The complexity of the financing landscape for food security and nutrition
Agrifood systems are currently not delivering the necessary outcomes to achieve food security and end all forms of malnutrition, and they are also creating several environmental, social and economic costs. Chapter 4 of this report showed that not bridging the financing gap to meet SGD Targets 2.1 and 2.2 can cost trillions of USD, making it crucial to adopt investment practices that take climate, health, social and environmental risks into consideration.141 However, this might not be possible if the financing architecture is not designed to become a critical means to facilitate the achievement of these development objectives.
The current financing architecture for food security and nutrition is highly fragmented: The lack of consensus about what should be financed and the different objectives among stakeholders have led to a proliferation of actors that often step outside their mandates instead of collaborating among them.34 Bilateral donors often choose to engage in their own aid activities, rather than channelling this through multilateral organizations. This results in many small, uncoordinated aid activities, driven principally by bilateral donors. For instance, in 2018, 73 percent of agriculture official development assistance was bilateral, while multilateral aid accounted for 27 percent in the same year (a reduction of 3 percentage points compared to 2013), which, without adequate coordination among actors, can lead to competition and inefficiencies35 (more details in Chapter 3). In the period from 2000 to 2020, and particularly since 2010, the emergence of multi-bi ODA (earmarked funds whose management is entrusted by bilateral donors to multilateral institutions) has been observed with a gradual reduction in bilateral ODA.142
While considering a complex, multisectoral objective such as achieving food security and improved nutrition, the lack of coordination can be even more important. Many sectoral investments can influence hunger, food insecurity and malnutrition, but often this is not recognized. For example, two key areas for meeting SDG Targets 2.1 and 2.2 – humanitarian and development actions – are often planned, funded and implemented separately.34 In a financial landscape where several development objectives are competing for scarce financing flows, the current financing architecture is failing to embed food security and nutrition into broader development objectives.
At the country level, the high number of uncoordinated projects is causing high transaction costs and hindering the pursuit of common SDG objectives. The competition among many actors with similar mandates for funds provided by a small group of donors is detrimental, compared to a situation of fewer actors with differentiated mandates.35 For instance, while in 2009 most of the countries engaged with between 61 and 100 different donors, in 2019 the majority engaged at least once with more than 100 donors. The number of bilateral donors increased from 25 in the period between 2000 and 2004 to 43 in the period from 2015 to 2019, and the number of agencies from these bilateral donors increased from 145 to 411 in the same period. Multilateral donors have also increased from 46 to 91 agencies, banks, funds and other institutions. In total, the number of every kind of donor increased from 191 in 2000 to 502 in 2019.142
Some studies have found that fragmentation of development financing can be associated with lower economic growth rates143–145 and lower levels of accountability that can lead, potentially, to corruption in recipient countries.146 On the other hand, fragmentation can also lead to efficiency gains by encouraging the specialization of agencies and funds, promoting competition among donors to enhance efficiency and encouraging innovation, while this competition can also increase the bargaining power of recipient countries (as there could be several donors interested in a single problem and/or country).142
Fragmentation can also imply shifting priorities and competition – instead of cooperation – among donors, data scattered across different sources and methodologies, lack of alignment with country priorities and plans, and a marked preference for financing projects instead of programmes, implying a high number of small bilateral projects in recipient countries, which can lead to high transaction costs and inefficiencies.35
Evidently, donors (which include governments, international financial institutions, multilateral development banks, development finance institutions and philanthropic foundations) play a crucial role in the current financing architecture. For instance, they are involved in most of the blended finance transactions and provide funds for intermediary organizationsax for investing in small-scale projects.148
Among them, philanthropic foundations are important stakeholders in the financing architecture for food security and nutrition. Compared to private investors, philanthropic foundations have more chances to focus on impacts than on financial returns and are more tolerant regarding the risks that are often part of development finance. Leveraging patient capitalay from philanthropic foundations can be a game-changer approach for supporting social enterprises, creating solutions to the problems of hunger, food insecurity and malnutrition, and for making the necessary infrastructure investments in LICs and LMICs to address some of the major drivers of food insecurity and malnutrition. Philanthropic foundations are uniquely placed to be catalytic, acting as early risk-takers and showing that investing in food security and nutrition may not be as risky as it seems. While the growing interest from philanthropic foundations in financing instruments as blended finance is encouraging, the way in which many foundations are organized can limit their role to simply delivering grants and development projects. For example, few foundations are organized to deliver equity, which is important for early-stage partnerships, and they are not prepared to receive money back.148
Nevertheless, one of the greatest challenges probably lies in addressing the current fragmentation of the financing architecture for food security and nutrition. Increased coordination between large, medium and small stakeholders should be encouraged, as sometimes large donors do not coordinate with or co-finance activities led by other minor actors, since there are no incentives to do so. In addition, there is a crucial need for donors to align their spending priorities with countries’ priorities: Since the current architecture is extremely dominated by HICs and large development agencies, the priorities of recipient countries and communities are not always considered.34
An important challenge faced by many recipient countries of ODA, other official flows (OOF) and other development finance flows is their relatively minor role regarding how development finance is planned and implemented.az In fact, discussions about how to shape financing architecture have revealed differences between the vision of some HICs, which have traditionally led the development finance discussion, and that of some LICs and MICs. For instance, an analysis of the positions in the 2015 Conference on Financing for Development in Addis Ababa found that, while certain HICs have promoted a greater role for the private sector and a vision of national governments as “enablers” for mobilizing private financing flows, some LICs and MICs have argued in favour of enhancing the role of governments to make sovereign decisions about their development strategies.ba, 152 The mismatches about how to build solutions could affect the necessary coordination and integration of actors towards a less fragmented financing architecture for food security and nutrition, making essential the achievement of agreements among all kinds of actors, regardless of their size.
