Report reveals huge investment gap in farm climate change adaptation

According to a report, small farms and agricultural companies in Sub-Saharan Africa (and South-East Asia) are facing a $1.2 billion cash gap for climate adaptation.

According to the report, there is a gap in investment of US$106 billion in agricultural small and medium-sized enterprises (agrigriSME). This includes farms as well as rice millers and data firms.

“Not only is there a gap for traditional financing needs for agri-SMEs in these regions, but there is also a big gap in the need to mitigate risk of climate change, with essentially no money going toward these needs,” explains report author Jérôme van Innis, a senior manager at the South African strategic and financial advisory group ISF Advisors, which produced the report alongside the Commercial Agriculture for Smallholders and Agribusiness (CASA) program, which supported this article and involves CABI, the parent organization of SciDev.Net.

According to the report, small businesses in the agricultural space need cash to finance their day-to-day operations as well as to fund investments and adapt for changes caused by global warming.

The report highlights the importance of climate adaptation funding being mobilized for agri-SMEs. This requires a system that measures the potential for adaptation investment. government policiesThese support a pipeline for agri-SME innovation.

According to Oxfam, investing in agriculture can be a powerful tool for poverty reduction and also improves food security, economic development, and food security.

Specialists say that investors will not be able to support small-scale farmers if there is no system that can measure adaptation outcomes.

Climate finance is not available

This overall picture shows that there is “no major flow of climate finance for agribusinesses relative to the known dimensions and severity of the climate crisis”.

According to the analysis and advisory group Climate Policy Initiative, small-scale agriculture receives only 1.7 percent of global climate financing, or approximately US$10 billion. The majority of this money comes from the public sector and is earmarked for climate change adaptation rather than mitigation.

Van Innis says that certain things must be done in order to essentially put in place products or services to help these SMEs adapt to climate change, from the highest levels to the lowest level to local investors.

To address this aspect of the financing gap, the report calls on new foundational infrastructure to develop in the next three- to five years. This will allow agri-SMEs to access more financing for climate-related investment.

These include the development of common methods to define climate adaptation and mitigation in Agri-SMEs. Van Innis states that investors are at risk from ‘greenwashing’ – or trying to pivot towards climate finance with no clear understanding.

“If we aren’t linking up to specific metrics what are we tracking?” He asks. “It’s a tenuous connection and tenuous tracking adaptation and mitigation impacts unless all parties are speaking the same language.

Metrics for adaptation

This clarity could be achieved through a set or metrics of common measurements. Ken Chomitz (chief economist at the Global Innovation Fund, a non-profit investment firm based in the United Kingdom), says that metrics provide an understanding of the outcomes of interventions and can be used to determine cost effectiveness.

Like mitigation, which has tangible elements that can easily be measured, like a reduction in carbon dioxide emissions, adaptation does not have a universal goal. Much of this is due to the context-specific nature of adaptation—what works in one place may not work elsewhere.

Let’s take, for instance, a new innovation that aims at increasing maize yields from drought-prone areas. The report suggests that the project could use drought-resilient seed, irrigation, or soil management and be limited to a single metric of maize production in low rainfall years.

“This could be useful to determine which option is best to address a specific problem, but will it increase the resilience of smallholder farmers?” asks Chomitz.

“The metric that we propose focuses on which aspects of poverty are resilient to climate shocks and how well are we at protecting people from shocks that might trap them in poverty.”

It will take some time to reach an accepted adaptation metric. Chomitz said that any standard setting system would take years to fully implement, but that we are making progress.

A pipeline

While metrics can be used to attract investment for adaptation in agri-SMEs, governments also need to play a part, Maria Tapia, Global Centre on Adaptation’s program leader for climate finance, states.

She recommends creating a stable regulatory climate, as well as tax incentives, concessional financing, and cheap financing for adaptation innovations.

“Government must make a clear climate commitment with policy that includes an adaptation plan and investment strategy, and which prioritizes certain … sector projects,” she says. “Governments can attract the private market by first putting its own funding into that plan and then calling on international cooperation to cofinance.

In this way, governments also create a pipeline of agri-SME innovations that can be aggregated—bundled into a single project—and scaled. Many of these projects are too small for large investors to be attractive. She says that national climate funds can be repackaged to make them more appealing to private investors.

Van Innis hopes to share this collaborative view on agribusiness-SME financing with investors.

He said, “Let’s be more inventive.” “Let’s build a common language and a pipeline for investment opportunities. Make sure these track back towards specific performance indicators so that we can say yes, our funding is helping SMEs to adapt and mitigate. Climate change.'”

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