Financing the agrifood system transformation – There is no lack of money to do it

The case for agrifood system transformation is clear. Food insecurity has been on the rise since 2014, with acute food insecurity now at its highest level since its formal monitoring started. The enormous hidden costs of the global agrifood system, estimated at about $12 trillion/year, are a strong indication that it is no longer fit for purpose.

With global temperatures now higher than when humankind starting practicing agriculture about 10,000 years ago, it could be argued that the global agrifood system is already in unchartered territory. Rapidly unfolding climate change in combination with growing adaptation gaps imply that the global agrifood system is facing increasingly stronger headwinds in its pursuit of higher productivity. At the same time, the global agrifood system needs to provide food for two billion more people by 2050 and become net-zero along the way to ensure achieving the objectives of the Paris Agreement.

The cost to transform the global agrifood system to make it more resilient, nutritious, inclusive, and net-zero is estimated at about $500 billion/year for the next 10 years. The good news is that being much smarter about existing financing flows will go a long way in making the agrifood system transformation a reality.

In this respect, I would like to highlight seven relevant financing sources that could be tapped into to move to a global agrifood system that, besides being productive, is resilient, sustainable, inclusive, nutritious, and net-zero:

Repurposing public support: There simply is no sound economic rationale to provide about $650 billion per year in public support to a global agrifood system that generates about $12 trillion in hidden costs. For every dollar of public support, the agricultural output is increased is just 35 cents. There is a very strong case to be made for repurposing this support to provide better incentives to farmers to generate better nutritional and environmental outcomes. In this respect, it is a great to see that 159 heads of state and heads of government have endorsed the UAE Declaration of Sustainable Agriculture, Resilient Food Systems and Climate Action, which includes an explicit reference to the need to: “Revisit or orient policies and public support related to agriculture and food systems to promote activities which increase incomes, reduce greenhouse gas emissions, and bolster resilience, productivity, livelihoods, nutrition, water efficiency and human, animal and ecosystem health while reducing food loss and waste, and ecosystem loss and degradation.”

Improving the quality of private sector investments: Agriculture is a private sector activity. Accordingly, private sector financing and spending on agriculture and food, estimated to be about $2 trillion/year, could go a long way in fostering agrifood system transformation. The sobering reality is that there are many good intentions, but very little visible progress at scale on the ground. As evidenced in the recent World Benchmarking Alliance Food and Agriculture Report, only a small minority of agrifood companies have put in place a comprehensive set of sustainability targets. There is an urgent need for effective public-private-partnerships, reflecting an appropriate balance of carrots-and-sticks, to improve the quality of private sector financing in the agrifood space.

Scaling-up climate financing: The goals of the Paris Agreement to keep global warming below 2 degrees and preferably below 1.5 degrees will not be achieved without achieving net-zero emission in the agrifood system. At the same time, the global agrifood system receives only about 4%, or about $28.5 billion of total global project-level climate financing, estimated at $660 billion per year. Considering that the global agrifood system accounts for over 30% of global greenhouse gas emissions, and taking into account the notion of a Just Transition, there clearly is a very strong case to be made to scale up [concessional] climate financing to the sector to avoid a situation where the world’s farmers—the majority of whom are smallholders—are expected to do more for the climate without being compensated for the global public goods they provide. To make this happen, the development of low-cost, almost real-time, Measurement, Reporting, and Verification (MRV) protocols to accurately measure carbon and emissions in agricultural production systems would be an important step forward in unlocking this $200+ billion/year opportunity.

Addressing fragmentation of ODA financing: ODA financing to agriculture is about $10 billion/year. However, it's extremely fragmented nature is very much at odds with the holistic notion of agrifood systems that many donors have adopted in their narratives. In 2018, bilateral donors reported a total of 13,649 aid activities for agriculture to the DAC, with an average size of $0.5 million, thereby incurring substantial transaction costs and significant risks of duplication. To address this, there is a need to shift ODA financing towards sector-wide approaches using co-financing arrangements while deploying output-based financing modalities. The World Bank’s new Global Challenge Program for Food and Nutrition Security aims to provide an effective platform for this to happen at scale.

Tailoring loss & damage financing: Climate change has already reduced global agricultural total factor productivity (TFP) by about 21% and 40% in many African countries since 1961. Data from post-disaster assessments conducted between 2007 and 2022 indicate that agricultural losses accounted for an average of 23% of the total impact of disasters across all sectors. Droughts alone caused over 65% of losses in the agriculture sector during this period, translating to an estimated $3.8 trillion worth of crops and livestock production lost in the last 30 years. Accordingly, farmers are in the front-line when it comes to being affected in their bottom-line by the rapidly unfolding impacts of climate change. In view of this, there is a strong case to be made that agriculture has a dedicated seat at the table when eligibility criteria for the new Loss & Damage Fund are being defined and financing being allocated.

Rethinking poverty lines: With a few exceptions, poverty lines in most countries are calorie-based. As a result, social protection programs intending to alleviate poverty are not necessarily nutrition sensitive. Considering that as of June 2023, countries were investing over $1 trillion in social protection responses, there is a significant opportunity to improve nutritional outcomes by using nutrition-informed poverty lines as the benchmark for targeting and designing social protection programs. Doing so would particularly benefit women and children who always are hardest hit by food and nutrition insecurity.

Targeting debt relief: Many countries that are food insecure are also highly indebted. To the extent that debt swaps are being considered as part of the solution, there is a case to be made to provide debt relief through debt-for-food security swaps. The resulting improvements in food and nutrition security will help reducing childhood stunting which will cause irreversible gains in physical and cognitive development. Accordingly, there is a very strong permanency argument in favor of debt-for-food security swaps. Also, linking debt relief to the plight of children by avoiding stunting through improved food and nutrition security could potentially provide a strong motivation for private creditors to come along to avoid reputational risks.

So, here it is, there is no lack of money to finance the agrifood system transformation that the world so urgently needs. What is needed is the political will to make it happen. If not, humankind is itself to blame to see unfolding what is already happening now, sadly enough, in the birthplace of agriculture: “where civilization emerged between the Tigris and Euphrates, climate change is poisoning the land and emptying the villages”. The endorsement of the UAE Declaration of Sustainable Agriculture, Resilient Food Systems and Climate Action by 159 Heads of State and Heads of Government is an important step in the right direction. Now, let’s fully implement it!