Certainly, this increased coordination among actors, and the more equal integration of LICs and MICs into the financing architecture would require stronger and more solid national governments which, in any case, face several challenges. Political economy issues and unpredictable government decision-making can affect the capacity of alignment between the sources of financing flows and a country’s priorities and create a perception of higher risk for private investors. Low-absorptive capacity is also a problem that could limit the potential increases in financing flows for food security and nutrition (see Chapter 4); furthermore, the weaknesses of governance mechanisms, institutions and the rule of law not only affect countries’ ability to access financing, they can also lead to an extreme concentration of national markets that could undermine the position of key agrifood systems actors as smallholder farmers and SMEs.34
It is also important to ensure that at the national level the increased financing flows turn into effective policy solutions for ending hunger, food insecurity and malnutrition. The absorptive capacity and technical efficiency of expenditure (which can have impressive potential gains for some countries as seen in Chapter 4, Box 11) are important, but good governance and strong national institutions are also necessary. For instance, in countries highly dependent on ODA and OOF, data suggest that national elites may have been capturing sums of the money received and depositing these in offshore financial centres.153
The commercial private sector is without doubt the most important actor in terms of the level of financing flows directed to food security and nutrition. It is often private actors who develop new technologies and innovative financing tools, conceived and ready to be implemented in agrifood markets. Government and donor funding can help get projects started, but these will not be sustainable over time without private capital.87 From a food security and nutrition perspective, multinational food and beverage corporations can bring investments and new technologies and business practices. On the one hand, this can inspire competition to influence food item pricing, though on the other, it can lead to the development of domestic highly processed food and beverage industries.154
As a matter of fact, recent decades have seen a rise in the availability, variety and consumption of highly processed food products across country income and development levels, especially in highly populated LICs and MICs, contributing greatly towards dietary transitions. Nevertheless, the growth in highly processed food and beverage sales is not driven by demand alone. Foreign direct investment, meant to develop economies, has also been associated with dietary transitions and increases in the prevalence of overweight and obesity worldwide. In contrast, there is no clear evidence that such investments benefit undernutrition.155 So far, most private capital investment in nutrition has focused on stand-alone projects that not only fail to address the systemic and structural determinants of malnutrition, but also divert governments’ and stakeholders’ capacities and resources away from the enforcement of high-impact public policies.156 Globalization of agrifood systems, largely driven by trade liberalization and deregulation of domestic markets, has enabled multinational food and beverage companies to more easily enter and drive consumption in emerging markets.
Growth in the highly processed food market has coincided with a rise in the subsidization and production of agricultural commodities representing key low-cost ingredients for such products including vegetable oils (palm, soy and rapeseed), sugars and cereal crops (wheat), a significant proportion of which goes towards the production of highly processed foods.154 Even those companies whose first business is not the manufacturing of highly processed foods often have a vested interest in the supply of commodity ingredients used in these products. These practices also contribute to the displacement of smaller food producers, with negative impacts on the local economy, biodiversity and access to healthy diets.
