Scaling investments for rural food systems transformation

On the occasion of IFAD President Dr. Alvaro Lario´s visit to Sweden, several Swedish actors had the opportunity to dialogue on how to scale up investments to transform rural food systems. Such transformation will ensure food security and safeguard the very existence of millions of rural people whose lives and livelihoods are threatened by climate change, local conflicts, crop and animal diseases and infrastructure deficits.

Food systems play a crucial role not just in building up economies and rural development but also in supporting the fight against extreme poverty and climate change. In addition to food production, which is often the starting point of discussions, food systems encompass everything from farming to consumption, including ecosystem functions, food distribution, processing, commercialisation, waste management and the governance frameworks that guide these components.

In recent years, there has been a noticeable increase in poverty and food insecurity among rural smallholders. According to the latest State of Food Security and Nutrition in the World (SOFI) report, over 122 million more people globally are facing hunger since 2019. This is partly due to the Covid-19 pandemic, repeated weather shocks, disease outbreaks and conflicts. Unfortunately, food insecurity affects more people living in rural areas who are vital to improving the resilience of local food systems and feeding their communities. Small farms in Africa and Asia produce approximately 70% of the food, but many lack access to essential services, resources, commercialisation opportunities and infrastructure, making it difficult for them to make a decent living.

”Investments in small-scale farmers and in their adaptation to climate change, access to inputs and technologies, and access to finance to set up small agribusinesses can make a difference.”

In his address, Dr. Alvaro Lario underscored the need for improved financing and the inadequacies of the current flows. While emphasising the importance of Official Development Assistance, he stated that it has only provided 5% of the funding over the past few decades. To put this into perspective, out of approximately 200 billion dollars, only 10 billion dollars has been provided annually. However, to have a sustainable, inclusive, and resilient food system, around 300 to 400 billion dollars every year is required. This number evidences the significant gap between the amount provided by Official Development Assistance and the actual amount needed to transform food systems. “Right now, our food is produced within this reality, so it’s crucial to discuss these flows in a general sense”, IFAD president said.

Private sector is vital for building resilient and inclusive food systems

Ongoing discussions with Swedish stakeholders evolve around building upon the Official Development Assistance to achieve our goals. This includes the vital contribution of the private sector which remains the largest store of capital worldwide.

Every year, a massive amount of subsidies worth around USD 700 billion are provided for food systems while foreign direct inflows are estimated to be around USD 300 to 400 billion. Both financial inflows are supplemented by remittances totalling around USD 600 to 700 billion annually. While these remittances can potentially transform rural economies, up to 60-70% of them are used for subsistence rather than economic activities, which poses a significant challenge.

IFAD president emphasised the need for improved financing considers that “the key to unlocking this potential lies in the private sector.” The private sector includes not just big international companies, but also smaller micro and medium enterprises. Investing in the local private sector could unlock around 1 trillion dollars of investments and create over 100 million jobs. In Africa alone, about 12 million young people enter the job market every year, but only 4 to 5 million jobs are created, which leaves a huge gap. The consequences of this gap are significant, ranging from conflict over resources to forced migration. Additionally, there are other costs to consider, such as health costs and environmental costs, which can amount to trillions of dollars.

“The potential impact of investments in agriculture is massive and can truly transform the lives of many in extreme poverty. For us, it’s not just about subsistence agriculture but also about productive agriculture that creates job opportunities and improves livelihoods.”

How can institutions and efforts collaborate with the private sector?

Public development banks, which hold over two trillion dollars in assets, represent 10% of the global GDP. These banks are also significant contributors to financing agriculture, with over 110 public development banks leading IFAD’s coalition on financing sustainable agriculture. To support these efforts IFAD aims to share best practices and ways of mobilising, de-risking, and catalysing investments. This approach is crucial in creating the necessary ecosystem and financing for agriculture.

