he world is facing a critical problem of delivering a sustainable and secure food supply for its growing population against a backdrop of climate change. By 2050, the population of Southeast Asia alone is expected to reach 700 million and food demand is estimated to increase by 40%. This is coupled with an increasing scarcity of viable land and water, and the wider impact of climate volatility on all major food-producing areas.
It is evident that system-wide transformation is required to accelerate the transition of our global food chains to a more climate-ready future. Sustainable agricultural technologies hold the key for this transformation, but outdated financing solutions are holding many regions back. Technological innovations can improve resource efficiency, minimize the environmental impacts of farming, and enhance overall productivity—but only if farmers can afford them. The global smart-farming market is expected to account for over $33 billion by 2030, and, with consumer demand for sustainable food poised for explosive growth in the next decade, this presents a significant opportunity. However, the benefits of technological advancements are unlikely to be fully realized unless capital flows can reach the smallholder farmers who lie at the front line of climate change.
In Southeast Asia alone, there are over 70 million small- and medium-sized enterprises and smallholder farmers who constitute a significant portion of the global agricultural supply base. This represents a large and untouched opportunity to develop technology that will equip them with the tools to transform their farming practices and enhance productivity. However, these small businesses face many barriers that hinder their adoption of technology.
Both farmers and governments are receptive toward strategies to boost yield, reduce waste, and build resilience. Yet most agree that the high costs of implementation are simply out of reach for many rural economies due to flaws and inequities in traditional finance models.
Adopting new technologies typically requires a capital investment of less than $15,000 per farm and yet access to this type of financing is one of the most cited barriers to participation. The latest agricultural technological innovations are designed to disrupt a traditional industry, but innovations in the necessary investment models have not kept pace. To date, there has been a failure across the sector to provide the necessary capital in a way that de-risks the process for lenders and borrowers. Funders have historically lacked the convening power to bring the right players to the table along the food value chain. Furthermore, misconceptions around credit risk, returns, and supply chain capacity remain the biggest challenges limiting investment capacity.
Public-private partnerships can alleviate this challenge by offering innovative and blended approaches to financing to tackle the current fragmented capital flows by bringing together a wide range of stakeholders who can unlock the opportunity for agri-technology. By harnessing investments and partnership from governments, impact investors, financial institutions, philanthropists, and agricultural stakeholders who see value in blended investments, we can maximize the amount of capital available for smallholder farmers. In addition, novel approaches to financing can be introduced including access to long tenure loans with more gender-inclusive, flexible repayment schedules and access to larger loan amounts to allow for upfront capital investments in facilities as entrepreneurial farmers (especially women) adopt new climate-proof practices supported by innovative technology.
The benefits to the agricultural sector from implementing innovative technology and providing associated training have already been shown to have a positive impact on both the planet and productivity. This is essential if we are to reassure investors that sustainable farming is a profitable venture. One example that effectively demonstrates this value is the Coffee Task Force in Vietnam, a project incubated by Grow Asia, which has trained over 50,000 farmers on good environmental practices. The program has already lowered greenhouse gas emissions by 40,000 metric tons of CO2 and reduced the amount of irrigation water used by 21 million cubic meters. This has translated into lowering production costs by $220 per hectare and generated savings of $12 million annually for smallholder coffee farmers. Projects like this serve as a critical reminder of how by working together, funders can unlock the potential of sustainable agriculture as a solution to climate change, and at the same time ensure a thriving and food-secure future.
Securing our global food supply in the face of rapidly worsening effects of climate change hinges on ensuring equitable access to innovative farming practices. In Southeast Asia alone, it is estimated that $800 billion of investment in the agricultural sector is required in the next decade to meet consumer demand and fortify supply chains. Investing in innovation is one critical area that can pave the way for long term resilience and sustainability capable of withstanding the climate challenges ahead. This resilience extends beyond individual farmers; it encompasses communities, regions, and global food systems.
Editors’ Note: This article was included in our COP 28 special edition, which was published on November 21, 2023, and which you can find here. All articles were written with that publication time frame in mind.
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Climate Resilient Food Systems Require Innovations in Finance
Photo courtesy of Grow Asia.