Regulations often disincentivize the private sector to finance high-risk investments, such as those related to food security and nutrition, since private investors seek to protect the value of their assets in the long term. However, regulatory changes focused on stimulating financing flows towards investments with developmental benefits can make the investments more attractive,148 and can reduce the risk of “greenwashing”.100 For example, even if non-mandatory, the EU Taxonomy provides guidance for identifying environmentally sustainable investments and is considered a first step towards encouraging financing towards activities that contribute to the achievement of the European Union’s climate and environmental goals.157
In addition, it is important to close the gap between the risk that all financial stakeholders – especially private sector investors – perceive, and which is often very high, and the actual likelihood of that risk happening. This high risk perception also disincentivizes the financing of initiatives that could create further development opportunities.148 Even stakeholders who accept higher levels of risk, such as philanthropic institutions, donor governments or DFIs, have their own criteria, timelines and reporting standards for delivering grants, which may impede the involvement of commercially oriented private actors.83 It is crucial to consider environmental, social, and food security and nutrition factors as part of risk assessments to reduce the risk aversion of financial stakeholders towards food security and nutrition, and agrifood systems.34
With a focus on development and a private sector approach, social enterprisesbb have progressively become important stakeholders for financing food security and nutrition, especially for supporting investments at the local level. Given their wide scope, social enterprises are important vehicles for achieving inclusive economic development; they can create income opportunities in areas with poor access to financing, such as distressed urban areas, or remote rural communities.158 This can be relevant for an area of investment like food security and nutrition, which, as discussed, is rarely a priority for private investors. However, since social enterprises tend to be oriented towards social impact rather than pure profit, most of their resources come from concessional finance funded by donors. The long-term and risk-tolerant kind of capital needed for these enterprises is not easily found in private, profit-oriented investors.159
Finally, lack of data, transparency and accountability is another key characteristic of the current financial landscape, and it actually increases the perception of financial risk. Private sector financing is data driven and requires a reliable data infrastructure. Transparency around methodologies and assumptions is needed, as well as timeliness of data. For instance, using “traditional” metrics, food security and nutrition interventions are often considered risky investments, as they have a long return period and lower returns than other sectoral investments. This increases the perception of risk, making the investment unaffordable for recipients. Moreover, this challenge is not limited to the private sector, as the perception that dietary interventions require a long time before health benefits are seen in the population may not align with typically shorter political or budget cycles.160, 161 Making financial data (including food security and nutrition, agricultural, environmental, health and any other related data) more reliable and widely available could reinforce the “investment case” for food security and nutrition interventions, as is already happening in areas such as regenerative agriculture.34
Towards financing architecture for ending hunger, food insecurity and malnutrition
Addressing the issues identified in the previous section will require the implementation of several reforms, summarized in Figure 34. For instance, even before making structural changes in the financing architecture for food security and nutrition, an essential first step for scaling up financing for food security and nutrition is to make the objective of achieving SDG Targets 2.1 and 2.2 a priority in the international policy agenda, which, as analysed in Chapter 4, does not seem to be the case, at least considering donors’ priorities for ODA and OOF flows. For example, priorities set up by the G7 could have an effect on donors’ priorities: When the G7 prioritizes a policy area, more financing flows tend to be directed towards it.162 Therefore, the role of advocacy is essential: Financing flows can be available, and the most adequate instruments to mobilize these can be identified, but financial stakeholders such as country donors, philanthropic foundations or private sector actors should have a better understanding of food security and nutrition investments, what they mean from both a financial and a development perspective, and what the long-term cost implications of inaction are, discussed in Chapter 4. Food security and nutrition is often associated with agriculture only, which most financial stakeholders consider to be a traditional and too risky investment, offering small returns.34 Adopting a food security and nutrition lens, considering its intersectoral nature (as shown in the definition of financing for food security and nutrition presented in Chapter 3) and highlighting the short- and long-term returns of investing in areas such as nutrition163 are essential conditions for a successful reform of the financing architecture for food security and nutrition.
FIGURE 34 Recommendations for addressing the fragmentation of the current food security and nutrition financing architecture for ending hunger, food insecurity and malnutrition
For national governments, on the other hand, food security and nutrition should be embedded within broader development and investment plans, breaking the sectoral silos and providing firm signs of commitment to ending hunger and malnutrition, and sending the right signals to all financial stakeholders that investment in food security and nutrition is more than an undertaking in a sectoral, traditional area – it is a high-level objective with benefits that go beyond agrifood systems. Governments can also implement food security- and nutrition-sensitive financial taxonomiesbc that could inform financial actors about investment activities that can support food security and nutrition and/or support the development of resilience to the major drivers.100 For instance, in Ethiopia, the government issued the Seqota Declaration in 2015, oriented towards mobilizing resources to implement the national Food Security and Nutrition Strategy. Initially targeted at 40 woredas,bd it was recently expanded to 700 woredas, and it includes an annual financial commitment by the central government of EBR 3 billion (Ethiopian birr),be plus another EBR 3 billion from local governments. The expectations are to mobilize an additional EBR 6 billion from financial partners to invest a total of EBR 12 billion annually to achieve the declaration’s objectives.165
Breaking the sectoral silos for the design and implementation of food security and nutrition policies also implies a shift in our conceptual understanding of food security and nutrition. The definition of FINANCE for food security and nutrition (presented in Chapter 3) is a call for a holistic understanding of what has been commonly considered two separate notions: food security on the one hand, nutrition security on the other. The term “food security and nutrition” has been used to emphasize the achievement of the four dimensions of food security and its tight link with the achievement of nutrition security, as well as the need to adopt complementary actions to achieve food security and nutrition.166 Nevertheless, it may be time to recognize the overall objective of achieving “food and nutrition security” as a single indivisible policy goal encompassing also the realization of the right to adequate food. Certainly, the stagnating trends in the reduction of hunger and food insecurity, and the slow pace of progress towards the global nutrition targets, including the increasing prevalence of adult obesity in the world,bf are sound arguments to make this call, and can strongly support a better understanding of the importance of meeting SDG Targets 2.1 and 2.2 for all financial stakeholders.
