The authors describe the recent turmoil in global food markets and the resulting “worst food crisis in generations.” The war in Ukraine has had a major impact on markets in Russia and Ukraine, which together previously produced a quarter of the wheat and most of the sunflower oil sold worldwide. Meanwhile, increases in energy costs and debt are making the situation worse in low- and middle-income nations.
Although food security was at an all-time high prior to the COVID-19 pandemic, an estimated 193 million people now are in the midst of a “food security crisis” across 53 countries, while another 236 million are “food stressed,” primarily in developing countries. Africa, South Asia and the Middle East, in particular, rely on grain and fertilizer imports from Eastern Europe and thus are experiencing the most hardship due to the price shocks caused by the Ukraine crisis.
Agricultural small and medium-sized enterprises (agri-SMEs) involved in “production, logistics, and input distribution, and/or dependent on imports from the zone of conflict” have experienced tighter cash flows, causing them to cut capacity and increase their prices. Some agri-SMEs have responded by shifting to domestically grown crops that are less impactful on the environment. For example, Taru Naturals, an India-based farm and delivery service, has moved toward the production and distribution of grains such as millet and amaranth. In Nigeria, Parkea Ventures has started using the grain fonio to produce bread flour.
Despite such pivots, agri-SMEs remain constrained by limited access to capital due to the risk perceptions of financial service providers. Many investors have shifted their focus from climate-resilient agricultural investments to farms that have the potential for “short-term productivity gains at the cost of embedding long-term risks such as declining soil health or dwindling groundwater.” Thus the authors suggest that public funders incentivize investment in agricultural players that are less likely to inflict long-term repercussions on the environment – and hence less likely exacerbate food insecurity over the long term.
This is a summary of a paper by the International Fund for Agricultural Development (IFAD), International Finance Corporation (IFC), and the Smallholder and Agri-SME Finance and Investment Network (SAFIN); July 2022; 4 pages; available at https://www.findevgateway.org/paper/2022/07/agri-sme-finance-navigating-volatility-wake-war-ukraine.
By Ben Greissman, Research Associate
Additional Resources
IFC homepage
https://www.ifc.org
IFAD homepage
https://www.ifad.org
SAFIN homepage
https://www.safinetwork.org
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