful, so we started with the most developed sector: the commercial sector. If you look at the capital curve, it starts with the angel investor, then it moves to seed capital, then venture capital, and finally, there’s equity—what we call private capital. We started with private capital, which is invested in consolidating and building companies that have already shown success. The next step was to move down the curve to the venture capital level. Finally, what we did with the resources from government entities was treat them more as seed capital or angel capital. We involved groups such as the National Council for Science and Technology (CONACyT), which has resources to invest in innovation. We also used these investments to trigger new businesses.

The idea was to create funds for the social sector—funds that operate like seed capital in that they help new companies take off or support those that are barely in the startup phase. And while there is certainly risk with such a project, there is also the potential for very high profit.

We had already created a fund in the farming sector called AGROPyME, and for that fund, we were taking on smaller investments—from 5 million pesos and up. Generally, capital funds in Mexico require investments of 100 million pesos and above.

Then we also began working with the people from Grupo Jade, a cooperative that actively promotes the development of companies for the social sector in Jalisco. I suggested setting up a capital fund to help with this. So they launched a capital fund called Fides Ecosol using their own resources. But to attract foreign investment, they needed support from FOCIR. We took it to the Fund of Funds so they could put in up to 5 percent. This helped convince foreign organizations such as Mondragon, Grupo Italia, and Desjardins to invest.

Ricardo Haneine: Did you work in areas other than agroindustry?

Javier Delgado: No. We structured a new fund that will begin next year. Rosario Robles, Mexico’s secretary of social development, loved the idea because she saw it as a new, much more productive way to use Secretariat of Social Development resources, one that might even result in a recoup of funds, which would help support lending in the future.

In 2006, when I took the first fund—the capital investment fund in agribusiness—to the board where I’m also a member, all the advisors, especially the independent ones, said, “We don’t know anything about that sector, so we feel it would be a big risk,” and they declined to invest in the fund. So I turned to them and said, “What next?” Their suggestion was, “Why not do it yourself?” So then I had a dual role: I was an associate of the Fund of Funds, but at the same time, I was working with a fund of funds for the countryside. And it’s in my interest that, along with the Fund of Funds, I manage every agribusiness project, because the 1.5 percent fee can cover my operating costs.

Ricardo Haneine: It is interesting how you link the whole chain of farmers to these agro-industrial projects to drive productivity and incorporate a social aspect. Were you continuing with that aim?

Javier Delgado: Absolutely. In 2011, I took that on as a personal crusade, as well as a mission for FOCIR, with the support of the secretary of treasury. We were looking around quite broadly for ideas on how to increase productivity. In fact, we visited Holland to see how things operate there. There’s one facility called Greenport Venlo that is an especially interesting example. Venlo is 15 kilometers away from Bonn, Germany. It is an area with highly diversified production: vegetables and flowers, intensive meat processing including chicken and pork, as well as milk production. All of this is taken to Greenport Venlo, and many products come in from different parts of the world. They prepare everything and package it for the supermarkets. Products are then transported directly from Venlo to supermarkets in Germany.

That is the model we adopted here. In each agropark, there will be intensive agroindustrial production, as well as a center of applied research that focuses on the development of new projects, technology transfer, and multidisciplinary training. For this, we got the universities involved from the beginning. We also involved all three levels of government—federal, state, and regional—and of course, most important of all, the business owners. For example, in the state of Aguascalientes, the most successful business owners in agroindustry are few, but very good, and we brought them in. There’s La Huerta, which produces frozen vegetables and has 65 percent of the market. Dairy producer San Marcos is also involved, as is meat processor Ugasa. The first thing I did when I set up the fund was create a group of seven successful, well-known business owners to head the group of investors. They’re the ones who will be participating in creating the agropark because, at the end of the day, they’re the ones who are going to stay.

Ricardo Haneine: If you had been given the responsibility of transforming the traditional agricultural sector through these new agribusiness concepts, what steps would you have taken?

Javier Delgado: Well, first, segment the national market. For example, there are a lot of subsistence producers. We can’t involve them in an activity of this nature because it would take too much time, so the market has to be segmented and given different treatment. Second, I would have taken everything to do with commercial agriculture and applied this model because it creates a direct link to the market and builds a completely efficient network. The model goes from the primary production in open fields to the primary production in intensive conditions, and it ends with a national agro-logistic system—something they are studying now to better manage it.

In fact, things are already well under way. They’re moving forward in Aguascalientes in the central area. They already took off on the Pacific side in Nayarit and in Veracruz in Coatzacoalcos on the gulf side. Last year, they moved into Chiapas, and this year perhaps they will be in Yucatan. The goal is to have a national network of these metropolitan food clusters, each ideally located. When we discussed it with the secretary of agriculture he included it in his national program. It’s going to be a very different way of doing things and of integrating into the market. For 2014, they received a budget of 1,500 million pesos, two-thirds for the National Agroparks System and one-third for the agro-food clusters. This will enhance the new regional model of agricultural development that FOCIR supports.

One very important caveat is that change needs to be accompanied by education. So the first question is: “How is each zone going to be educated?” In the case of Queretaro, which focuses solely on greenhouses, we set up a technology transfer center five minutes from the park. It’s the growers—the people who have spent years specializing in the development of the product—who train the newcomers in both theory and practice. First, there is training for those who want to be owners because agricultural production in the open field is not necessarily the same as agricultural production in controlled conditions. Second, there is training for greenhouse operators. When a new area opens, new recruits are matched with people from companies that already have experience. Half of the new people start in the old area, and half of the experienced people move to the new area. That way, the experienced half trains the inexperienced half in both places.

Javier Delgado

Former Director General of Mexico’s Capitalization and Investment Fund for the Rural Sector (FOCIR)

Javier Delgado has nearly 40 years of experience in the area of rural and agro-industrial finance. He has held top positions in both the public and private sector, including for the Trust Funds for Rural Development (FIRA), where he served as a director-general deputy of finance.

He pioneered the concept of using investment funds to support agricultural projects in rural Mexico. In 2002, he was appointed director general of the Capitalization and Investment Fund for the Rural Sector (FOCIR), a position he held until his retirement this year. He also serves on the board of directors of the Mexican Investment Corporation (Fund of Funds).

Javier has taught classes and conducted research in the field of agroindustry at the University of Chapingo. He has written extensively on the new model of regional development for agroindustry and the use of private-equity funding to support small and medium-size rural enterprises.

He has participated in various consulting and international seminars on rural financing, including the Assembly on the Financing of the Inter-American Development Bank (IDB) in Fortaleza, Brazil, in March 2002.

Javier has an MBA from Purdue University. He is involved in the Agribusiness Seminar at Harvard Business School and studied appraisal and management at Harvard Kennedy School. He is a diplomat in total quality control at Bouwcentrum International Education, in Rotterdam, Holland.