The increased political commitment to meeting SDG Targets 2.1 and 2.2 should be followed, from the perspective of donors, by the creation of a closer nexus between humanitarian, climate and development finance. For instance, agencies dealing with humanitarian issues are in most cases totally different from those managing development activities, with different sources of financing and time horizons; the same distinction can be made between national and subnational governments. Long-term investments should foster sustainable development in food crisis contexts to enable humanitarian assistance to meet immediate needs without being overwhelmed by prolonged emergencies. This approach should ensure proper coordination between humanitarian and development finance, with investments oriented towards addressing the root causes of acute and chronic food insecurity. In countries with ongoing crises and frequent famine risks, where humanitarian aid dominates and development finance is limited, greater coherence is crucial to build resilience to the major drivers of food insecurity and malnutrition.167
In addition, climate financing actors have barely considered agrifood systems as a priority; between 2021 and 2022, less than 4 percent of climate financing went to agriculture, forestry and other land-use activities.34 However, another study showed that, even if climate financing for agrifood systems is decreasing, the share focused on food security was slightly increasing until 2021.168 Regarding nutrition, on the other hand, a recent report shows that climate and nutrition are often not well connected, but that there are many exceptions revealing, in turn, solid linkages between climate and nutrition, which can be streamlined for better coordination and improved results.1 Both situations create opportunities for strengthening climate–food security–nutrition linkages and reinforcing agreements that are currently in place. For example, in 2017, at COP23, countries established the Koronivia Joint Work on Agriculture, recognizing the important role of agriculture in tackling climate change. In 2022, at COP27, countries agreed on a four-year window (2022–2026) for bringing together the discussions about the linkages between climate, agriculture and food security – the Sharm el-Sheikh joint work on implementation of climate action on agriculture and food security – that makes an explicit call to move from technical discussions to implementation.169, 170 During COP27, the Egyptian Presidency launched, in partnership with WHO, FAO, the Global Alliance for Improved Nutrition, the Scaling Up Nutrition Movement and the UN-Nutrition Secretariat, the Initiative on Climate Action and Nutrition, a multistakeholder, multisectoral global flagship that focuses on fostering collaboration to accelerate transformative action to address the critical climate–nutrition nexus.171
To consolidate the vision of embedding food security and nutrition across sectors and financial stakeholders, a new governance of finance to promote the alignment of financing flows towards collective agrifood systems priorities, such as meeting SDG Targets 2.1 and 2.2, will be imperative.172 Building this new governance would require recognition of the role that all food security and nutrition financial ecosystem stakeholders have played in building the current fragmentation, and consideration of stronger incentives to avoid it. Nevertheless, it should be noted that for at least two decades the issue of fragmentation has been part of the agenda in high-level political fora. For example, the Monterrey Consensus in 2002bg emphasized the need for donors, countries and international development agencies to increase their efforts to harmonize their procedures at country level, taking national needs and objectives into account. Even if theoretically the principles of coordination are well articulated, putting them into practice has been challenging, especially when considering complex areas of action such as food security and nutrition, and agrifood systems transformation.173 Stronger multistakeholder leadership at the international level will be key for making food security and nutrition financing coordination work.
