Generated Summary
This working paper explores the role of inclusive finance in addressing global food security challenges, particularly in low- and middle-income countries (LMICs). It focuses on how financial solutions can enable investments in high-impact agricultural value chains (AVCs) and support the adoption of agricultural technologies (AgTechs) to improve nutritional and sustainability outcomes. The research employs a multi-step framework to identify high-impact AVCs, pinpoint bottlenecks, and determine tailored financial solutions for key actors, including smallholder farmers, agri-SMEs, and AgTech firms. The study also examines the current challenges and opportunities in agricultural finance, emphasizing the need for innovation at both retail and wholesale levels to promote AgTech adoption and enhance food security. The research methodology includes analysis of agricultural policy and market systems to identify investment priorities and evaluation of AgTech adoption rates and associated financial constraints in various LMICs. This framework aims to provide a strategic direction for stakeholders, guiding them toward investments that can promote more nutritious and sustainable food systems, as well as emphasizing the need to overcome existing constraints in the financial supply chain.
Key Findings & Statistics
- 2.8 billion people globally cannot afford a healthy diet.
- 3.5 billion people suffer from micronutrient deficiencies.
- Food systems contribute to one-third of greenhouse gas emissions.
- 40% of the world’s arable land is degraded by aridity.
- Food systems impose USD 19 trillion a year in social, health, and environmental costs globally.
- Low AgTech adoption rates in LMICs limit food security.
- The share of total formal credit going to the agricultural sector in sub-Saharan Africa varies between 3-12 percent, while the sector’s contribution to national GDP can range from 20-40 percent.
- Only 7% of smallholder farmers’ short-term financing needs are served by formal financial institutions in the region.
- Smallholders produce between 30 to 70 percent of the continent’s food for local consumption.
- Investments in AgTechs reached close to USD 30 billion globally by 2023, up from USD 13 billion in 2021.
- The availability of micronutrient-rich food is expected to grow by 46% by 2050 in South Asia.
- School meal programs have an estimated annual global budget of USD 48 billion.
Other Important Findings
- Inclusive finance plays a crucial role in enabling investments that enhance nutritional and sustainability outcomes in food systems.
- The study highlights the importance of tailoring financial services to meet the specific needs of key actors in high-impact AVCs, including smallholders and agri-SMEs.
- AgTech adoption is crucial for increasing productivity and sustainability in high-impact AVCs.
- Current retail and wholesale financial offers often do not match the financial needs of key AVC actors when adopting AgTech.
- Financial constraints, at both retail and wholesale levels, are major barriers to AgTech adoption.
- Digital innovation and customer-centric financial services offer promising opportunities for financial innovation.
- The need for increased collaboration among stakeholders (FSPs, impact investors, DFIs, and donors) to drive effective action.
Limitations Noted in the Document
- The analysis relies on the assumption that the AgTech categories used by the AgBase Platform effectively represent the diverse range of agricultural technologies.
- The study acknowledges that the bottlenecks and investment requirements for high-impact AVCs can be country-specific, which necessitates contextual analysis.
- The paper does not provide detailed prescriptions for action, but rather offers strategic direction, which might require additional research and adaptation for practical implementation.
- The research is based on the experiences and perspectives of stakeholders in specific LMICs (India, Indonesia, and Kenya), and the findings may not be directly applicable to all regions or contexts.
Conclusion
The transformation of global food systems requires a strategic shift towards inclusive finance, with a focus on enabling investments in high-impact AVCs and supporting the adoption of AgTech solutions. The study emphasizes the need to address the growing challenges of malnutrition, environmental degradation, and the limitations of current financial systems. The key to success involves identifying the most impactful AVCs, understanding the unique bottlenecks in those chains, and designing financial solutions that meet the specific needs of the involved actors. This paper underscores the importance of collaboration among various stakeholders, including financial service providers, impact investors, development finance institutions, and donors. It highlights the role of these actors in promoting innovation, tailoring services, and providing the necessary financial instruments to drive AgTech adoption and scale up sustainable food production practices. The document emphasizes the need for increased flexibility in wholesale financing, supporting early-stage funding for AgTech firms, and leveraging digital innovation to improve the efficiency of financial services. The examples of Eggoz in India and Agrapp in Colombia demonstrate how tailored financial products and innovative approaches can unlock investments and improve outcomes for smallholder farmers. By working together, these stakeholders can help transform food systems, making nutritious and sustainable food more accessible to low-income populations in LMICs. The future success of food security efforts hinges on the collective ability of these actors to adapt, innovate, and collaborate to create more inclusive and effective financial systems, ultimately supporting the transformation of food systems for greater nutritional and environmental outcomes.