The authors of this paper discuss the “financing landscape” of the food and agriculture sector and argue in favor of increasing the deployment of blended finance, “the use of catalytic capital from public or philanthropic sources to increase private sector investment.” A report from the 2019 UN Conference on Trade and Development estimates that the private sector could fund 75 percent of the funding gap that blocks the achievement of the UN Sustainable Development Goals (SDGs) relating to food and agriculture. Indeed, funding to the sector already is driven primarily by private sources, but the sector’s capacity to attract sufficient financing remains limited by price volatility as well as environmental, climate, and political risks. To address these challenges, the authors promote the use of blended finance “with a rationale of not only de-risking but also reducing transaction costs and addressing the poor economics of investment that often prevails….”
The authors cite a database of blended finance transactions indicating that: (1) 15 percent of blended finance transactions worldwide are deployed in the agriculture sector; and (2) blended finance transactions for agriculture tend to be smaller in size than do those in other sectors.
One approach that has been successful in achieving scale is that of the Global Agriculture and Food Security Program, which is backed by a group of development finance institutions and UN entities. Mountain Hazelnuts of Bhutan, for example, used this framework to supplement private monies with funding from the World Bank Group’s International Finance Corporation and the Asian Development Bank.
Another example is IDH FarmFit, a mechanism for de-risking blended funds. IDH FarmFit takes high-risk positions in deals aiming to improve the livelihoods of smallholder farmers in Africa, Asia, and Latin America, paving the way for private investors to invest with greater confidence.
This is a summary of a paper by Bettina Prato, Chris Clubb, and Regina Rossmann; published by the Smallholder and Agri-SME Finance and Investment Network (SAFIN) and Convergence; March 2021; 32 pages; available at https://www.convergence.finance/resource/5ecd4fe4-53ca-4b56-a3ca-5510e8fb8df5/view.
By Aakansha Shenoy, Research Associate
Sources and Additional Resources
SAFIN homepage
https://www.safinetwork.org/
Convergence homepage
https://www.convergence.finance/
SDGs webpage
https://sdgs.un.org/goals
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