One essential step for effective coordination is placing national and local actors and their priorities in the “driver’s seat”. However, this is not always straightforward, considering, among other challenges, the imbalance of power and capabilities among actors, the lack of donor coordination at the global level that negatively affects coordination efforts at the national level, and the data gap that might make it difficult to build the case for shifting donors’ priorities.173 Nevertheless, there are ongoing efforts to address these issues. For example, the G20 has supported the creation of country-level coordination bodies for specific development goals (e.g. the Development Partners Coordination Group in Rwanda).35 The experience of joint programme funding at the regional level (e.g. the Alliance for a Green Revolution in Africa) or at the global level (e.g. the Global Agriculture and Food Security Program and the Global Donor Platform for Rural Development) provides interesting examples of pooling resources from different sources towards country-level priorities.173 Therefore, a requisite for successful coordination is the integration of food security and nutrition financing flows, even if coming from different stakeholders with divergent interests, into the objectives defined by the most legitimate bodies at the regional, national and subnational levels.142
There are other sectors from which food security and nutrition financial stakeholders can incorporate lessons. One important example of coordination mechanisms is the One Health approach, an integrated, unifying approach to balance and optimize the health of people, animals and ecosystems. This approach recognizes that the health of humans, animals, plants and the wider environment are closely interlinked and offers a means to tackle associated threats to the human–animal–plant–environment interface through collaboration and coordination between all relevant sectors and stakeholders involved.174 This approach makes it possible to harness and integrate expertise and resources from across the spectrum of health domains and other disciplines, and it is a proven approach to policymaking and cross-sector collaboration to prevent zoonotic and vector-borne diseases from emerging and re-emerging, ensuring food safety and maintaining sustainable food production; reducing antimicrobial-resistant infections; and addressing environmental issues to collectively improve human, animal and environmental health, among many other areas. In addition to saving lives and promoting well-being, One Health actions offer important economic benefits. FAO and the World Bank estimate that One Health efforts could bring at least USD 37 billion per year back to the global community, while investing in One Health requires less than 10 percent of this figure. As countries consider investing in health security and other targets (e.g. agricultural production and food security, and healthy ecosystems), One Health can be a particularly relevant concept for country budget allocation among the ministries responsible for security as well as human, animal and environmental health (e.g. in decisions by the finance minister, parliamentary body, or prime minister).175
Besides enhancing coordination, financial stakeholders should take steps towards improving their role in scaling up financing for food security and nutrition. As noted throughout this document, food security and nutrition is considered a risky investment for private commercial actors. As a consequence, development partners such as donors, including IFIs, MDBs and DFIs, should take the lead in de-risking activities, for instance, increasing the allocation of ODA oriented to mobilizing private investments, through blended finance or other financing instruments.35, 81 Considering, on the one hand, that countries with limited ability to access financing rely mostly on concessional finance and, on the other hand, that these financing flows are insufficient to cover the financing gap for meeting SDG Targets 2.1 and 2.2, the shift of ODA flows for mobilizing private finance could be an effective solution for scaling up financing in these countries, which are often affected by one or multiple drivers of food insecurity and malnutrition. Official development assistance can be strategically implemented in UMICs to incentivize the gradual increase in domestic funding by governments, as well as the transition towards more commerce-oriented loans, with the objective of targeting grants and concessional financing to LICs and LMICs.35
Multilateral development banks face the challenge of increasing risk tolerance towards food security and nutrition investments and need to put in perspective their contribution to achieving overall development objectives. Recent research found that MDBs’ credit rating agencies were overestimating financial risk, which made these institutions more conservative regarding expenditures in high-risk markets.34 In fact, DFIs are governed by prudential rules and statutes, which prevent them from lending to high-risk projects. Development finance institutions and multilateral development banks receive their capital for shareholder governments and benefit from government guarantees. The backing from governments enables them to receive investment grade credit ratings and thus raise money from international capital markets and provide financing at competitive rates. They also take a portfolio approach to investment and therefore invest in a range of projects with varying risks and returns.58
There is a global call for an MDB reform agenda that considers increased resource mobilization not only towards MICs with moderate or high ability to access financing, but also towards LICs176 that have limited access to financing, higher prevalence of undernourishment, food insecurity and malnutrition, and fewer chances to build resilience to the major drivers. Food and agriculture is considered particularly risky and with lower financial returns; this has deterred DFIs and MDBs from investing in these sectors. And when they do invest, they tend to take senior debt positions rather than offer much needed first loss financing.bh, 58
Multilateral development banks can play a central role in mobilizing private financing towards countries with limited access to financing but, unfortunately, this has not always been the case. However, in 2020, MDBs mobilized a total of USD 168.9 billion, of which a mere USD 15.6 billion were directed towards LICs. In 2021, the total resource mobilization increased (by 44 percent), but the resources towards LICs amounted to only USD 5.2 billion in the same year.177 Multilateral development banks can leverage their potential access to financing flows to then mobilize them at lower interest rates (or through concessional finance instruments) towards countries with limited ability to access financing. In addition, MDBs can deliver technical assistance to national public development banks, which in turn can make these financing flows available for agrifood stakeholders such as smallholder farmers or agrifood SMEs.34 Recently, ten MDBs endorsed a document calling for better coordination among these institutions to achieve greater impact in addressing development challenges, including better coordination at the country level and improved actions to catalyse private sector financing.178 The inclusion of food security and nutrition as one of the six global challenge problems in the new World Bank’s evolution process179 can work as a sign for other MDBs to include the eradication of hunger, food insecurity and malnutrition among their priorities for mobilization of financing flows.
