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Finance to facilitate food systems transformation

Are the food systems that nourish us also contributing to climate change, natural resource degradation and malnutrition?

According to a new report examining the true cost of food for sustainable agrifood systems, the ‘hidden costs’ to our health, environment and society has reached at least $10 trillion USD per year. This represents 10% of global GDP.

David Laborde, one of the three co-founders and directors of Hesat2030, led the research for this report, which will be discussed at a COP28 side event on Monday, Dec. 4.

“In the last few years, people have realized planetary boundaries have been put under pressure and, in many cases, crossed. While food is central to our life, it also has significant impact on the environment and health,” he said.

Addressing these negative impacts is challenging, because people, businesses, governments and other stakeholders lack a complete picture of how their activities affect economic, social and environmental sustainability when they make decisions on a day-to-day basis. In hopes that assigning a value to the hidden costs could help to quantify the impact, the report used true cost accounting (TCA) to assess the situation in 154 countries.

The biggest cost burden was driven by unhealthy diets, accounting for more than 70% of total costs. But this was not only due to undernourishment and its related social costs from poverty – much of it was actually due to obesity and non-communicable diseases, which cause productivity losses.

The combination of overnutrition (obesity) and undernutrition (stunting) results in “a double burden of malnutrition,” Laborde said.

The report also found that one-fifth of the total costs impact the environment, from greenhouse gas and nitrogen emissions, land-use change and water use. And the hidden cost of food places an outsized burden on low-income countries relative to their national economies. While the global hidden costs are quantified as being equivalent to 10% of GDP, these costs represent an average of 27% of national GDP in low-income countries.


Tracking international aid

How do we measure official development assistance (ODA) for agriculture and food security? Despite an agreed definition for food security and the use of a shared aid database, a common framework to measure ODA is lacking.

As a result, estimates on how much ODA is spent on agriculture and food security as well as ranking results for top donors and recipients vary significantly. This creates confusion and undermines donor efforts to achieve the sustainable development goals (SDGs).

Currently, more than ten operational definitions are used to track ODA which are derived from the same database, the Organization of Economic Cooperation Development (OECD) Development Assistance Committee’s (DAC) Creditor Reporting System (CRS).

This database classifies ODA records according to donor, recipient, the purpose of aid, flow type (commitment or disbursement), as well as other variables. However, each definition uses a different selection of aid purpose codes.

The implications of the different measures to define ODA to agriculture and food security are vastly divergent estimates for how much is spent, where it is spent, on what it is spent, and the subsequent analysis of trends and outcomes towards achieving SDG 2. Depending on the definition adopted, the annual average level of ODA grants between 2019-2021, ranges from USD 5.9 billion (according to the OECD-DAC definition) per year to USD 63.8 billion per year (according to the European Commission definition).

To progress towards a more coherent framework, we are building a platform to analyze, monitor, and track ODA resources to agriculture and food security and to what extent it is aligned with scientific evidence on how to end hunger sustainably. Better analysis, monitoring and tracking of resources in the system will ultimately enable better evidence-based decisions on the highest priority countries, the most effective intervention areas, and the scale of resources needed.

A shared understanding of how much ODA is being spent on agriculture and food security, where it is being spent, and on what intervention areas, is critical for four reasons. First, it allows donors to understand and compare who is giving, how much they are giving, where they are giving, and what it is being spent on. Second, it allows researchers to measure the investment gap to achieve certain goals. Third, it allows civil society to track, monitor, and hold governments to account for their commitments. And fourth, it allows donors to better leverage other sources of development finance so they can design better projects to achieve multiple sustainable development outcomes.


Do international financial institutions facilitate agrifood systems transformation?

International financial institutions (IFIs) play a pivotal role in shaping global development by providing billions of dollars in loans and grants to borrowing countries for large-to-medium scale projects in the agrifood sector. But are they helping to bring about the more holistic food systems transformation required to ensure a more sustainable, food secure future?

Using large language models and other AI tools, a team led by data scientist Jaron Porciello from the University of Notre Dame and Havos.Ai and co-authors from the Food and Agriculture Organization of the United Nations (FAO) and Cornell University analyzed the agrifood systems outcomes reported by six major agencies—World Bank, African Development Bank, Asian Development Bank, IFAD, Inter-American Development Bank, and Global Food Security and Agriculture Program (GASFP).

IFIs provide financial assistance and policy advice to borrowing countries in the form of grants, loans, and technical assistance, and their project design documents describe how development finance is intended to be implemented by a borrowing country. This analysis included nearly 1,000 board-approved project design documents from 2015-2022, and focused on outcomes, an important feature to explore as they serve as a barometer for any project.

Despite estimates from the World Bank that an additional $300-400bn of investment per year is needed to transform agrifood systems, the analysis highlights that many of the aims of agrifood systems transformation are not being met. Among the team’s findings:

  • There was a startling lack of emphasis on environmental and climate change outcomes, as well as little focus on women’s empowerment, inclusivity, and agency. Fewer than 20% of all projects include these as specific outcomes in their projects.

