Food systems and agriculture featured more prominently in this year’s climate conference in Sharm El-Sheikh, Egypt (COP27) than ever before. The link between climate change and food security resonates in the African and Middle Eastern region, given its high dependence on food imports and the manifold challenges facing farmers, water and nutrition. It’s also a worldwide problem. The combined effects of COVID, conflict and climate change have resulted in a global food crisis: 50 million people are on the edge of famine, and 345 million are facing acute food insecurity.
Food systems are especially vulnerable to climate change and impacts can quickly ripple through to affect social stability, health, migration, and politics. Climate risks such as heatwaves, flooding and pest infestations magnify the challenges farmers already face in accessing investment due to informal employment and a lack of collateral. Countries with higher climate vulnerability also see less international investment in both mitigation and adaptation. As climate crises compound, their costs will strain public resources and make it harder for governments and people to invest in resilience.
Agricultural systems must become more resilient in the face of climate change
Within the European Union (EU), there is a growing understanding that agricultural systems must become more resilient in the face of climate change, including those of Europe’s neighbours. At a recent Cascades event at Chatham House, we asked how the EU and international financial institutions are reacting to this fast-changing context.
The EU’s role in resilience-building
To date, the EU has promoted climate resilience by co-funding projects or supporting policy. In the Sahel region, it has been active through the Global Climate Change Alliance+ where it provides policy and monitoring support in Mali, Niger, and Chad. The EU “Action against desertification” project (2014-2019) supported the Great Green Wall initiative which focuses on tree planting in the Sahel. In the Middle East and North Africa, its development banks, EIB and EBRD financed energy and water projects such as the As-Samra Waste Water Treatment plant in Jordan and rural water infrastructure in Morocco. Such projects aim to increase sustainable water access in regions where climate change will worsen water shortages already impacting agriculture.
More recently, the EU has begun to take a more active role in resilience-building activities and multilateral initiatives. One of the highest-profile examples of this is the Global Gateway strategy which aims to mobilize 300 billion euros of investment.
The Global Gateway is seen as complementary to US initiatives like Build Back Better World, especially in Africa where the EU and US have recently signed an MOU on cooperation for green energy. Improved energy access especially in rural areas should increase resilience to climate impacts like heat and drought and enable food storage and transport.
Is ‘great’ the enemy of good?
The problem with “great” projects, one participant pointed out, is that they’re often not so great for some, whether that be communities in the locality or across borders. Mega-projects rarely engage in capacity-building, which is important for locals to address the climate crisis. Studies of large hydropower projects find little to no evidence of local training and skills-building (for example, see studies of South America and Ghana). The political element is also complex: it can be challenging to balance climate and environmental protection priorities in large infrastructure projects such as dams and major water conveyance projects, and even more difficult to significantly engage stakeholders. For example, Ethiopia’s Grand Ethiopian Renaissance Dam has increased electricity access, but at the same time influences the flow of the Nile for countries downstream resulting in international tensions on water management. This highlights an additional challenge for major infrastructure actions like the EU’s Global Gateway: projects must coordinate with neighboring countries and other funders like China, to ensure that their goals and the means employed to achieve them do not add to international tensions.
The problem with “great” projects is that they’re often not so great for some
Although large amounts of finance are needed for resilience in agrifood systems, this may be better addressed by more medium-sized and decentralized infrastructure. This is easier to scale up and should include elements of critical resilience to climate and other security risks (as during conflicts, both energy and water infrastructure have been targeted). More decentralized projects are a good option, like the EIB’s off-grid solar Uganda acceleration program which supports electricity access for small holders, with new possibilities to store and sell produce.
Does small mean unfundable?
Important resilience projects still face a common obstacle: getting money where it needs to go. In the Sahel for example, 75 per cent of employment is in the agri-foods sector and farms are generally small scale. Small farmers and people who are informally employed have vulnerable incomes and are highly exposed to increasing climate risks. But due to their economic status and difficulties accessing information, they face obstacles in accessing credit for example to buy drought-resistant seeds or improve irrigation infrastructure. In spite of producing the majority of food in Asia and Sub-Saharan Africa, small-scale farmers attracted just 1.7% of climate finance flows in 2018.
Important resilience projects still face a common obstacle: getting money where it needs to go
Even larger projects face funding challenges as agriculture is considered a risky investment, especially in climate-vulnerable settings. New ideas are emerging around how to address the climate finance problem, like Mia Mottley’s Bridgetown Initiative which calls for the IMF to issue reserve currency, and for multilateral development banks (MDBs) to issue low-interest loans to developing countries. Another proposal from a recent G20 report is that MDBs should free up more finance by modifying their risk measures and capital adequacy requirements – as their current “overly conservative measures of risk” reduce how much they can loan to such countries by billions of dollars. MDBs are reluctant to commit to such an overhaul and suggest that the best way to fund high risk projects is with blended finance: that is, using concessional donor funds to mitigate risks for investments that would otherwise not be commercially viable.
