Finding Money for Sustainable Agriculture
Food production makes up a third of the global greenhouse gas emissions. It is one of the biggest drivers of biodiversity loss. Many solutions for decreasing the environmental damage caused by the food system emphasize the role of farmers as food producers as well as providers of ecosystem services.
By this way of thinking, farmers have to promote environmentally friendly production practices and technologies. However, sustainable agriculture often requires a certain level of capital, and many farmers in low-income countries do not have access to credit and financial information.
According to Nicole Bolomey, Director for Andreas Hermes Akademie International, both young and older farmers struggle with understanding taxes, bank loans and other financial aspects of running a business and accessing capital. Meanwhile, some agribusinesses that have managed to sort out the net of information soon realize that they will not be able to get financial support as they are either too small for bank loans or too large for microfinance.
So, how could policy makers, private investors and civil society organizations support farmers or even agribusinesses to access capital and invest in sustainable agriculture?
First of all, secure and long-term land tenure is essential for farmers to even consider putting time and money into sustainable agricultural practices.
Farmers who do not have their own land or a long term lease, tend not to invest in the land. Policies should, therefore, implement land reforms that increase farmers’ access to land and secure their land rights.
Let us now consider some important ways to secure funding for sustainable agriculture.
Availability of Data
We have to ask ourselves – Do we have sufficient and available data on farmers and farms? Farmers who have secure access to land often depend on local rural banks for accessing capital. But as we all know agriculture is not a business that banks generally work with, and farmers often do not have a financial history, which means that banks do not have sufficient knowledge and information about the farms.
At this point, it would be important for donors and non-governmental organizations to provide local rural banks with access to data and information about farmers’ cash flows and assets – perhaps these organizations should start building capacities of farmers. It is also imperative for the farmers themselves to learn to keep proper records.
This way banks [like Agricultural Development Bank] could tailor design loans and credit packages to meet the farmer’s needs and capacities, at the same time decreasing the level of risk with the investment.
Data that visualizes farmers’ cash flows and assets in relation to the investments can also prove to funders the positive effects loaning money to farmers can have on the livelihoods and food security of rural households.
Information that can be used to encourage future funding, at the same time making it easier for policymakers to make evidence-based decisions. The importance of data in this regard can not be underestimated.
Adi Widyanto, Head of Conservation and Development at BirdLife Partner Indonesia was right when he said:
“To get funding, one needs to show that the new approach can generate profit for a single farmer. One needs to demonstrate to both farmers and financial investors that the inputs yield payback and returns outweigh the risks,”
Incentive for Sustainability
There should be environmentally friendly agriculture methods and technologies that can be profitable and make farms more resilient, if the positive ecosystem services and health benefits they provide are accounted for.
Redirecting public subsidies and funds towards agricultural practices that harness biodiversity and care for water, forests and soils would reward farmers for producing food in an environmentally friendly manner. It would also deliver on policy goals, helping the transition towards sustainability.
Noteworthy, however, the time lag between investment and payback in sustainable agriculture is quite long. Even if a farmer manages to access capital and invest in sustainable agriculture, it can take years to restore the land and ecosystem services. So, farmers need incentives and support to continue their work even several years after the initial engagement.
One way to encourage such long-term systematic transformation is through results-based payment, in which farmers are asked to commit to sustainable practices in return for pre-financing and receive higher payment later on if they continue to farm sustainably. This is a common practice in the developed countries.
It is important to remember that sustainable production practices and technologies are not the only means for decreasing the negative impacts of the food system. The use of chemicals, waste management, deforestation and transportation within food value chains are some of the other factors that must be dealt with in order to reduce the greenhouse gas emissions caused by agricultural sector. Sustainability needs to become a business driver for our food system.
Consumption side measures should also be part of the portfolio. According to Christofer Steward, Senior Vice President and Global Head of Sustainability at OLAM, it is important to have in mind that certifications, which set up standards for sustainable food and are meant to move the cost to consumers, tend to add burden for the farmers and is not that effective. Certification is important for the export market.
The shortcomings of certifications have been on the radar for some time, and several major certification brands, like the International Foundation for Organic Agriculture (IFOAM), Rainforest Alliance, The Non-GMO Project, Certified Naturally Grown, among others, have been updating their certification approach with smarter improvement scales, allowing for smallholders to move towards environmental and social criteria at their own pace.
While improving certifications is a step forward, there is also a need to include the negative environmental and social externalities in the price of food. Christopher Steward argues again that:
“First and foremost consumers care about the costs, while brand value and sustainability are secondary. We therefore need to make unsustainable food more expensive to push it out from the system.”
The food system is very fragmented as different actors manage different parts of value chains. A transformation of the system requires different actors to work together to find new ways to collaborate, without risking businesses’ commercial interest. It is worth mention that, there is the need to take steps to formalize either full or part of the various food chain in the country [Ghana] – the only formal food chain in Ghana is the cocoa value chain.
The private sector has a big role in this transition and an opportunity to deliver sustainability solutions at the required size to solve the problem, but businesses need the public sector to contribute with supporting policies and smart subsidies, whilst consumers and civil society organizations need to increase the demand for sustainable food production.