  • While there is very little change year-to-year, there was an exception in 2021 and 2022, where an increase in food security and nutrition outcomes – and a decrease of economic growth outcomes – occurred. Notably, there was a nearly 20% increase in projects that focused on food security and nutrition outcomes in 2022 as organizations and agencies hastened responses in the wake of the global pandemic. This is an encouraging signal from the data that agencies have both alacrity and capacity for responsiveness in the wake of global crises to focus on high-priority areas.

Artificial intelligence is an important tool to promote better assessment and accountability in projects designed to transform agrifood systems. Here, we used it to establish a baseline across organizations that all agree on a set of common goals. The analysis helps us pinpoint opportunities to reduce malnutrition for rural families and increase overall food security in the household; improve incomes and productivity for small-scale farmers as well as the inclusion of these farmers in economic processes; make diets healthier and more affordable; reduce greenhouse gas (GHG) emissions; and build adaptive market and consumer systems that respond to climate change and conflict in an inclusive manner. So, is progress where we expect it to be seven years after launching the Sustainable Development Goals and two years after the Food Systems Summit? This data raises concerns about whether organizations are implementing strategies and approaches fast enough.

This analysis was conducted and first shared as part of FAO’s Resilient and Inclusive Transformation Impact Initiative (RITII) consultation. The goal of RITII was to explore pathways that ensure leaving no one behind—which is at the core of FAO’s efforts to improve and enhance resilient livelihoods by strengthening policies, increasing empowerment and scaling investments to enhance the focus on resilience and inclusion in the processes of agri-food system transformation. Many of the findings from RITII, including the full results from this analysis, are expected to be published early next year.


Unleashing the Catalytic Power of Donor Financing

How are donors working to make their financing more catalytic? What would be the impact If donors and development finance institutions (DFIs) took higher risks with their grants and lending?

Higher risks could lead to higher rewards, with every donor dollar having the potential to mobilize four dollars in commercial finance, according to a new report presenting the findings and recommendations of the enquiry on sustainable finance in agri-food systems conducted by the Shamba Centre for Food & Climate for the members of the Global Donor Platform for Rural Development (GDPRD).

The result: more financing for agri-food small and medium-sized enterprises (SMEs), greater participation by domestic lenders, and more affordable borrowing prices delivered by the markets.

Other key findings and recommendations, based interviews with over 70 stakeholders, include:

  • First, domestic banks and financial intermediaries in low-income economies must be crowded-in as the flow of finance cannot be improved without their participation. Despite decades of cooperation with development finance institutions, domestic banks remain conservative. A new generation of results-based incentives which are accompanied by long-term knowledge development should be prioritized.

  • Second, blended financing must be less timid. Donors can reduce transaction costs and share risks by working together to collectively pool their expertise, capital and risk appetite.

  • Third, development finance institutions must finance the transition towards the SDG which will require a new approach to the use of the development finance tools at their disposal.

  • Finally, donors and the development community will benefit from clean and comparable data on the performance of SME lending, within and across projects, programmes, funds and portfolios.

The issues will be discussed at COP28 during an event on Sunday, Dec. 10

Translating Pledges into Action: From Trust to Verification

How can we hold companies accountable to their promises to end hunger? The Zero Hunger Private Sector Pledge, launched during the United Nations Food System Summit in 2021, is based on a simple premise: achieving SDG 2 - Zero Hunger by mobilizing the business community.

The Pledge offers a roadmap to end hunger, with which companies can align their actions to scientific evidence, alongside international organizations and national governments. This roadmap, defined in a series of research reports by FAO, ZEF and the Ceres2030 research project, identifies 90 priority countries and 10 intervention areas presenting the highest potential for reaching this goal by 2030. It is the cornerstone of the Zero Hunger Private Sector Pledge – aligning business investments with evidence-based interventions aimed at eradicating hunger.

In the two years since the launch of the Pledge, an ever-increasing number of companies have joined this movement. To date, the Pledge has mobilized USD$ 575 million from 50 companies to reach the zero-hunger goal by 2030.

In an effort to ensure that participants were truly moving beyond pledges towards action, the Pledge undertook an exercise to verify that companies have been converting their financial commitments into actual investments on the ground.

A recently published report assessed the progress of companies with pledges valued at USD $1 million or more, with independent evaluators confirming the amounts spent to date, countries of implementation, and focus area for each project.

The results were promising, with nearly 90% of companies deploying their investment in alignment with their commitments.

Together, these companies had invested USD $140 million through 103 projects in 46 countries by the end of 2022.

“With this report, we are not only holding companies to account for their pledges but also demonstrating the integrity of the Pledge. We believe that integrity – even more so than accountability – is the bedrock upon which trust is built. It fosters further engagement between stakeholders as we collaborate towards our common goal to end hunger,” wrote Lawrence Haddad, Executive Director of GAIN and Carin Smaller, Executive Director of the Shamba Centre for Food & Climate.



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