Taking a new approach to reducing the sovereign debt levels in LICs and MICs is also critical. As discussed in Section 5.1, debt levels, including debt service, have a major role in determining countries’ access to financing flows. While these countries can use concessional finance strategically to reduce their financial risk, it is impossible to fill the financing gap without tapping private sources of capital, which would require addressing issues such as high debt levels. Unfortunately, current arrangements for restructuring sovereign debt are complex and time-consuming, and often result in non-optimal outcomes for borrower countries. In addition, debtors are usually placed in a very vulnerable situation before their creditors.180 There have been past and current initiatives to address this issue, such as the IMF’s Heavily Indebted Poor Countries Initiative,181 the former G20–World Bank–IMF Debt Service Suspension Initiative (DSSI)182 and the G20 Common Framework for Debt Treatments beyond the DSSI, launched in 2020.183 However, especially after the COVID-19 pandemic, the needs for countries to alleviate their debt are increasing, and policy responses have been inadequate.bi Higher-income countries, especially the members of major political fora such as the G7 or the G20, should take, jointly with MDBs, a stronger position on debt relief, making the current mechanisms work and supporting coordination with private creditors to facilitate negotiations with debtor countries.7
The IMF has itself begun to explore how environmental and social factors can be as critical as economic and financial factors for assessing sovereign debt sustainability. At present, the IMF’s debt sustainability analyses look at how a country’s prevailing debt and prospective borrowing will affect its ability to meet debt service commitment in the immediate and medium term. The indicators used are primarily financial and economic but, given that other factors such as climate, biodiversity, water, soil and even food security and nutrition can also affect debt sustainability, experts have begun to present the case for the IMF to improve the definition of debt sustainability and include these environmental and social factors therein. This might be a critical first step towards helping countries with limited ability to access financing and raise affordable financing flows.185
An open question is the inclusion of the private sector in improved food security and nutrition financing architecture. How can the profit-oriented interests of private actors be aligned with overall development objectives, particularly those to end hunger, food insecurity and malnutrition? For instance, some scholars have flagged that the increased financialization of agrifood systems could lead to negative outcomes such as land grabbing, food price volatility and corporate concentration.186 As previously outlined in Box 10 (Chapter 4), concerns have also been raised vis-à-vis the negative impacts that private sector investments may have with regard to food security and nutrition outcomes. Private actors must incorporate health, environmental and social risks into their financial decision-making, to shift financing flows from potentially harmful investments to others that work towards the achievement of environmental, health and social outcomes. Currently, most financial stakeholders do not account for the hidden costs of agrifood systems in their business models, and they do not have standardized reporting measures for climate, biodiversity and health.141 Evidently, there is a need to realign incentives with sustainability, and these incentives are heavily shaped by public support, which, as noted in Chapter 4, must be repurposed.
To this end, incentives for capital markets should align within environmental, social and governance investing practices, and food security and nutrition must be explicitly embedded in there.34, 187 For instance, from 2012 to 2020, the value of ESG assets tripled to USD 40.5 trillion (i.e. almost half of all assets under management). Disclosure regulations and standards can be established, entreating private financial actors to disclose how their investment portfolios may affect food security and nutrition outcomes. Technical standards are already in place, such as the European Union Sustainable Finance Disclosures Regulation or Japan’s Corporate Governance Code, each designed to disclose the alignment of investors with sustainability and/or climate standards.100
At the global level, in 2020, the Access to Nutrition Initiative released the Investor Expectations on Nutrition, Diets and Health, which to date have been signed by 87 institutional investors. The document commits these investors to engaging with food and beverage manufacturers to address most of the challenges considered in SDG Target 2.2 and the World Health Assembly targets (undernutrition, overweight and obesity, micronutrient deficiencies and diet-related non-communicable diseases) in particular, promoting a more active role for private companies in delivering healthy diets for all.188, 189 Other financing instruments often adopted by private actors, such as venture capital in technological investments, are increasing; nevertheless, only 10 percent of venture capital allocation in 2021 was directed to agrifood technology. The food security and nutrition considerations of these portfolios remain low and extremely concentrated in HICs; however, there is growing interest in agricultural practices that conserve more soil and water and increase nutritional density in foods.156 For example, the venture capital company Tikehau launched an EUR 1 billion regenerative agriculture fund, supported by several large food and insurance firms. The fund has tied 50 percent of “carried interest” to impact-linked finance (see Section 5.2) and expects to leverage a minimum of USD 7 in terms of profitability and social and environmental benefits from every USD 1 invested in regenerative agriculture.156
Public–private partnerships (PPPs) offer opportunities to mobilize and leverage greater resources, expertise and innovation to agricultural and rural development projects. Unlike blended finance, PPPs work along the whole investment cycle; for instance, by partnering with local banks and aggregators, IFIs can leverage their financial capabilities to reach more small-scale producers and rural communities in need. By increasing agricultural productivity, improving market access, and enhancing value chain productivity, private sector co-financing plays a crucial role in scaling up efforts to reduce hunger and poverty by unlocking new opportunities for smallholder farmers and facilitating sustainable development in rural areas.
