As aid budgets shrink, how did support for this UN agency grow?

In a world of dwindling aid budgets, one U.N. organization has broken its own record, with its member countries contributing more core resources than ever before in its latest three-year funding cycle. For nearly 50 years, the Rome-based International Fund for Agricultural Development has provided low-interest loans and grants to rural communities. As both a specialized U.N. agency and international finance institution, IFAD supports small-scale farmers, pastoralists, and entrepreneurs in some of the poorest parts of the world, financing small businesses and connecting them to local and international markets. This year, the institution raised $1.42 billion from 93 member states — and counting. That money came in while across the world, conflict, crisis, and disaster were at record highs, forcing the world’s largest development funds to compete for the same dwindling donor resources. According to IFAD President Alvaro Lario, there are two reasons for the surge: IFAD’s unique investment approach, which has earned a reputation for impact, and its focus on small-scale farmers. Over the last two years, those farmers — who produce up to 80% of food in parts of Asia and sub-Saharan Africa — have increasingly taken the spotlight on the world stage, with many hoping they could be key to solving the global hunger crisis. “Countries are wanting to see more and more structural changes and medium-term solutions,” Lario told Devex. “And that’s what we invest in.” IFAD’s latest replenishment cycle began late last year, and it is open until the end of 2027. Though the majority of its contributions have already come in, the organization expects additional money to be pledged until the cycle is complete. But so far, the contributions already represent nearly a 10% jump from the final figures in 2021 — the last time IFAD filled its coffers — and a 27% jump from 2018, the replenishment before that. While the total number is slightly under IFAD’s all-time high in 2012, this year’s replenishment had the highest number of core contributions from its member states, which are tied to voting rights within the organization. While the organization receives other types of funding, such as contributions earmarked for a particular thematic area, the vast majority of IFAD’s support comes through those core contributions. “Food security has become a matter of national security for many governments,” Lario said. “And IFAD is the perfect investment vehicle to actually make that happen.” Growth among giants From the Green Climate Fund last October to the African Development Fund next December, 13 funds are asking the world’s donors for over $100 billion — the highest replenishment price tag in history. IFAD is just one of those funds — and also one of the smallest. “That raised alarm bells for us for a couple of different reasons, the first and really obvious one being that we’re just not in the golden era of development finance anymore,” Clemence Landers, a senior policy fellow at the Center for Global Development, explained. “It’s just getting harder and harder to squeeze resources out of donors.” That trend is aggravated when looking at the donors themselves: Across 13 funds studied by the CGD, the same 10 countries — including the United States, the United Kingdom, and Japan — were responsible for between 60% and 97% of the total funding for those institutions. “I’ve always thought IFAD punches above its weight.” --— Clemence Landers, senior policy fellow, Center for Global Development In the case of IFAD, fewer countries provided core contributions this cycle, but many of those that did gave more money. IFAD’s largest donor, the U.S., increased its contribution by 25% when compared to the organization’s last replenishment, ultimately contributing $162 million. France — which recently announced a €1 billion cut to its foreign aid budget — increased its contribution by more than 40%, with its latest pledge to IFAD at $150 million. “The United States values IFAD’s singular role in the global development finance architecture as the only specialized global development institution exclusively focused on rural transformation,” the U.S. Department of Treasury wrote in a statement last December. A few months later, France made a statement of its own alongside Angola, which contributed $4 million toward IFAD’s latest replenishment. The countries stated that “momentum must be maintained” to fund IFAD, and urged “all Member States who have not yet done so to commit by making as ambitious a contribution as possible” to the organization. Landers did caveat: Of the world’s 10 largest development funds, IFAD is the second smallest, and it’s easier for donor countries to go from a small contribution to a slightly larger one. But even so, she added, the institution’s unique identity as both a U.N. agency and a financial institution has set it up for success. “I’ve always thought IFAD punches above its weight,” Landers said. “The borrower countries love it, and the donor countries seem to really like it. And that puts IFAD in a really good position.” IFAD’s replenishment is still ongoing, and during the organization’s governing council meeting earlier this year, IFAD and its member states announced they would try to reach $2 billion in new funding — money that IFAD would then