There are limits to what blended finance can do
Participants were quick to point out that there are limits to what blended finance can do. First, investments in agriculture and adaptation are not usually high-return and therefore do not attract private sector capital. If the focus is on increasing technology transfer and assisting resilience for small farmers, this is even less attractive for investors. Second, public money is limited: EU member states may not consider de-risking as a priority. In cases where there are important security and humanitarian benefits, governments might instead prioritize funding infrastructure projects that are key to maintaining people’s survival and stemming migration. “Projects to address water access in Jordan should be funded regardless of the returns” said one participant, “because the country is extremely water-scarce and faces increasing pressures from the large numbers of refugees.”
Putting the focus on ‘invisible infrastructure’
It is also important to look at the ‘invisible’ sides of infrastructure: what is behind it and what makes it work. The EU must carefully consider the best use of grants for increased resilience, which may not be leveraging loans—instead financing ‘invisible’ infrastructure which is not immediately profitable. This can include inclusive governance, local skills and capacity-building, and getting resources to smaller agricultural actors.
Infrastructure projects should be accompanied by training programs and local capacity-building, improving maintenance and increasing local resilience. At the same time, small agricultural actors must gain access to resources: this can include financial mechanisms such as savings and credit support or insurance, as well as regional grain banks or food storage (see FAO summary on adaptation measures). To get funding closer to small enterprises and farmers, MDBs are lending to local banks, although micro-credit remains a challenge.
Another invisible but important underpinning to the success of resilience measures is inclusive and cooperative governance. Here, the EU is funding more at the local level, including community organizations and women’s access to resources. Although resource scarcity can increase conflicts and land reforms are politically sensitive, this may also present an opportunity for more collaboration. Existing local management practices that promote solidarity should be emphasized, ensuring equitable access to water and land.
There is also continued work to be done on supporting institutional capacities to increase cooperation on transboundary water issues. The goal of the EU’s resilience-building is therefore also to increase cooperation and support ‘pathways to peace’.
Disaster response mechanisms are now also emphasizing structural change and climate adaptation
This renewed focus on the invisible infrastructure can be seen in the EU’s approach to larger projects. For example, it aims to go beyond afforestation in the Great Green Wall project via the new Great Green Wall Accelerator, which aims to increase sustainable jobs and agroecology by funding small farmers, land restoration, and climate-resilient infrastructure. The EU also supports regional cooperation and governance via the Team Europe initiative on Transboundary Water Management in Africa, working with governments, basin authorities, financial institutions and development partners on coordination, capacity-building and technical support. Disaster response mechanisms are now also emphasizing structural change and climate adaptation. The European Development Fund’s response to the food crisis in the most vulnerable countries provides a 600-million euro package, of which more than half will go towards anticipating risks and increasing resilience. Similarly, one of Germany’s top priorities at the G7 was the “Global Shield against Climate Risks” which should both respond to climate-related damages and mobilize additional funds for resilience. Coordinators would then be able to improve disaster preparedness via early warning systems, and respond quickly when disaster strikes.
Access to finance, water and land are the basic resources needed for agriculture, and they will become more difficult to use as climate disasters intensify. At the same time, our workshop participants flagged that “grand” infrastructure projects come with their own problems from vulnerability to climate and sabotage risks, to political controversy and neglected capacity-building. Because of the limited availability of public finance, pressure on MDBs to rethink their emphasis on de-risking may increase. The EU may instead seek to support invisible infrastructure to increase resilience of climate-vulnerable agri-foods systems in neighboring countries. As compounding climate risks eat into the resources available to invest in climate resilience, there is a clear and urgent need to build resilience today.
As compounding climate risks eat into the resources available to invest in climate resilience, there is a clear and urgent need to build resilience today
The EU should use its flagship plans like the Global Gateway strategy to focus on small and medium-scale projects combined with the capacity-building they need to succeed. This approach might include capacity-building for transboundary water governance and warning systems for flooding and water shortages; while simultaneously financing solar mini-grid installation to improve electricity access for small farmers, who can then access this information and react. Investment strategies should be geared towards initiatives that can lead to structural transformations, promoting communities and women within them as agents of change. Responses to crises like the current food shortage should continue to address root causes of vulnerability—especially a lack of access to finance—while promoting climate-resilient solutions.