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Innovative financing for agriculture, food security and nutrition

Dear Forum Members,

Reaching the goal to feed a growing world population is threatened by an important lack of investment in agriculture and a decreasing Official Development Assistance (ODA) in agriculture. To tackle this issue, Innovative Financing Mechanisms (IFMs) are being discussed as a means to complement ODA without replacing it to provide reliable and predictable financing for development and specifically for agriculture and food security and nutrition, especially by catalyzing and encouraging new projects.

At its 9th plenary session in Bamako in June 2011, the Leading Group on Innovative financing for Development considered that innovative financing has the potential to contribute to increase funding for agriculture, food security and nutrition. An International Task Force was established.

The Task Force, supported by an Expert Committee, is expected to produce a report by the end of 2012 which will be presented to the 11th plenary session of the Leading Group on innovative financing for Development.

The objectives of exploring Innovative financing for Agriculture, Food Security and Nutrition, are two:

  1. Extension of solidarity taxes to agricultural development and food security. 
    In July 2010, the report of the Leading Group on the tax on financial transactions proposed the introduction of a 0.005% levy on currencies transactions that could generate some US$ 50 billion per year to be used for development purposes. Nowadays, the debate is on a possible tax on financial transactions to face the credit crunch. The objective of the present exercise is to advocate the use of a fraction of the resources raised in such a manner for agriculture and food security. For this reason, innovative uses of funds need to be identified.
     
  2. Identify/Expand mechanisms that catalyze private investment across the agricultural value chain.  Given the significance of private actors in the agricultural value chain, the combined use of resources from solidarity taxes, particularly the tax on currency/financial transactions, together with the use of traditional ODA funding,  may achieve significantly greater impact by catalyzing banks and other investors, for example diasporas, to invest in smallholders and Small and Medium Enterprises (SMEs) and to support development of national financial markets (such as local bond markets that raise funds for agricultural infrastructure). 

This online discussion should promote an exchange experiences and opinions within the largest possible audience in the area of agriculture and food security. Inputs received will be used in the preparation of the report that will be submitted to the 11th Plenary Session of the Leading Group on innovative financing for Development.

The literature and debate on Innovative Financing Mechanisms has by now become impressive and some of the proposals are listed in the Annotated List for ease of reference.

Questions submitted to the FSN members:

  1. What would be innovative sources (public and private) of financing  for agriculture, food security and nutrition? New taxes are normally suggested, as can be seen in the annex. Without excluding them, we would like to explore other options.
  2. What would be innovative uses of funding generated by mechanisms of innovative financing ? What should be their core target(s)?
  3. What could be new and suitable innovative financing tools for leveraging private investments  for agriculture, food security and nutrition? And what could be their advantages/drawbacks?
  4. How could these identified tools or mechanisms be used for innovative areas of agriculture, food security and nutrition (e.g. climate smart agricultural practices, research, migration)?
  5. Which actors/stakeholders - at the various levels - would be relevant to mobilise and implement such instruments?  What would be their roles and interactions with each other?

Please feel free to share with us any relevant material and/or publications to feed the on-going reflexion on this topic. 

We thank you in advance for your time and contributions as they will contribute to refining our assessment and prospective work.

We hope this discussion will facilitate knowledge sharing, communication and effective learning from your experiences on innovating financing mechanisms and relevant uses for enhancing financing for agriculture, food security and nutrition.

Maurizio Malogioglio
Marie-Caroline Dodé
Géraldine Tardivel

This discussion is now closed. Please contact fsn-moderator@fao.org for any further information.

Jose Luis Vivero Universite Catholique de Louvain, Belgium
25.06.2012
Jose Luis Vivero
Debt for food
Although I know that Debt Swap Schemes are not new at all, and although creditor countries have managed to get the Debt issue outside the limelight of financing mechanisms (arguing they are old claims and thus not entitled to be called “innovative”)   we cannot deny their current heavy burden in developing countries´ national budgets and, conversely, their potential to free a considerable amount of resources to be better allocated for social investments.
 
