Scaling Investments in CSA – summary of IFAD’s Nov 2022 note
The subject is key to SOTF and SDGs. The impact smallholder famers have on the global economy is well established. Their funding needs are approximately US$340bn resulting in an annual gap of $330bn. As discussed earlier the international financial architecture needs to shift significantly to cater for more and faster; especially since this is all happening against a backdrop of deteriorating climate change. Public sector cannot hold the burden. What this IFAD note proposes and what must be heeded to is the need for targeted action plans. I list some from the note I find particularly practical:
https://www.ifad.org/documents/38714170/46712954/skd-brief-climate-finance.pdf/dc90c752-6738-03d8-f80b-b67c03ae83ca?t=1668676638672
- Earmarked taxes: depending on different impacts like sustainability, economic side effects and appetite for new taxes.
- Public guarantees: a government guarantee covering losses would make a risky investment more secure. Strong contract management is necessary for such an eventuality.
- Weather-indexed insurance: some safety net for weather is a must for smallholder farmers whether in the form of low-cost insurance or targeted subsidies so that we see an increase in Climate smart investment. Again, the success of this depends on well-defined regulatory contract management.
- Result-based financing: This has worked for conditional cash transfers on the SSN side. Behavioral induced grants. New financing products for agriculture can be introduced after smallholder farmers produce results. Social impact bonds have been successfully linked to results-based system. This can work well in remote areas with investor funds especially after models are scaled up.
- National climate funds: adaptation, mitigation, technology development, capacity building is what the grants need to be used on. The funds need to be pooled from all financial stakeholders. Successful Green funds ensure that the impact of the loan should be greater than the cost of the debt. Again strong M&E, frameworks and legislations must be put into place for the Funds success.
- Bare minimum: “debt level, capacity to deploy and administer, legislative authority, data and M&E systems” This is the environment required. Political well, coordination between key industries of finance planning agriculture are key.
All the above is not new to the industry. It is happening in underdeveloped countries. There are results for this action plan. There needs to be political will to understand the impact. What stares at us is the staggering funding gap. Where there is a challenge there is possibility for huge impact. It’s a worthy journey to be on.