Why financing smallholder farmers matters... experts discuss

By Maria Fortunato

- Last updated on GMT

Image: Getty/Nikada
Image: Getty/Nikada

Related tags sustainability

Agtech solutions must address financing for smallholder farmers, together with scope 3 emissions, and inequity across multiple sectors of the industry in order to meet sustainability goals. This was the consensus among panellists at a recent webinar co-hosted by the Food and Land Use (FOLU) Coalition, World Business Council for Sustainable Development (WBCSD) and We Mean Business Coalition.

Titled How Can Businesses Secure a More Sustainable, Equitable and Resilient Future for the Food Sector​, the webinar​ was moderated by FOLU Coalition executive director Morgan Gillespy and featured a panel of five industry experts.

They included Emeline Fellus, senior director of agriculture and food, and a member of the WBCSD’s extended leadership group; Owen Bethell, Nestlé’s environmental impact lead for global public affairs; Milindi Sibomana, chief agriculture officer of the One Acre Fund Rwanda; Luke Pritchard, deputy director for nature-based solutions at the We Mean Business Coalition; and Alex Andreoli, a research manager at Systemic. 

The event delved into key insights from FOLU, We Mean Business, and WBCSD’s recently published report series, Future Fit Food and Agriculture​, while the panellists emphasised the need to drive ag-tech adoption among smallholder farmers. They also looked at new financing sources, identified untapped areas for innovation, highlighted the potential of under-utilised indigenous crops, and explored the role companies should play in making the global food system fit for the future.

The urgency of food systems transformation

Gillespy began by emphasising the urgency of transforming food systems and highlighting research from the Food Systems Economic Commission (FSEC). The report revealed that the current food system was incurring annual costs of over US$10 trillion, with projections suggesting a further US$4 trillion increase by 2050 due to health and environmental damages. She said, "Food and land use systems are the largest driver of ecosystem conversion and biodiversity loss, accounting for 70% of freshwater withdrawals globally."

Addressing scope 3 emissions

Next, Andreoli presented key findings from the Future Fit Food and Agriculture​ report series, stressing the significance of scope 3 emissions. These constituted 90% of emissions for large multinational food companies, mainly from purchased ingredients and products. He noted, "Agriculture and land use change within company value chains account for approximately half of global food system emissions."

To mitigate these emissions, the report recommended an annual investment of $205 billion between 2025 and 2030. While this figure seems massive, it actually represents under 2% of food sector revenues. This investment would support on-farm solutions, such as agro-forestry and anaerobic digesters, which could enhance farmer revenues and increase carbon sequestration.

Overcoming cost inequities

Andreoli went on to address the inequitable distribution of transition costs across the value chain, illustrating this disparity by comparing the financial burden of achieving mitigation targets among different actors in the beef industry.

"For a Brazilian beef farmer, for example, the (transitional) costs could lead to insolvency, while for a multinational food company, it represents less than 1% of revenues," he explained. To address this, he added, companies needed to collaborate with farmers and policymakers to develop equitable solutions and manage transition costs effectively.

Financing and support for farmers

Expanding on this point, Fellus highlighted the need for financial support to ensure income stability for farmers. She said, "Less than 4% of companies identify living income benchmarks or calculate living income gaps. The very first step is to start measuring and identifying interventions that support farmers. We need to have clearer asks in term of finance and we need to define clear solutions.

“We need to find ways to go through public and private sources and other supporting solutions for farmers, such as supplying low- or no-interest working capital loans to farmers, securing off-take agreements to guarantee demand for sustainable products and offering premium prices."

At the same time, Bethell emphasised the importance of funding frontline projects. He stated, "The number one thing companies should do is allocate sufficient funding to the frontline, to the people who implement these projects as part of their net zero and transition plans."

Enhancing farmer engagement and market connectivity

Continuing on the subject of cooperating with farmers, Sibomana discussed the importance of maintaining proximity to farmers and providing continuous advisory support. He noted, "The lack of advisory extension support is one of the biggest challenges in transitioning farmers to new technologies and practices."

He also emphasised the need for strong information loops between farmers and markets to ensure consistent quality and demand for produce. “In our work with farmers in East Africa on market linkages, we find there's a big disconnect.

“Whatever the quality required from the markets, farmers are not able to meet that or are trying to grow into that. But the markets are not yet ready to risk or invest at that level, so I think there needs to be that information loop connecting farmers to businesses,” he said.