Some years ago, we supervised a research in the Hunger-Free Latin America and the Caribbean Initiative on how to redirect debt swap schemes towards food security programmes, as a means to get more resources, easily mobilised and better targeted. The research was done jointly with UN ECLAC and the full report and executive summary can be downloaded in the following address (in Spanish). http://www.rlc.fao.org/proyectoiniciativa/librocda.htm
 
Debt services in Latin America is 3 times higher that public investment in health and nutrition, and five times higher that investment in agriculture and rural development. Therefore, the repayment of debt services (mostly interests) prevents the government from assigning higher budget allocations to high impact social investments. For instance, Ecuador and El Salvador assigned during the period 2008-2009 more money to debt services payment than to social investments.
 
Several debt swap schemes have been proposed, mostly addressing environmental protection and health-related activities, although the issue has been overshadowed in recent years, as other yet-to-be-approved mechanisms are catching policy and media attention. It is worth noting that most of the previous debt swap initiatives have never tackled the most pressing problems of the poorest and hungriest households.            
 
The Latin American countries with the highest prevalence of undernourishment held a
bilateral public debt of 12.300 million USD in with OECD countries in 2006. Bilateral debt cancellation schemes of 20% could provide more than 2500 million USD for food security programmes. In any case, a big chunk of these bilateral debts would never be cashed, as those are long-term debts coming from many years ago. These scheme, although not innovative in itself, has never been proposed for anti-hunger programmes, and it would provide additional (but not fresh) funds in an age of financial constraints.    
 
Best regards
 
 José Luis Vivero Pol
Anti-hunger and Social Rights Activist 
PhD candidate in Food Governance (Université Catholique de Louvain)
 
25.06.2012
Félix Tékpon Gblotchaou
Cher Modérateur,
L'Alliance contre la Faim et la malnutrition du Bénin étant très préoccupée par les questions de financement du monde rural béninois a demandé à Mme HOUHA de lui faire une étude sur la problématique de garantie dans le financement des activités agricoles par les banques commerciales au Bénin. En effet, au Bénin, nous avons 13 banques qui toutes sont tournées vers les activités commerciales. Leurs interventions dans le monde rural sont négligeables. Qu'est ce qui amène ces banques a être si réticentes vis à vis du secteur agricole? La première question soulevé étant le problème de garantie.
Madame Houha a essayé de creser pour en savoir plus. Elle a fait des propositions qui une fois mises en oeuvre peuvent permettre aux banques d'intervenir.
Je propose la mise à disposition du document sur le forum
Merci
Tékpon GBLOTCHAOU

Président de l'alliance du Bénin

See the attachment:ACFM Fin (2).doc
22.06.2012
Dear Moderator,
 
Professor George Kent (previous contributor) has raised a lot of fundamental questions that will help other discussants to contribute meaningfully.
However, looking at it from poor country or third world country perspective where poverty is
very high and still growing at unprecedented rate, the question of innovative financing for agriculture, food security and nutrition cannot be pulled together. One single financing strategy will not be appropriate, therefore, there is needs to look at each topic and provide relevant solution based on country specificity.
 
 It is well documented that INCREASE or improvement in agriculture produce does not necessarily translate to Food Security and Food security does not also guarantee Nutrition security.
No matter how innovative financing mechanisms can be, if there is no strategy put in place to ensure sustainability, such a innovative mechanism will definitely have short live. So whatever innovative financing mechanism(s) we arrive at, let  it be Revolving and Sustainable.
In most African Countries there are laudable financing mechanisms borrowed from advanced economies that failed to work in Africa.
 An important model that will help in arriving at a Revolving and Sustainable Innovative Mechanism is the Sustainable Livelihoods Framework (http://www.ifad.org/sla/index.htm).  
 
