Special FAO Seminar on Food and Nutrition: Urgent Call for Agri-Food Systems Transformation to Achieve Healthy Diets for All
Thank you, Mr. Qu Dongyu for your words of introduction.
It is an honor to be here today, alongside my esteemed co-participants, Her Majesty Queen Mathilde of the Belgians, Her Royal Highness Princess Sirindhorn of Thailand, Commissioners, and many representatives from countries like Colombia and Chile which will be coming later on, and all of you in the UN World.
In my capacity as the UN Secretary-General’s Special Advocate for Inclusive Finance for Development, my mandate is to support policies that enable individuals, households, and small businesses to access and use a broad range of financial services.
Access to financial services is crucial to ensure the supply of and demand for food systems across the globe. On the supply side, financing is necessary to ensure sufficient production, mitigate risk, and invest in sustainable farming methods. On the demand side, access to savings, credit, and insurance is crucial for households to be able to afford healthy diets across longer periods of time – especially in the face of economic shocks. Unfortunately, rural and smallholder households make up a majority of the financially excluded.
There are an estimated 270 million smallholder farmers and pastoralists across Latin America, sub-Saharan Africa, and Southeast Asia. Smallholder agriculture is the main source of income for the rural poor and plays an important role in fueling global food supply. Crop yield, however, is inconsistent, subject to fluctuations in soil fertility, availability of water, disease, and pests. This is made worse by climate variation. To account for these risks, smallholders often supplement income by having family members move to cities to work or by running small informal businesses.
Financial services allow farmers to smooth consumption, manage shocks, and invest in their businesses. This provides an opportunity for more efficient production, further integration with markets, resources to weather difficult periods, and overall greater economic wellbeing. As such, promoting financial inclusion of smallholder farmers holds great potential to support sustainable food production, more diversity of these types of productions, and healthy diets for all.
COVID-19 has caused grave disruptions to the economic lives of smallholder farmers. Closed markets and borders have disrupted demand and negatively impacted earnings from crop productions. Urban migrants have lost jobs and are unable to send money back home. As a result, smallholder farmers, particularly women, are facing spikes in food insecurity and increases in poverty. In Niger, a landlocked country where nearly 80% of people depend on subsistence agriculture for food and income, the government estimates that the number of individuals vulnerable to famine increased from 2 million to 5.6 million as a result of the pandemic.
Usage of financial services can play an important role in achieving healthy diets for vulnerable populations. Rigorous evidence has demonstrated that in Nepal, women received free savings accounts and increased spending on nutritious foods. These financial tools help ensure that vulnerable populations can withstand shocks without sacrificing food consumption. For example, with enough savings built up, an unexpected medical expense does not automatically mean cutting back on protein-rich foods.
Now, back to the supply side, it is estimated that those 270 million smallholder farmers need around $240 billion in financing per year. Of that only US $70 billion is supplied. This means that 70% of demand for smallholder finance goes unmet every year – the equivalent of USD $170 billion per year. This very much-needed financing would support sustainable agricultural production, which can support improved nutrition outcomes for all.
Why, despite decades of financing and technical support, do gaps in agricultural finance still persist?
- First, smallholder farmers can be a risky segment to serve partially because of fluctuations in rain-fed crop output. As such, they are not seen as a lucrative customer segment for financial service providers. This is made more complicated because as farmers tend to have very little formal credit history, low rates of digital and financial literacy, and live in hard-to-reach areas. Mechanisms to manage risks, such as agricultural credit guarantee instruments or pooled insurance schemes, are generally underdeveloped or poorly targeted.
- Second, many smallholder farmers are not well connected to value chains and have limited knowledge about options to access financial services. As a result, demand is low, products are not well segmented, and financing needs are often met informally.
However, we are seeing how technology innovations have great potential to support better agricultural finance and nutrition outcomes. What do I mean by this? These include:
- Advancements in farm technology, such as sensors, satellite imagery, and drones, which help to increase efficiency along agricultural value chains.
- A more intensive use of digital platforms which connect farmers to digital payment systems, new markets, and new partners. For example, platforms are connecting fast moving consumer goods companies with small producers providing them new opportunities to sell their output and benefit from new value chains.
Last year I convened a Working Group of experts on agribusiness and financial services, co-led by IDH and CGAP. The group produced a publication on how new business models and partnerships can support technology-enabled innovations.
These trends support new financial solutions previously unavailable for smallholder farmers, particularly those in rural areas. One example of this is in Kenya where Vodafone subsidiary Safaricom has set up DigiFarm. This e-platform allows farmers to receive agronomic advice, weather information, credit, as well as agricultural insurance and remittances on their mobile phones. Safaricom can do this by partnering with banks, insurance companies, agribusinesses, and fintechs. In 2019, DigiFarm reported serving 1.2 million registered farmers who report now having access to better quality seeds, fertilizer, and pesticides after enrolling.
Now, what can key actors attending today do to support effective technological transformation in agricultural finance?
- Policymakers can promote an effective enabling environment for digital financial services. This includes appropriate regulation in agricultural finance, payment infrastructure, and simplified onboarding procedures that are supportive of vulnerable smallholder farmers.
- Regulators can also place greater emphasis on financial consumer protection and digital literacy. Given high levels of poverty and lack of connectivity of many rural farming communities, there could be explicit efforts to protect the most vulnerable and provide effective recourse mechanisms.
- The private sector can focus on cross-industry partnerships powered by digital technology. This can be win-win, providing new opportunities for private sector actors while introducing convenient access to inputs and markets for farmers.
- And development partners can provide well-designed technical assistance programs to key actors, as well as offer risk sharing support such as guarantee funds or seed capital programs.
Moving forward, my office and I stand ready to intensify support to advance global agricultural finance outcomes. We are supporting the members of my working group to launch an agricultural finance pilot in Kenya, building on key findings from our recent publication. We are also intensifying country-level engagement in Africa and will prioritize key messages around agricultural finance. Given the ongoing COVID-19 crisis, this work is really now more relevant than ever.