AT-4

Solution Cluster 4.3.2

Promoting Inclusive Financial Investments in Food Systems

Finance, business models and investments are critical enablers of transformation in food systems, but they can have both positive and negative impact depending on where, how, and to whom they primarily flow. The key idea behind this cluster is that social and economic inclusion and environmental sustainability all need to be integrated in any financing strategy and solution for food system transformation. This integration comes alive most tangibly around national and local food systems, where food system actors, policymakers and regulators can come together as right holders and duty bearers to shape their desired visions for their food systems and to realise them. Accordingly, the solutions featured in this cluster, while very diverse, all respond to the need to support inclusive and sustainable financial and investment flows across as well as into national and local financial systems. This includes mobilising new financial flows, strengthening the capacity of national and local financial institutions, facilitating access to finance and investment for economic actors operating in these systems (notably small-scale producers and agri-SMEs), and supporting inclusive markets for these actors. Strengthening financial institutions that operate with a development mandate and/or an impact orientation as well as other financial intermediaries and investors working with local food system actors and harnessing digital technology to facilitate access to finance and the development of inclusive markets and new living income opportunities are at the heart of this cluster. Strengthening the capacity of local governance actors to plan and deploy public investment and to engage and mobilise private investment around this agenda is also critical for the solutions in this cluster to have optimal impact and sustainability.

About this Solution Cluster

Food system transformation at national and local level needs to be underpinned by financial systems and investment flows that make the right type of capital, financial services, and investment opportunities available to the actors that have a direct stake in this transformation – local producers, other value chain actors and enterprises (notably SMEs), governments, and local financial institutions. Currently, access to finance represents one of the main challenges (if not the top one) mentioned by SMEs in particular across countries and regions, especially for women entrepreneurs and small-scale producers. Poor or no access to financial services results in economic disempowerment, marginalisation, vulnerability to shocks, and limited investment capacity among hundreds of millions of people, particularly those living in rural areas, women and youth, and people living in poverty. Inclusive rural finance is thus key not only for transformative agricultural investments but also to address poverty and food insecurity. Small-scale producers, agricultural cooperatives and SMEs also need finance to adopt “greener” and more climate resilient practices. Moreover, climate smart agricultural practices can provide new business models, e.g., with regenerative agriculture, agroforestry, or carbon sequestration. As for the financial institutions serving them, these also often struggle to raise enough capital and on the right terms to allow them to continue working with small-scale, particularly rural clients, and this is also true in different ways for public development banks (PDBs). Public investments in and for agriculture have fallen considerably since the 1980s. Meanwhile, with a view to the traditional risk-reward-duration ecosystem, larger enterprises mostly oriented at agro-exports have so far been favoured by the financial institutions, while the smallholder sector, mainly (although far from exclusively) producing for the domestic market, has been neglected. Another key challenge is to provide the right type and mix of capital to finance the reorientation of food systems and to improve linkages between urban, peri-urban and rural areas. Finally, the finance structuring of the whole agri-value chain is ready for new, modern, inclusive, and rights-based approaches in data access and ownership, transparency, and traceability that empower local food system actors in the investment space.

The proposed solutions address different parts of the challenge of making finance and investment movements in local food systems function in ways that are both inclusive and sustainable. As such, they are complementary and can be mutually reinforcing. However, each solution can also be taken forward in its own right and some (e.g., the PDB platform) are based on existing initiatives that can be scaled and/or expanded in scope while leveraging existing implementation mechanisms. Most importantly, the cluster includes solutions for which there is strong demand and propose clear and logical ways to address such demand, which is critical for feasibility. Finally, finance solutions applied in local food systems first (given their relatively good overview of stakeholders and finance flows) may provide highly valuable insights for regional, national, or even global scaling of best practices and lessons learned.

Public development bank (PDB) initiative to catalyse green and inclusive food system investments. The solution is a global platform of national, regional, and international PDBs designed to strengthen capacity across this diverse community of financial institutions to invest and catalyse green and inclusive investments in agriculture and across food systems. The platform has three main components, namely: a forum of PDBs (including the agriculture cluster of PDBs formed at the 2020 Finance in Common Summit), a global multi-donor facility for technical assistance to PDBs and other financial institutions, and a digital platform for knowledge sharing and for impact assessment and mapping of PDBs’ own and associated investments.

Global Trust Fund to provide demand-driven matching grants for initial capital/quick of investments by cooperatives, SMEs and other smallholders business-oriented groups who are seeking for investment to grow or expand productivity and quality. The Fund will define financial envelopes for different countries in the Global South and will provide matching grants for capital investments by agriculture cooperatives, SMEs and other business-oriented small-scale farmers’ groups. A matching grant is a one-off, non-reimbursable transfer to project beneficiaries. It is based on a specific project rationale for purposes and on condition that the recipient makes a specified contribution for the same project. The investments will be focused on underserved segments of agribusiness value chains focusing on farmer organisations, financial intermediaries, and agribusiness SMEs. It particularly targets commercially viable ventures that can help create employment, for youth and women, and improve rural livelihoods. The fund also prioritises climate-smart projects that promote sustainable production.

A global platform for digital rural finance: digital products and services, along with digital delivery systems for finance, have become increasingly widespread across sectors in the past several years. This experience shows that digital finance can solve several factors that make traditional financial products and services too costly to manage for many financial service providers, and the process of accessing finance also less costly and burdensome for rural populations. The platform would consist of an Innovation Fund with catalytic capital to support the development of new digital finance products, services, and business models designed for inclusive access among rural people; a Technical Assistance Hub providing capital and expert support to build the capacity of rural financial service providers shifting to digital solutions and to technology providers with new business models to test for inclusion and sustainability; and a Global Knowledge Hub offering a repository of good practices and convening learning events around enabling policy and regulations, digital financial literacy, consumer protection, and partnerships. Digital products and services, along with digital delivery systems for finance, have become increasingly widespread across sectors in the past several years.

Increasing public and private financing for inclusive and sustainable urban food systems. With rapidly growing rates of urbanisation, especially in developing countries, the transformation of global food systems necessitates critical attention and increase in financing for urban food systems solutions. To achieve this requires significantly increasing both public and private finance and blended financing mechanisms to invest in catalytic food security and nutrition projects and initiatives that increase food value, create impact in terms of sustainable production and consumption, and increase access to nutritional foods. The implementation of the financing solutions aims to strengthen the mandate and capacities of cities/municipalities and local governments in food security and nutrition, promoting access to financial resources along the food value chains for transformative urban and local food systems.

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