Thanks
 
Falana, Adetunji Olajide
Nutrition Division
Federal Ministry of Health
Abuja
Nigeria
Dimitra Zervaki Freelancer Consultant, Greece
21.06.2012
Dimitra Zervaki

Dear all,

In simple words innovation is making “today” better than “yesterday”.
What projects do is to put in a new packaging old “recipes/formulas” which were successful in the past. That’s why there is still a need for something new and different in the field of agriculture, food security and nutrition.
All this effort could be linked with: (a) Corporate Social Responsibility, (b) research projects having to do with conservation of plant biodiversity through new innovative crops utilizing native plant species or/and establishment of small botanical gardens which could lead to innovative products in many areas such as food production, secondary innovative products, agro-touristic “hot-spots”, (c) education/training in many fields such as applied project management, a discipline of much importance in everyday life. This could provoke Institutes such as Project Management Institute-USA to invest.
Return on investment is the “key-answer”!

Regards,

Dimitra Zervaki, MBA, PMP
Project Manager, Consultant, Agronomist

Christian Chileshe 3C Development Management & Entrepreneurship Experts Limited, Zambia
21.06.2012
Christian Chileshe

Dear All,

I have attached a one-pager that captures my thoughts on the need for developing a model or framework for recognising the effect of psychological and sociological factors in smallholder agriculture financing.

I think this is going to be a new frontier for the 21st Century.

Addressing issues at the levels of technology, literacy, awareness and enabling environment do not necessarily address issues of mind-set, paradigm, culture, etc which eventually remain and haunt many well-designed interventions.

Yet, some of the biggest obstacles to financial inclusion in the (especially rural) agriculture sector lie at this level and affects areas such as:

1) Conceptualisation, establishment and growth of a small-scale farm enterprise

2) Ability to clearly identify what the financing needs are

3) Loan repayment

Regards

Christian

Mike Brandolino Adjunct Faculty / Consultant, United States of America
21.06.2012
Mike

Corporate and private funding to sponsor the purchase large tracts specifically for agricultural development can be beneficial for everyone.

The benefactors receive publicity and tax breaks, while community agriculture increases food security. Corporations are always seeking opportunities to promote a positive image to their customers.

Solicitation of corporate funding through pledges can help to ensure well-financed agricultural production zones in developing nations.

In this system, the benefactors only contribute funds on an on-going basis to support the purchase of seeds and supplies. The communities have complete control over managing the farms.

Eventually, as production increases, the excess can be used for sale or trade with other local communities.

This ancient trade system will benefit from on-going modern world funding from organizations and citizens in developed nations.

Dr. Lisa Kitinoja The Postharvest Education Foundation, United States of America
21.06.2012
Lisa

Some of the new projects we are currently launching in Africa and India (postharvest training ands services centers) include a postharvest shop and offer tools, supplies, packaging materials and various types of simple, low cost equipment that farmers and traders can use to reduce food losses between harvest and the consumer.  Some of the more expensive technologies and tools such as a refractometer (used to measure sugar content to determine ripeness and the best time to harvest certain fruits) can be leased for a day or a week.  Higher priced equipment such as walk-in cool rooms for temporary food storage or machines for various types of food processing can be paid for over time on a rent-to-own basis.   This allows individuals or groups of users to use the technologies on a trial basis, gain the benefits of reduced losses and improved quality, while spreading out the payments over a season or even over a year. 

Dr. Lisa Kitinoja
The Postharvest Education Foundation
USA

George Kent Department of Political Science, University of Hawai'i, United States of ...
20.06.2012
George

FSN Friends --

We are asked to suggest innovative financing mechanisms (IFMs) “as a means to complement the lack of investment in agriculture and decreasing ODA [Official Development Assistance], with the aim to provide reliable and predictable financing for development in the area of agriculture, food security and nutrition.”
 
