'They're already struggling': Smallholder farmers need more access to climate finance

WASHINGTON — The agriculture sector is one of the world’s largest contributors to global climate change. But reaching farmers with financing to promote climate-smart and adaptive practices can be difficult as such a high percentage of those growing the planet’s food are smallholders. While many aspects of climate finance remain difficult to track, financing to smallholder farmers is particularly tricky because there are so many around the world, with such vastly varied access to formal banking, insurance products, government programs, technical assistance, and digital connectivity. They often do not have enough savings to invest in a new product or practice touted as climate-smart, if there is no guarantee it will ensure a sufficient yield. “We don’t know how much climate finance is actually reaching smallholder farmers. We know it’s not a lot, but we don’t have the numbers,” said Ricci Symons of the International Fund for Agricultural Development’s environment, climate, gender, and social inclusion division. “We think more climate finance specifically should be earmarked for smallholders, not just [the] general agriculture sector.” Macro-level financing IFAD is currently researching how much global climate financing is making its way directly to farmers to get a better picture of what else is needed. The agency began its own climate finance direct to smallholders in 2012 — upon the realization that mitigation efforts were not going to be enough to stop climate change and adaptation was also necessary — and created a $360 million fund to assist smallholders, financing 42 projects in 41 countries. The grants were added on to existing loans to governments, which develop country strategies in conjunction with IFAD. “Getting finance to the local level is essential. You’re dealing with millions of small farmers as opposed to thousands of big farmers.” --— Bruce Campbell, director, the CGIAR Research Program on Climate Change, Agriculture and Food Security Symons says that each government must support adding climate-related projects to the country strategies that IFAD then helps design and supervise. Projects are ultimately owned — and must be wanted — by the government. “They didn’t want to pay for adaptation, as they shouldn’t have to,” Symons said. “You do a lot of research, you check that it’s wanted, etc., but you never know whether this will be as impactful as you want it to be and so you can’t expect a government to borrow money to trial something like this,” Symons said, noting that IFAD was able to have a large influence in making projects climate adaptive by adding grant financing onto existing country projects. According to Berber Kramer, a research fellow at the International Food Policy Research Institute, if a government is borrowing from a large institution to finance climate projects, they often use government extension services that get funds and new agricultural knowledge to the ground. “If, let’s say, a World Bank program is providing a loan to a government to promote investments in climate-smart practices, that doesn’t make it down automatically to the farmer,” Kramer said. But not all farmers have equal access to extension agents, who are often male, which can leave female farmers excluded, she added. Reducing risk through insurance Farmers themselves are often uncomfortable making an investment in a new climate-smart product or practice without additional help, according to Bruce Campbell, director of the CGIAR Research Program on Climate Change, Agriculture and Food Security. One way to mitigate this is through index insurance, products that can provide financial security for individual farmers who are wary of taking on the risk of a new seed variety or planting technique over their traditional practices. The indexes can be based upon a variety of factors, such as the amount of rainfall or temperature. If these metrics fall above or below a certain threshold, a farmer would automatically receive a payout from the insurance company. This model ensures money stays in the farmer’s pocket when it is needed most — during a volatile growing season. Traditional insurance can take much longer to distribute payouts, meaning that by the time a farmer receives money to compensate for losses, they have already sold off assets to meet their daily needs. Campbell expects index insurance to be a large area of growth in climate-related financing in the coming years as access to devices like smartphones increases. “Getting finance to the local level is essential. You’re dealing with millions of small farmers as opposed to thousands of big farmers,” Campbell said, adding that if you can reduce the risk to farmers then they will invest more in technologies. “Insurance is not only to solve the loss of assets, but it’s actually to make the best opportunity of the good years. Because what tends to happen is farmers are too conservative because of the climate risks or other risks, and therefore they don’t invest,” Cambell said. He noted that although index insurance over conventional insurance products is growing in popularity, it still has a long way to go to reach more smallholders globally. In Africa, he said, only a fraction of farmers have any insurance at all. The success of index insurance also depends on the accuracy of local weather data, so payouts can be triggered at the right time. Success could also depend on whether technological infrastructure is available. Index insurance products, which potentially involve taking photos with a smartphone, may require connectivity to access a digital platform, and depending on the country’s network and smartphone proliferation, this could make adoption difficult. “Smallholder farmers are really the backbone to the food system. They’re the ones feeling some of the most severe impacts of climate change.” --— Stefanie Tye, climate resilience practice research analyst, the World Resources Institute Scaling climate finance to smallholders Private sector involvement can also help financially link insurance products to climate-resilient outputs. IFPRI is working with seed companies in Kenya and India to see if providing guarantees to farmers who use a new type of climate-adaptive seed will increase uptake and behavior change. It can also help insurance products reach scale because seed companies have tens of thousands of customers. “Seed companies could be one natural entry point to provide ... the better technology, the better seeds that help farmers adapt to climate change, but also an entry point to be providing these insurance policies,” Kramer said. “It could be possible for the seed company to say ‘hey, buy my seeds and it comes with an insurance policy. If this seed fails, you’ll receive a new bag of seeds.’” Smallholders also have difficulty accessing traditional credit, often lacking bank accounts or links to the formal financial system. Kramer said that banks can be hesitant to lend to many farmers in one area because if a climate shock hits, the financial institutions are left with a portfolio of loans that have a high risk of default when crops are destroyed and farmers cannot pay back what they borrowed. Convincing any smallholder to take up — and pay for — climate-smart agriculture practices can be challenging when most of their energy is concentrated on ensuring their next seasonal harvest will earn them enough to feed their family. Stefanie Tye, a climate resilience practice research analyst at the World Resources Institute, works with coffee farmers in Costa Rica to understand how they are addressing climate change and what motivates them. “When it comes to funding for climate adaptation, farmers [are] not really thinking of ‘what are the impacts for the next five or 10 or 15 years on my farm?’ They’re thinking more to next year’s harvest … but not necessarily considering how they’ll have to change farming in these fundamental ways to keep up with climate change over the long term,” Tye said. “That’s another awareness gap.” Tye has studied how peer-to-peer programs in Costa Rica, which has a culture of conservation and awareness of the importance of the environment, can encourage the adoption of climate adaptive practices by farmers learning from their neighbors. This allows smallholders to be able to see how a particular practice may have protected crops in neighboring fields from adverse climate shocks. But even if a farmer sees the benefit of replacing crops with climate-resilient varieties, it does not necessarily mean they have access to financing to do so. “Smallholder farmers are really the backbone to the food system,” Tye said. “They’re the ones feeling some of the most severe impacts of climate change. Since they’re already struggling in the foreseeable future, they’ll be struggling even more if they don’t get the support that they need now.”