use to finance nearly $10 billion. The IFAD approach IFAD turns every dollar it receives from its member states into six dollars on the ground, according to the agency. It co-finances projects with public and private sector institutions to do so, often drawing investments from the very countries IFAD programs are operating within. “The key part that we always bring up is finance and financing,” Lario said. “It’s clear that official development assistance will not be enough, so we need to make sure to have the mechanisms to also de-risk, to blend finance, and to bring local private sector, local banks, local financial institutions to support in this transition of food systems.” In 2020, IFAD became the first U.N. fund to receive a credit rating. Two years later, it became the first U.N. agency to issue bonds. As a result, IFAD is the first U.N. body to operate on capital markets, aside from the World Bank Group. There’s also a formula to IFAD’s programming itself. It begins with governments, Lario explained: IFAD partners with ministries to understand which priorities it should invest in, from regenerative agroforestry to water management. Then, IFAD designs those projects with in-country partners. In many cases, Lario explained, that includes farmers’ organizations, women’s associations, and other community-based groups, many of which co-invest — and as a result, co-own — the project and its processes. Those partners then implement the projects with IFAD’s technical and financial support. As an example, Lario brought up Côte d’Ivoire, a country where IFAD has invested in a mango cooperative of 1,000 women. Before the project, mangoes were rotting away because the farmers had nowhere to store the fruit. But after IFAD issued a concessional loan to the group, Lario said they were able to procure the machinery to dry the mangoes, package them, and export the product to Switzerland, increasing the value of the mangoes themselves. That project was co-financed with the OPEC Fund for International Development, the national government of Côte d’Ivoire, and the women themselves, according to IFAD. “In Africa, there were $35 billion of food imports in 2015,” Lario said. “This next year, we are projecting $110 billion of food imports. Imagine the number of jobs we could create if we would be able to produce, and locally transform, a lot of these products — just in Africa. It would be a total game changer.” And luckily for IFAD, more of the world is turning its attention to just that. Meeting the moment Russia’s war in Ukraine shattered the world’s food systems. After two years of pandemic-related shocks, the war caused food prices to hit an all-time high — an escalation triggered by the destruction of Ukrainian grain fields, the disruption of export processes, and a blockade in the Black Sea. It was a situation that hit Africa particularly hard, as before the war, the continent imported about a third of its wheat from Ukraine and Russia. Soon after, Africa was facing a grain shortage of 30 million tons — and that gap, along with rising costs of energy and fertilizer, caused food insecurity to soar. That’s despite the fact that 70% of Africans make their living through agriculture, and more than half the world’s arable land is on the African continent. “There has been a big shift in the global community after the Ukraine war,” Lario said. As a result, programs focused on enhancing local supply, production, and resilience were placed in the spotlight — especially those looking at small-scale producers. There was the launch of the U.S. State Department’s Vision for Adapted Crops and Soils, which now invests in local crops across Africa, the Pacific islands, and Guatemala. There was also a declaration signed by more than 160 countries at last year’s U.N. climate conference, which committed nations to integrating food and agriculture into their climate planning. And IFAD, which had been there all along. “In a time when food insecurity is on the rise and there’s a really direct linkage to climate change, there’s a really, really competitive narrative there,” Landers explained. “I think part of this IFAD appeal is that. It’s really an intersection, and it’s something that’s tangible, concrete, and quite easy to explain.” That’s not to say agriculture is swimming in cash. From 2021 to 2022, official development assistance did increase toward the sector — but with a rise of just over 5%, it is still receiving a sliver of overall development aid, according to data from the Organisation for Economic Co-operation and Development. Still, Landers said donors may have found IFAD an easier sell than the larger, more general development funds. Over the last 20 years, the share of donor pledges going to multilateral development bank concessional funds has dropped from over 75% to under 50%, the CGD study has found — and at the same time, more specified funds have seen the reverse. Health funds have nearly doubled their share of total pledges, while climate funds have tripled. “One of the things that we’ve started to notice is that donors seem to be increasingly comfortable giving their grants to funds that are a little more targeted,” Landers said. “I think partially, that’s because it's easier for a donor to explain to their enabling environment — to their congress, or to their parliament — what it is the fund is doing.”