Before pushing ahead to answers, perhaps we should pause to parse the question. The core concern here seems to be some sort of deficit. What is the main motivator here? Is it the problem of hunger in the world today? Is it concern about overall food supplies at some time in the future? Is it lagging profitability in particular industries?
 
What type of IFMs are we talking about? Large-scale? Small-scale? In low-income countries, high-income countries, or everywhere? Maybe the concern is that certain groups have less access to credit than others?
 
There are big differences between investments for agriculture and for basic nutrition. Much of agriculture is not for food, and much of the food production is for luxury foods such as coffee and chocolate. Much of the food that is produced goes to people who are not particularly needy.
 
What evidence do we have that there is a lack of investment in agriculture? What are the key indicators? Some might argue that agriculture, viewed as a business, generally does get the amount of investment it should be getting. That is, maybe agriculture is already getting the investments that would be expected given the prevailing risks and rates of return.
 
So what exactly is the problem to be addressed here?
 
Once we have decided what is the main problem we want to look at, we should spend some time explaining it. Why is there not enough investment in agriculture, or the particular type of agriculture that interests us?
 
We should think about whether finding IFMs is likely to be a good way to address the problem that interests us. Maybe there are other good approaches. Maybe the focus on IFMs is too locked in to the conventional market perspective, and thus too narrow in its vision.
 
Suppose we agree that the main problem we want to focus on is the widespread hunger in the world. This is not due to an overall global food shortage. It is due primarily to the fact that many poor people do not have enough money to access the food supply that is out there, and they do not have adequate resources to produce their own food. New investments in conventional agriculture are not likely to help them very much. However, well-designed investments in the poor could be very helpful.
 
Maybe thinking of hunger as a global economic problem takes us down the wrong track. Suppose we look at the hunger issue at the level of families and small communities. With decent opportunities, and freed of exploitation by others, every family and every community would find ways to provide for itself. With decent opportunities, they would produce their own food, or they would earn enough money to purchase their food. If that is so, then the investment that is needed would be to ensure that every family had those opportunities.
 
Do the powerful people of the world care enough about poor people’s well-being to ensure that they have those opportunities? Or are they indifferent? Or maybe those who are better off are actively opposed to improving the lot of the poor because they value the cheap labor and cheap goods that the poor provide?
 
There are abundant resources in the world that could be directed to ensuring decent opportunities for the poor, but those who control those resources obviously have other priorities. New sources of funding could be proposed, but is there any reason to expect that those who control those funds would prioritize the poor? Yes, one could imagine innovations such as a small tax on currency transactions, but how would those revenues be managed? Would the powerful accept such a tax if the revenues were used primarily for the benefit of the poor?
 
“Investing” in the poor is not going to provide secure economic returns on investments comparable with other more conventional investment opportunities. Whether they use old or new sources of funds, we would have to find investors who would view the relief of human misery as a good return on their efforts.
 
Aloha, George

--
Professor George Kent (Emeritus)
Department of Political Science
University of Hawai'i
Honolulu, Hawai'i 96822
USA

FSN Forum Team FAO, Italy
20.06.2012
FSN Forum

Posted on behalf of Peter Filius, Germany

Hi, there;

In terms of innovative funding sources I'd like to suggest a kind of "foster system", which means that european or OECD country inhabitants would foster a family of small scales farmers in a developing country. Similar to a "orphan's adoption system" they would exchange letters and experiences, photographs and emails, so share their daily lives. I am sure that the communication facitlities nowadays should offer many options for the partners. The partners will be able to invest into climate and food security programmes at a very low but efficient level on the farms, such as planting trees, water and sanitation projects (filters) and so on. Sponsors could benefit by sharing directly the positive impacts of the activities, planned together with their partners. Small scale individual credit schemes could be another option. Key players in the system to build up the framework will be rural banks and micro-credit schemes (transfer costs of money, accounts) and maybe churches and religious bodies as reliable and wide-spread organizations to facilitate serious partner contacts.

Pls discuss my proposal with your team and think it over - yours P.