For example, the partnership between IFAD and Hamkorbank aims to alleviate rural poverty and enhance food security in Uzbekistan by providing vital access to financing for low-income dairy and horticulture producers. With a USD 2.5 million loan, 1 500 small-scale producers will access microloans, enabling them to increase their incomes and improve their livelihoods. This collaboration addresses a critical challenge that Uzbekistan’s rural population faces, where financial support for agriculture has historically been limited. By empowering small-scale farmers and supporting rural agribusinesses, Hamkorbank contributes to driving economic progress and sustainable agricultural development, ultimately helping to combat hunger and poverty in Uzbekistan’s rural communities.190
However, recent research on nutrition-related PPPs in agrifood systems has highlighted that, if not properly managed, there are potentially negative effects, including the promotion of commercial interests that shift priorities away from evidence-based solutions addressing malnutrition. Public–private partnerships may also divert resources away from essential public health services or result in unequal access to nutrition interventions, particularly for marginalized communities that may not be profitable for private investors. While PPPs can offer opportunities for innovation, careful management and oversight are necessary to mitigate potential harm and ensure that public health objectives remain the primary focus in nutrition financing initiatives. Public–private partnerships most commonly fail due to a lack of strong governance and regulatory frameworks.191
In response, it is vital that governments and other key stakeholders including United Nations Agencies, academia and civil society adopt a clear framework to avoid conflicts of interest and ensure impartiality, accountability and transparency in policymaking and food and nutrition financing.175 There are several examples of such frameworks that can be used and replicated. The UNICEF guidance on engagement with the food and beverage industry192 summarizes ten parameters to guide actions across all UNICEF programme areas including principles on avoiding engagement with companies that interfere with public policies or produce highly processed foods.193 The WHO report on safeguarding against possible conflicts of interest in nutrition programmes194 aligns with its internal framework of engagement with non-state actors195 and lays out six steps, each followed by an assessment to support national authorities in deciding whether engagement with the external actor should continue or be terminated. It includes guidance on risk management with respect to engaging with external actors and emphasizes the importance of monitoring and evaluation, accountability and transparency.194
Nevertheless, the public sector plays an essential role in filling the gaps not addressed by commercially oriented actors, primarily by investing in public goods and enhancing social values.196 National and subnational governments (the latter in the case of federal countries) can further mobilize domestic tax revenues, increase priority sector expenditures on food security and nutrition and consider repurposing policy support (see Chapter 4). As analysed in Section 5.1, countries with limited ability to access financing do not have enough fiscal space to increase tax revenues, mostly due to structural and governance issues. At the same time, while these countries strengthen governance and institutions (essential for accessing more financing options), attention should turn to bringing down corruption in tax collection and management and reducing tax evasion. In parallel, countries that already have a higher ability to access financing must enact stronger controls on tax havens and money laundering, which often allow tax evasion from countries with limited access to financing.34
One interesting development is that, since the 1980s, corporate income tax (CIT) has decreased globally, starting a sort of “race” among countries to attract investments through lower taxes.197, 198 High-income countriesbj have on average lower CIT rates than LICs and MICs197 and lower financial risk; therefore, most of the multinational corporations operating around the world establish their tax residency in HICs rather than in LICs and MICs. To address this issue, which leads to tax avoidance by major multinational corporations (and disproportionally affects LICs and MICs), the Organisation for Economic Co-operation and Development and the G20 established the Inclusive Framework on BEPS (base erosion and profit shifting), currently joined by 138 jurisdictions. The agreement comprises two pillars: The first is “revised allocation of taxing rights over a share of profits towards market jurisdictions”,198 and the second is a global minimum tax on multinational enterprise (MNE) profits exceeding EUR 750 million and aims to ensure that a minimum 15 percent of effective tax is paid in each country where an MNE operates.198 While this agreement has not yet been implemented, an UNCTAD study shows that implementing the global tax considered in the second pillar could significantly increase the tax revenue of all countries, with a trade-off of a 2 percent lower foreign direct investment towards the sectors taxed.197
Finally, improving the transparency of international financing architecture is essential for enhancing coordination and efficiency among the different actors in the system. Data development for a better accounting system is needed globally to understand how much financing is available to support internationally agreed upon goals such as SDG 2. Furthermore, harmonizing data collection standards at the national and global levels and making data available would contribute to enhancing the transparency and targeting of financing (see Box 17).35 Also, at the national level, countries should work towards stronger public financing management systems, which can increase the ability to track and coordinate financing flows across sectors and development partners.