IFAD has successfully mobilised private sector finance by leveraging its credit rating. In fact, it is the first United Nations fund to receive a credit rating and attract investment from pension funds. By working with the private sector, IFAD has also begun investing with its own assets. For instance, IFAD is working with public development banks such as the Nordic Development Fund and Nordic countries on an Africa-wide project to help smallholders adapt to the effects of climate change. An example is IFAD’s funding for the expansion of the Babban Gona franchising model in Nigeria which provides farmers with inputs, training in precision agriculture, credit and market access.

“Our focus has been on how we can effectively collaborate with the private sector to address the challenges faced by smallholders in the face of climate change.”

Fostering collaboration in scaling up financing

During the meeting, the panellists expressed their satisfaction with private initiatives. Alarik Sandrup, director public and regulatory affairs, Lantmännen mentioned that, “relying on the government or state for support is not a viable solution, and the EU’s Common Agricultural Policy is also inadequate”.

The discussion highlighted the need for increased productivity and resource efficiency in production, particularly in developing countries, where farmers have limited resources to produce their crops. Moreover, it was emphasised that effective implementation of the theory of change model which includes meticulously planned impact pathways and how they will be attained is crucial to ensure that the initiatives remain sustainable even after the funding is stopped.

In addition, Viveka Risberg, programme manager for Sustainable Production and Consumption at Axfoundation introduced a project named ”Rice to Pakistan”, which involves the whole value chain, including Axfood, a commercial food retailer in Sweden, a Norwegian wholesale company, a Polish importer of rice and mills in Pakistan. The project aimed to train farmers in sustainable farming practices and eliminate the middleman to provide smallholders direct access to the mills and exporters. Thanks to its success, the project is now self-sustained.

Finally, on a more human rights-based approach, Henrik Brudin, director of Swedbio, highlighted the importance of eradicating hunger and poverty in developing countries from the perspective of small-scale farmers, diversity, and indigenous peoples. He reported excluding local organisations, indigenous peoples, and small-scale farmers from financial flows, which are increasing due to current structure of biodiversity and climate financing. Although the multilateral system aims to support poverty eradication, there is a risk of promoting individualism and deepening inequality through this funding. Due to bureaucratic requirements, many grassroot organisations are not equipped to receive funds, and they bear witness to this exclusion.

” The transition to a sustainable food system requires innovation and a keen ear to the indigenous and local knowledge possessed by these organisations.”

A fruitful discussion with participants followed the panellist discussion:

• Need to assist young people who are the next generation to develop the rural areas and agriculture amidst rural-to-urban migration and digital revolution, Lennart Båge, former IFAD president and board chairperson of the Stockholm Environment Institute (SEI) .
• Katarina Eriksson, Director at Tetra Laval introduced the Food for Development team, which helps farmers to increase their profitability by improving their knowledge, building their capacity and supporting them to sell their products directly to customers, eliminating middlemen. Tetra Laval would appreciate the opportunity to explore potential opportunities for collaboration.
• Need to invest in storage infrastructure to cater to the already produced food and consider this as a solution to manage what we already produce before thinking about increasing productivity. Enoch Owusu-Sekyere, researcher at the department of Economics, SLU
• The importance of supporting development aid with humanitarian aid is crucial, and it’s essential to focus on sustainability and collaboration between Rome-based agencies, Cecilia Nordin, SIANI chairperson.
•  The resilience of financing systems in vulnerable and fragile parts of the world is a major challenge. It’s extremely hard to convince investors to finance projects in these regions due to the high risk involved, so there’s a need to gather evidence and data on the amount of risk reduction that can be achieved. This will require both research and engagement with the private sector, Cibele Queiroz, researcher on social-ecological resilience at the Global Resilience Partnership and the Stockholm Resilience Centre.
• Ensuring accountability and proper distribution of funds to established organisations in Zimbabwean cities is crucial. This is particularly important considering the difficulties in reaching small-scale farmers living in remote areas. Tapiwa Yemeke, Global External Relations and Mobilization Officer at LM International.
• The value of addressing funding gaps and exploring potential of untapped opportunities for additional funding. This includes the potential to utilise IFAD’s new credit rating for providing new investment opportunities. Marcus Svedberg, chief economist at Folksam.