December 1, 2023
As climate change worsens and the global population continues to grow, we will struggle to maintain sustainable and secure food supplies. Public-private partnerships can alleviate this challenge by offering innovative and blended approaches to financing, writes Beverley J. Postma.
T
he world is facing a critical problem of delivering a sustainable and secure food supply for its growing population against a backdrop of climate change. By 2050, the population of Southeast Asia alone is expected to reach 700 million and food demand is estimated to increase by 40%. This is coupled with an increasing scarcity of viable land and water, and the wider impact of climate volatility on all major food-producing areas.
It is evident that system-wide transformation is required to accelerate the transition of our global food chains to a more climate-ready future. Sustainable agricultural technologies hold the key for this transformation, but outdated financing solutions are holding many regions back. Technological innovations can improve resource efficiency, minimize the environmental impacts of farming, and enhance overall productivity—but only if farmers can afford them. The global smart-farming market is expected to account for over $33 billion by 2030, and, with consumer demand for sustainable food poised for explosive growth in the next decade, this presents a significant opportunity. However, the benefits of technological advancements are unlikely to be fully realized unless capital flows can reach the smallholder farmers who lie at the front line of climate change.
In Southeast Asia alone, there are over 70 million small- and medium-sized enterprises and smallholder farmers who constitute a significant portion of the global agricultural supply base. This represents a large and untouched opportunity to develop technology that will equip them with the tools to transform their farming practices and enhance productivity. However, these small businesses face many barriers that hinder their adoption of technology.
Both farmers and governments are receptive toward strategies to boost yield, reduce waste, and build resilience. Yet most agree that the high costs of implementation are simply out of reach for many rural economies due to flaws and inequities in traditional finance models.
Adopting new technologies typically requires a capital investment of less than $15,000 per farm and yet access to this type of financing is one of the most cited barriers to participation. The latest agricultural technological innovations are designed to disrupt a traditional industry, but innovations in the necessary investment models have not kept pace. To date, there has been a failure across the sector to provide the necessary capital in a way that de-risks the process for lenders and borrowers. Funders have historically lacked the convening power to bring the right players to the table along the food value chain. Furthermore, misconceptions around credit risk, returns, and supply chain capacity remain the biggest challenges limiting investment capacity.
Public-private partnerships can alleviate this challenge by offering innovative and blended approaches to financing to tackle the current fragmented capital flows by bringing together a wide range of stakeholders who can unlock the opportunity for agri-technology. By harnessing investments and partnership from governments, impact investors, financial institutions, philanthropists, and agricultural stakeholders who see value in blended investments, we can maximize the amount of capital available for smallholder farmers. In addition, novel approaches to financing can be introduced including access to long tenure loans with more gender-inclusive, flexible repayment schedules and access to larger loan amounts to allow for upfront capital investments in facilities as entrepreneurial farmers (especially women) adopt new climate-proof practices supported by innovative technology.
The benefits to the agricultural sector from implementing innovative technology and providing associated training have already been shown to have a positive impact on both the planet and productivity. This is essential if we are to reassure investors that sustainable farming is a profitable venture. One example that effectively demonstrates this value is the Coffee Task Force in Vietnam, a project incubated by Grow Asia, which has trained over 50,000 farmers on good environmental practices. The program has already lowered greenhouse gas emissions by 40,000 metric tons of CO2 and reduced the amount of irrigation water used by 21 million cubic meters. This has translated into lowering production costs by $220 per hectare and generated savings of $12 million annually for smallholder coffee farmers. Projects like this serve as a critical reminder of how by working together, funders can unlock the potential of sustainable agriculture as a solution to climate change, and at the same time ensure a thriving and food-secure future.
Securing our global food supply in the face of rapidly worsening effects of climate change hinges on ensuring equitable access to innovative farming practices. In Southeast Asia alone, it is estimated that $800 billion of investment in the agricultural sector is required in the next decade to meet consumer demand and fortify supply chains. Investing in innovation is one critical area that can pave the way for long term resilience and sustainability capable of withstanding the climate challenges ahead. This resilience extends beyond individual farmers; it encompasses communities, regions, and global food systems.
Editors’ Note: This article was included in our COP 28 special edition, which was published on November 21, 2023, and which you can find here. All articles were written with that publication time frame in mind.