BOX 17Leveraging tools to track progress in financing for food security and nutrition AND AGRIFOOD SYSTEMS
Analytics and tools to inform targeted allocation of public financing and track progress in mobilizing financing flows for agrifood systems transformation for meeting SDG Targets 2.1 and 2.2 are critical; these include artificial intelligence (AI) and data systems (see Section 4.1). Financial Flows to Food Systems (3FS) is a financial tracking tool co-developed by IFAD and the World Bank in collaboration with the United Nations Food Systems Coordination Hub and the ecosystems of support.* The 3FS provides countries and stakeholders with a methodology to help decision-makers track financing flows to agrifood systems at the country and global level in a systemic manner. Drawing on the High Level Panel of Experts on Food Security and Nutrition definition of food systems and aligning with the Classification of the Functions of Government, the 3FS measures financing flows to agrifood systems in a systemic manner across five interconnected expenditure components: agricultural development and value chains, infrastructure for food systems, nutrition and health, social assistance including emergency assistance, and climate change and natural resources. The 3FS builds on the SDG financing strategy and tracks three financing flows to agrifood systems: domestic public spending, international development financing, and private sector financing.
The overall aim of the 3FS is to move the needle on transformative public and private financing flows to agrifood systems, providing governments, development partners, private investors, and stakeholders with much needed evidence on financing flows to agrifood systems, progress and challenges, because having access to quality and timely evidence is essential to inform decision-making. The 3FS methodology for tracking domestic spending and international development finance flows to agrifood systems is operational, whereas the methodology for private sector financing flows is under development.
In the field of humanitarian aid, the Financing Flows and Food Crises Report167 offers an evidence-based snapshot of humanitarian and development finance trends in food crisis contexts. Understanding these trends is essential to inform decision-making and promote policy dialogues to enhance partner coordination. While humanitarian assistance is crucial for immediate relief, coordinated efforts are needed to address the root causes of food crises and reduce reliance on humanitarian aid.167
Mapping the agrifood finance landscape for nutrition is also critical. An example of this is the Scaling Up Nutrition methodology for identifying and analysing nutrition-sensitive investments in agriculture and food systems; a guidance note detailing this method was published by FAO in 2020.199 The method was adapted and implemented in ten countries. Most recently it was used to inform fiscal repurposing in support of healthy diets in Ethiopia.
More generally, the fast-paced development and adoption of AI technologies, in particular generative AI and multimodal models, now allow for the detailed processing and analysis at scale of troves of reports, statements and policies on agrifood systems in order to more easily surface valuable insights from text-based data and other data forms to advanced analytics.200 However, as indicated in this report, these innovative data tools can only be fully leveraged if data on food security and nutrition financing flows are made available, which currently is not the case. Therefore, while these tools are offering important opportunities to inform financial stakeholders and policymakers, the commitment of the international community to collect and standardize financial data as a global public good cannot be left aside.
Financial stakeholders should advocate for developing central hubs of public knowledge, designed as public global goods critical to reducing the perceived risk of investments for achieving food security and nutrition.35, 100 To achieve this, collaboration among finance and development stakeholders such as research bodies, extension services, civil society organizations and non-governmental organizations will be imperative. This collaboration can be channelled through multistakeholder mechanisms to establish shared methodologies and insights on innovative financing mechanisms oriented to fill the funding gap. The effective dissemination of knowledge should be facilitated by strategically coordinated, publicly funded knowledge hubs, ensuring broad access and utilization.81 In addition, the harmonization of the accounting systems, ensuring the availability of data and measuring the level of alignment of financing activities with the SDGs are among the priority activities to be delivered. Currently, donor countries have taken more steps in this direction than have multilateral actors.142 Filling the information deficit will require bold steps from the international community; otherwise, the likelihood of achieving development goals cannot be realistically estimated and projected.
