Opinion: Public development banks — a bridge to better food systems?

The world today faces multiple challenges: climate change, biodiversity loss, hunger, poverty, and rising inequality — all in addition to the health and economic fallout of the COVID-19 pandemic. If the past 18 months has taught us anything, it is the need for strong, united, and decisive action on a global scale.

At a time when human health and the health of our planet are intertwined like never before, it is clear that to protect both, we need to tackle the failures of our food systems. If we do not change the way we produce, process, transport, and market food, the planet’s future food security and nutrition may be at risk.

Our food systems are not delivering the nutritious food required for a healthy diet, often encourage obesity, and don’t provide decent livelihoods to the people growing and producing our food. In addition, they are a major contributor to climate change.

For all these reasons, food systems need to be transformed. And at the United Nations’ Food Systems Pre-Summit in Rome next week, I will be one of thousands participating in a global conversation on how precisely to do that. One thing is for certain: We need better finance to have better food systems.

Public development banks, or PDBs, that invest in food and agriculture as part of their portfolio currently account for almost two-thirds of the formal financing for agriculture. With estimated annual investments reaching $1.4 trillion, according to forthcoming research by Institute of New Structural Economics and Agence Française de Développement, their role can be game-changing. They could help drive the shift to more environmentally sustainable and fairer food systems delivering nutritious diets and equitable livelihoods for all.

Rural farmers are central

At the foundation of food systems are farmers. Small-scale farmers, who produce roughly a third of the world’s food, are critical to food security. Yet millions of them live in poverty, and they also need to adapt to climate change to survive.

Farmers need financial services. They need loans to buy seeds for next year’s crops and credit to purchase fertilizer, fuel, and other inputs. They need a safety net when crops fail or during the “hungry season” between harvests to ensure they are not trapped in poverty and vulnerability. And they need knowledge and access to innovation in areas such as sustainable and climate-smart agricultural techniques. Digitalization can help them access services and know-how. But this all costs money.

However, financial institutions often face high transaction costs and risks when engaging in food and agriculture — especially when it comes to small-scale clients or clients with limited physical assets or credit history, including small and medium-sized enterprises, small-scale farmers, women entrepreneurs, and youths.

What we need are powerful actors — players with the political will to drive a new agenda and the financial clout to make it happen.

Trillions needed to transform food systems

The transformation to food systems that can deliver a healthy planet, economy, and communities will require $300 billion to $350 billion a year for the next decade but could have economic gains to society totaling $5.7 trillion annually.

The task may seem overwhelming, but the world’s financial system has resources that could be put to work to address the inequities and inefficiencies of our food system while reducing its harmful impact on the planet.

Together, PDBs have the financial power to make a difference. But for that to happen, the PDBs themselves need to change. Green climate finance needs to be made inclusive. While climate change is an existential threat to millions of small-scale farmers in low-income countries, they get only 1.7% of climate finance — a fraction of what they need to adapt.

Many PDBs need to repurpose, improve governance and transparency, optimize, and scale up their financing for social and green investments. That requires better sharing of expertise to be able to access public climate finance, mobilize green investment capital, and design the right instruments and programs. These PDBs will need to develop know-how and strengthen their policies.

The way forward

One solution is to join forces. As highlighted earlier this month in the Matera Declaration on Food Security, Nutrition and Food Systems released by foreign affairs and development ministers from the G-20 group of nations, PDBs with investments in food and agriculture are coming together to maximize financing for food systems transformation, under the leadership of my organization, the International Fund for Agricultural Development.

IFAD has been investing in small-scale farmers and the remotest and most marginalized communities for decades. That’s why it’s in a unique position to share its experience channeling green financing toward the financial inclusion of small producers who often lack access to markets, credit, knowledge, and technology.

At the Finance in Common Summit last year, representatives from PDBs formally declared their commitment to shift their business strategies, investment patterns, and operating procedures to achieve the objectives of the Paris climate agreement and the U.N. Sustainable Development Goals, while helping to build back better after the pandemic.

A separate statement was also signed by a group of PDBs committing to strengthen their investments in sustainable food and agriculture. Yet if these good intentions are to translate into improved livelihoods for the rural poor and food systems that are more resilient to economic shocks and climate change, PDBs need to collaborate and share more expertise and technical know-how.

IFAD, as the only multilateral development institution that focuses exclusively on transforming rural economies and food systems, is now facilitating an initiative to help the PDBs share knowledge and strategies to increase coordinated and impactful investment for the world’s lowest-income people.

PDBs must make concrete efforts to channel investment to those who are most in need: the small-scale farmers and rural businesses that form the backbone of the food system in lower-income countries. That is what it truly means to build back better while leaving no one behind. We need to act now if we want to free the world from hunger and poverty by 2030 and offer a sustainable future to the estimated 2 billion rural people who grow much of our world’s food.