Unlocking finance for large-scale food systems transformation
Real-life examples
To enable the transformation of food systems, mobilizing resources at various levels is vital. At the 2021 United Nations Food Systems Summit (UNFSS), governments, development partners and private sector representatives committed to scaling up financing to support national pathways for food systems transformation, moving away from practices that harm people and the planet. The UNFSS also recognized that the least developed countries bear the heaviest financial burden to meet the costs of food systems transformation.
The global financial picture presents challenges on multiple fronts to governments from shocks to tight fiscal conditions, increasing interest rates, and low global growth prospects. For most countries, meeting the incremental costs of financing national pathways for high-performing food systems requires coordinated efforts to mobilize domestic public financing, affordable long-term development financing, particularly concessional financing, and private sector investments. Traditional financing models must also be complemented with innovative solutions, such as agribusiness bonds, green financing, and the reallocation of Special Drawing Rights to drive investments into the agricultural sector and food systems at large.
However, it is not only about increasing financing for food systems, but also about addressing, as a global community - governments from developed and developing countries, food businesses, and development partners - financing practices that have proven unfair and ineffective, unhealthy, destructive, and unsustainable for people and the planet.
The UN has a unique convening role to play as a neutral broker and trusted arbiter among diverse actors. RCs and UNCTs can build partnerships with relevant actors to unlock the necessary financing from various sources (e.g. traditional donors, development banks, capital markets, philanthropic foundations, and remittances), and thereby help develop the "deal room" – a financing mix with innovative instruments – for food systems transformation. Importantly, UNCTs will need to distinguish between funding that is channelled through the UN system, and larger-scale financing that is leveraged and may not be channelled via the UN. In fact, one must serve the other: the UN system should attract funding to leverage larger-scale financing for food systems transformation.
To ensure both UN funding and larger-scale financing, it is crucial to explore diverse sources beyond those directly related to food systems. Additionally, financing windows dedicated to specific agendas, such as climate/environment financing, can be leveraged to address issues related to food systems. Examples of such funding sources include the Green Climate Fund, the Global Biodiversity Framework Fund, and the Climate Investment Funds. Recently, the Joint SDG Fund's window on food systems was launched to support countries in steering national transitions toward sustainable, resilient, inclusive and healthy food systems. This fund serves as an opportunity to leverage significant investments, catalysing broader impacts across multiple sectors. For further insights into leveraging the Joint SDG Fund effectively, refer to section 5, where we provide key factors for consideration when formulating, implementing and maximizing the impact of food systems-related joint programmes.
To obtain a comprehensive picture of this financial landscape, the stakeholder mapping, identified as a main step in section 3, is extremely relevant. In fact, the stakeholder mapping can help address key questions such as: Who are potential funders to the UN, and who are potential large-scale investors? How much financing is needed, and how is it flowing?
Estimates for the global cost of ending hunger and transitioning to high-performing and sustainable food systems range between USD 33 billion and USD 350 billion per year. Regardless of the estimate, there is currently no clarity on the amount mobilized to finance this transition. Meeting financial commitments for food systems transformation requires a record of financial flows. However, decision-makers and stakeholders face a major knowledge gap, as there is limited evidence on how countries and the global community are financing food systems transformation. Specifically, the volume, targeting, gaps and needs of financial flows to food systems remain unknown.
Tip: The Financial Flows to Food Systems (3FS) tool, developed by IFAD and the World Bank, can help you track financing for food systems transformation. The tool provides a response to the lack of evidence on financial flows and supports countries in leveraging domestic public spending, private investments, and concessional financing, while providing access to good quality and timely financing analytics and budgeting tools for impactful financing decisions.
Find out more about the 3FS tool in the resources section and here.
To provide decision-makers and stakeholders with a coherent, up-to-date and comparable evidence base on the financial flows for food systems, a systemic perspective is essential. A systemic approach recognizes interconnected issues to leverage resources from various sectors and drive sustainable and resilient transformations in food systems. To measure financial flows in a systemic manner, it is crucial to consider them across five interconnected expenditure components for food systems: agricultural development and value chains, infrastructure for food systems, nutrition and health, social assistance (including emergency food assistance), and climate change and natural resources.
Figure 7. The 3FS five expenditure components for food systems
Source: IFAD & the World Bank. 2023. 3FS Tracking Financial Flows to Food Systems – Factsheet. Rome.
https://www.ifad.org/documents/d/knowledge/3fs-factsheet
Furthermore, the SDG financing strategy7 emphasizes the importance for low-income countries to mobilize and manage three key sources of financing within a Integrated National Financing Strategy: 1) domestic public spending; 2) international development financing; and 3) private-sector financing.
The development of a deal room requires supportive partnerships with non-finance actors as well, such as academia for R&D capacity, the private sector for technical expertise, and civil society organizations and NGOs for local knowledge, networks and expertise. The construction of the deal room is a significant trust-building exercise and is not solely about money exchanging hands, but also about actors changing the way they invest and allocate resources.
The kinds of activities you might take up in developing the financing mix will likely vary depending on how mature the enabling environment for food systems transformation is in your country.
During the emergence phase, the UN system should help create a space for the government to foster ideas and explore potential financing sources. This includes promoting the use of innovative financing instruments such as SDG Bonds, climate-for-debt swaps and blue bonds. In addition, the UN system should support costing exercises for the transitions in the country context, which would enable important instruments such as Integrated National Financing Frameworks (INFFs) to be used with more of a future-oriented and systems lens, involving a wider range of actors. RCs and UNCTs could also forge partnerships with non-traditional investors to expand the field of underwriters for national projects.
When the acceleration of the transition is underway, the UN system should focus on supporting the government in prioritizing food systems transformation in its national budget and aligning it with subnational budgets. In addition, mapping private investors and facilitating their dialogue with the government, IFIs and others to promote collective investment commitments and target-setting is key.
In countries where a transition is well advanced and needs stabilization, the UN system should focus on cultivating an institutionalized approach for partnership building and food systems finance. Establishing a partnership platform or forum where a diverse group of investors and other actors can engage regularly and monitor existing investments can also support the development of innovative financing to effectively support food systems transformation.
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