Scaling up finance for sustainable food systems through blended finance: six catalytic actions

INSIGHTS —

Collaborative innovation and blended finance can de-risk and scale investments for healthy, sustainable food systems.

A new discussion paper from the CGIAR Research Program on Climate Change, Agriculture, and Food Security (CCAFS) — with support from Convergence, CIAT, UNEP, Rabobank, and the International Water Management Institute — finds: 

• Sustainable agriculture is systemically underfinanced in developing countries — disproportionately, relative to other sectors — despite its critical contribution to many SDGs.
• The development finance community needs to collaborate with private financial institutions and investors to leverage limited public funding and increase investment.
• Investment in sustainable agriculture in developing countries is risky and therefore beyond the investment mandate of most private investors; de-risking through smart blended finance is an effective development tool.
• De-risking through blended finance will introduce new investors and demonstrate commercial viability of investment so blended finance can be phased out over time.

The paper was produced by Andrew Apampa, Chris Clubb, Bethany Emma Cosgrove, Gretel Gambarelli, Hans Loth, Richard Newman, Vanesa Rodriguez Osuna, Joke Oudelaar, Angele Tasse. Drawing on the Food System Summit dialogue #RestoreOurEarth, which included more than 100 public and private sector stakeholders, they present the shortcomings and opportunities around blended finance and call for a fundamental shift in the agricultural sector, where commercial banks, development finance institutions and other financial intermediaries can become “enablers for food systems transformation”. 

The authors note the importance of “platforms like the UN Food Systems Summit and the Finance in Common Summit, as well as collaborative networks such as the Good Food Finance Network to create opportunities for different types of actors in the financial supply chain for food systems to work collaboratively and make tangible commitments towards sustainable, equitable and resilient food systems and change course for the upcoming decade.”

Hans Loth and Joke Oudelaar, writing in Devex, present Rabobank’s tips for a successful blended finance approach: 

• Cooperation within the development community is needed to set-up special blended finance windows for banks to work with.
• A standardized approach toward SDG impact standards and measuring must be implemented.
• Delegated authorities from blended finance entities to banks are needed for scale.
• A technical assistance facility, funded by grants, can contribute to the transition, e.g. through the development of new business models, such as carbon credits, or incentives for farmers to produce sustainably.

They also cite the context in which demand for rapid, transformational change is emerging: 

“In 2050, the global population will grow to nearly 10 billion, increasing the demand for food by 70%, while dietary preferences of a large part of the population will shift toward higher value agricultural products, such as meat, fruits, and vegetables. 

But global food systems are currently already a major source of greenhouse gas emissions, deforestation, and the loss of biodiversity. The expected increase in food production will only add further pressure to these natural resources. That is unless the global food system transforms and adopts more sustainable practices, allowing it to produce more while protecting and restoring natural resources. This is easier said than done.”

To that end, the discussion paper offers a 6-point action plan to increase investment in sustainable food systems. All 6 recommended actions are simple but critical, fully within the control of the development community and can be realized within the next 18 months using existing financial resources: 

1. Donors commit to allocate 10-20% of their ODA funding to private investment mobilization. 
2. Shareholders govern MDBs and DFIs with targets for total investment and mobilization to sustainable food systems. 
3. Development community and private sector directly collaborate including mapping the financial intermediation chain for sustainable food systems and then boosting investment through the chain. 
4. Development community creates Call for Proposals to allocate collaboratively their scarce catalytic ODA financial resources to best mobilization proposals. 
5. Champion public knowledge hubs for successful financing solutions that foster sustainable food systems. 
6. Build inclusive and resilient agricultural value chains through evidence-driven incentives and coordinated technical assistance programmes. 

The Good Food Finance Network background work toward a cross-sector Action Agenda has identified blended finance as one of the major actionable areas of innovation. The GFFN partners and wider community of advisors will work to identify instruments, strategies, policies, and related metrics and data systems, that can be most useful to practitioners working to deploy innovative blended finance approaches for healthy, sustainable food systems. 

• Read the CCAFS discussion paper here. 
• Read the Rabobank perspective in Devex.