Barriers to market access and financing

Sibomana went on to say that smallholder farmers often struggled with accessing higher-value markets due to stringent requirements like certifications. "We understand the value of certifications but for a smallholder farmer with limited means, it's sometimes a barrier to entry. How can we incentivise farmers to go from point A to point B?” he said.

The current subsidy system also played a significant role in these inequities. Sibomana stressed the enormous amount of environmentally harmful agricultural subsidies — approximately US$405.55 trillion annually — that needed reallocation. He also advocated for redirecting these subsidies to support climate-smart agricultural practices without taking essential support away from farmers.

Sibomana said, “If we don't align how those subsidies are flowing, it isn't going to make much of a dent in what the private sector does. But we also need to be politically prudent and cognisant of what those subsidies are — for farmers around the world, those subsidies will keep the lights on and the farm running.”

Innovating beyond commodity-centric systems

In addition to addressing scope 3 emissions and ramping up support for farmers, the panellists also discussed the issue of commodity-centric systems. In particular, Pritchard called for a shift from such systems to a model that valued environmental and social impact.

He said, "That system has been successful in driving operational and economic efficiencies, especially in some of these complex international supply chains. But I think it's also come at the expense of farmers. This mindset reinforces the notion that the way farmers steward land and cultivate crops is interchangeable and there are little consequences.

“We need to transition to a system where we place value not just on what comes off the farm but also on what happens on the farm. It's changing that fundamental relationship with farmers so we're not just having these one-off transactional experiences but putting the farmers at the centre of the system as indispensable long-term partners vital for establishing dependable, resilient supply chains in the face of climate change.”

Pritchard then went on to highlight the progress of companies like Nestlé, Danone and Pepsi in moving towards a post-commodity era. However, he also warned of a dire need to accelerate along this path to ensure sufficient investments in the correct areas and minimised transitional risk for farmers.

Harnessing indigenous crops and untapped innovations

The panel also identified the potential of under-utilised indigenous crops, which were often more resilient to local climates and conditions. As such, they could play a crucial role in sustainable agricultural practices and food sovereignty. To this end, Fellus emphasised the need for a shift towards regenerative systems that prioritised resilience to climate change and equitable food distribution.

Additionally, the panel identified several untapped areas for ag-tech innovation. Fellus mentioned the importance of developing appropriate metrics to measure and understand risks and opportunities in corporate performance. "This will allow them to mobilize different actions outside the companies and will really help shift the investment to R&D and innovation, as well as procurement,” she said.

In a similar vein, the panel discussed the necessity of investments in farm equipment tailored for regenerative agriculture and polyculture practices. Sibomana highlighted the challenges in making such technology affordable and accessible to smallholder farmers, saying that developing local solutions and supporting micro-level entrepreneurs could bridge this gap.

Driving agtech adoption and innovation

Expanding on the need for a paradigm shift towards regenerative agriculture and more innovative approaches to reduce labour and enhance efficiency, Bethell said, "We need to consider how to create a bottom-up movement of policy change that isn't about imposing something from a big multinational.” He also emphasised the importance of grassroots support and dialogue with farmers.

Pritchard, on the other hand, pointed out that by reducing food waste and loss could lead to significant efficiency gains midstream and downstream. Highlighting the untapped potential in the supply chain beyond the farm level, he said, "We're producing more than enough food to do it already; it's about getting it to the right places and making sure we're not losing it along the way.”

The role of businesses and policymakers

The collaboration between businesses and policymakers was another critical point of the webinar. Bethell brought up the necessity of creating an enabling environment to achieve significant sustainability goals, saying, "Engagement with policymakers is crucial. Having the right enabling environment will help us go from a project-based approach to a 20% reduction by 2025.

“I think we can do that without necessarily having big shifts in in external policy. But getting to 50% reduction and net zero — and creating other positive outcomes in biodiversity and water resources — does require a slightly bigger system shift.”

He added that Nestlé offered innovative solutions like micro-insurance for coffee farmers to protect against climate impacts, thereby demonstrating how businesses could lead in supporting farmers through the transition to more sustainable practices.

Pritchard perhaps summed up the key findings of the webinar best by saying: "Placing farmers at the centre of the system as indispensable long-term partners is vital for establishing resilient supply chains in the face of climate change."

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