Public finance can have a critical role in mobilizing more and better private investment in a sector that will be critical for the success of the new sustainable development agenda.

1. Transforming
agriculture for
sustainable
development
How public finance can help
mobilize more and better
private investment

2. The challenge: growing population…
World
population
likely to grow
to 9.7 billion
by 2050, 11.2
by 2100

3. … more and better food needed…
 Around 60% more food is to be produced to feed world’s
population in 2050 (FAO 2012)
 Today about 793 million chronically undernourished
people - 10.9% of world population (FAO 2015)
 Micronutrient deficiencies, overweight and obesity
affect much larger population groups in all countries
 Concerns with nutritional content, safety, and
environmental footprint of food are growing, globally

4. … with a smaller environmental
footprint + more efficient food systems
Sustainable
food
systems
Sustainable
and resilient
agriculture
Processing
Distribution
Consumption
and disposal
Need to produce, process,
distribute, consume, and
dispose food with less
carbon emissions, better
use of soils and water, less
losses and waste

5. A large global financing gap for SDG2
 Agenda 2030 includes SDG2, on ending hunger, good
nutrition for all, and sustainable agriculture
 This requires more and better investment, including
financing to and for agriculture
 FAO 2015 estimates need for additional 140 billion $
annually in pro-poor growth in the rural sector
 Earlier estimates were of need for 83 billion $ additional
investments in agriculture to feed the world of 2050
 Other estimates vary, but all converge around sense of
great magnitude of needs

6. Tackling rural poverty to boost agricultural
investments, and vice versa
 Meanwhile, over three quarters of extreme poor live in rural
areas, most are small farmers (WB 2013)
 Small farms (<5ha) are 94% of total, family farms produce
80% of food value (FAO 2014)
 Farmers are by far the main on-farm investors in
agriculture (FAO 2012)…
 … but most small farmers, notably women, have very poor
access to finance for their investments, due to:
 Limited asset base (e.g. insecure land tenure)
 Limited capacity of financial institutions to serve them
 Agriculture perceived as high risk sector

7. How to fill the
financing gap while
building more
sustainable food
systems and
reducing rural
poverty?

8. Bottom line answer: we need a more
enabling environment for the sector
 Investment in agriculture means facing multiple
risks (climatic/market shocks, pests, policy
changes…) for uncertain returns
 Transaction costs in doing business in
agriculture or in rural areas are often high
 State of infrastructure and services in rural
areas is often poor, human capital often low
 Market and trade policies in many countries
have long penalized agriculture
 Inefficient subsidies have sent wrong signals to
investors and rarely favoured poor farmers

9. Public finance has a key role in
creating an enabling environment
 Domestic public financing is key in providing public
goods, notably:
 Basic services
 Rural and agricultural education
 Also key where short-term risk/return balance is
such as not to attract private investors alone, but
partnerships are possible, e.g. :
 Climate-sensitive, low carbon, and last mile rural
infrastructure (including small-scale)
 Agricultural research and development focused on
smallholder farmers, sustainability, nutrition

10. Meanwhile, ODA to agriculture has recovered in recent years,
though it remains much lower than in past decades.
Source: http://devinit.org/#!/post/global-oda-to-
agriculture-increased-in-2013

11. ODA can usefully complement
domestic public finance
 ODA to agriculture is likely to remain a small
share, but can be used catalytically to:
 Spur or help scale up public spending on relevant
public goods
 E.g. testing innovations and sharing related risks,
using pull mechanisms for new technologies, pooling
resources to scale up successes…
 Strengthen domestic resource mobilization and
improve the rural targeting of public spending
 E.g. through policy dialogue, capacity building,
technical assistance

12. MDBs can also play important roles
 Agriculture is on the agenda of all MDBs, but generally in a
small way - exception of International Fund for Agricultural
Development (rural sector focus)
 Direct roles may include (inter alia):
 de-risking products for agricultural investors
 policy and technical assistance
 supporting financial system infrastructure at country level
 equity investment in agri-enterprises (also SMEs)
 support to farmers and agri-SMEs to attract private financing and
to use it competitively
 promoting “greener” approaches and technologies
 Also, MDB role in infrastructure financing can help by
ensuring consideration of impact on agriculture, rural poverty,
and sustainable food systems in infrastructure project
preparation and implementation

13. Ultimately, public finance needs to
foster sustainable private investment
 Most financing for investment in agriculture comes from
farmers, processors, retailers… all of them “private” actors
 Growing interest of investors due to higher food demand
 All confront risks, which public sector and MDBs can help
address through a more enabling environment
 Many face liquidity issues, which requires public sector and
MDBs to work on a sustainable and inclusive financial
infrastructure
 All need clear signals + incentives to invest sustainably, for
which policies are key and public sector must set example
 Smallholders and SMEs – notably women-led - are
particularly constrained and need particular focus in public
finance interventions to ensure level playfield

14. In short:
 Public finance, domestic and international, has
important roles to play in enabling the agriculture
sector to meet new challenges
 Multiple entry points need to be tackled, but focus
should be on:
 financing public goods in the rural sector
 partnering with private sector to ensure last mile,
rural reach of new infrastructure investments
 rural and agricultural financial inclusion
 reducing risks faced by private investors – notably
smallholder farmers
 providing incentives for more sustainable
investments by all