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Design of Asia Aquaculture Facility (AAF)

Overview: Convergence awarded a feasibility study grant to the consortium of ADM Capital Group, IDH - the Sustainable Trade Initiative, and Alune Aqua to design the Asia Aquaculture Facility (AAF), a blended finance solution that utilizes a revenue-based financing model for aquaculture farmers to engage in sustainable intensive aquaculture in Asia and support mangrove conservation. The aquaculture sector plays a critical role in ensuring food security, however the limited yield and profitability of traditional semi-intensive aquaculture limit the overall production potential of the sector.

Convergence’s grant will explore the feasibility of establishing the AAF, which will provide revenue-based financing for sustainable aquaculture intensification through a debt fund, and support mangrove conservation and reforestation through a linked technical assistance facility. AAF will have an initial size of $10-20 million and focus on Indonesia, with a target to scale up to $100 million and potentially expand to India, Vietnam, and the Philippines. It will engage with value chain actors and broader stakeholders to bolster the transition to sustainable aquaculture intensification.

AAF will take a two-pronged approach to improve the natural capital assets surrounding the aquaculture farms, first improving coastal water quality and carrying capacity (i.e. the limit of a certain coastal zone capability to support all human created activities), and second, facilitating reforestation and afforestation of mangrove ecosystems.

__Design question and learning potential for the market: __ How can a revenue-based financing mechanism be designed for sustainable aquaculture intensification in Asia?

The feasibility study will identify suitable financing products for aquaculture farmers, considering both farm performance improvement and natural capital gains. A revenue-based financing model will then be developed based on the identified products and by incorporating learning from a previous pilot on profit-sharing arrangements to finance sustainable aquaculture by Alune Aqua. AAF will also test out implementation strategies in partnership with relevant value chain actors (input supply companies and seafood processors). The consortium will investigate appropriate financial and legal structures for AAF and build upon the existing stakeholder engagement in local communities to generate buy in.