Transitions agricoles : quelles conditions pour le déploiement des financements ? (Episode 3)
At the FARM Foundation International Conference, speakers and participants frequently emphasized that deploying this funding for agricultural transformation would only be possible under certain conditions. We have attempted to summarize these here around five main themes, which will provide food for debate.
Labeling and taxonomy: assessing the agroecological nature of financing
Several speakers at the final roundtable of the FARM Foundation's international conference emphasized the need to adopt a common methodology for labeling agroecological financing from banks and public and private financing actors. Similar to the European Commission's green taxonomy, the panelists hope to see the emergence of a framework and indicators to guide banks' actions in financing agriculture and agroecological projects. Oliver Oliveros coordinator of discusses the creation of an investment evaluation tool for agroecology (agroecology finance assessment tool). The Agroecology Coalition started from the observation that greater public and private investments were needed for the development of sustainable agricultural systems and that a certain amount of funding had to be "diverted" (shifting existing funds in the right directions). Based on the 13 fundamental principles of agroecology developed by the HLPE, they developed a methodology and a tool for evaluating projects and portfolios of financial institutions.
However, in many countries in the Global South, heavy investments in agri-food processing sectors and tools will be necessary to meet rising demand and the imperative of food sovereignty. However, these investments (milk processing, fertilizer manufacturing, etc.) are highly carbon-intensive, meaning they require significant greenhouse gas emissions to be made. They could therefore be less prioritized by financiers themselves committed to reducing the carbon footprint of their portfolios. These financing dilemmas could, in the future, be an obstacle to the construction of agricultural and food sectors, particularly to the development of agri-food processing.
Generating demand for transition-oriented financing
Oliver Oliveros During the final round table of the day, he emphasized the need to guarantee access for the most vulnerable, particularly family farmers, to funding specifically geared toward the adoption of more sustainable practices. While this funding does indeed exist, it must be appropriated by producers and stakeholders in the sectors, and even target those who are currently excluded. Oliver Oliveros fears that the eligibility criteria and the cost of project analysis exclude the most vulnerable. The discussions concluded on the need to co-construct the eligibility criteria with professionals so that they constitute a lever rather than a brake on the adoption of good practices and that they are relevant. For the experts, transparency and access to information are key, they also insisted on the need to simplify the criteria for access to climate funds by mobilizing rural microfinance institutions or drawing inspiration from their operations.
Gifty Narh, director of Corade, emphasized the need to create a viable support and advisory ecosystem, particularly within financing institutions. The Burkina Faso training and advisory expert also emphasized the importance of generating consumer and market demand, otherwise producers will not commit to the long term.
To generate this demand, producer organizations, and cooperatives in particular, have a key role to play. They can open and consolidate access to markets for producers, as is the case with cocoa cooperatives (SCEB in Côte d'Ivoire, which sells organic cocoa). In northern countries, such as France, cooperatives can also, through their group commitments, drive the transformation of farms and agricultural systems by encouraging their members to support collective projects that can guarantee remuneration in return for their efforts. One example is the Normandy cooperative Agrial and its 2035 Climate Plan, certified by the international organization Science Based Target Initiative (SBTI).
Agroecology to reassure financial markets and better manage risks
For downstream stakeholders in agricultural sectors, engaging family farms in models that are more resilient to the effects of climate change and that limit their impact on biodiversity or soils also presents an advantage in terms of managing operational and financial risks in the medium and long term. With the evolution of regulations (mirror clauses, the fight against imported deforestation, low-carbon or net-zero metrics, etc.), the commitments of downstream companies to ensure a sourcing sustainable will be increasingly scrutinized by civil society, but also by banks and financial institutions which will also have to ensure the sustainability of their portfolio. As recalled Francesca Nugnes, of the Platform for agricultural risk management of the Agricultural Risk Management Platform (PARM), highlighting the risks associated with agricultural investments is a powerful tool for directing financing towards agricultural practices that promote adaptation and resilience of agriculture. Indeed, the expert attached to IFAD highlighted the fact that, increasingly, a comprehensive consideration of risk is developing beyond financial risk. In other words, investors and financiers in agriculture and sectors are increasingly sensitive to extra-financial risks, for example, the way in which a project to be financed manages its exposure to climate risk.
IFAD's PARM addresses this issue and supports governments and sector operators to implement risk assessments that encompass production, market, and financial risks, while taking into account social, institutional, and gender dimensions. These are all aspects that are present in the agroecological approach put forward by the FAO and the HLPE, as recalled by Rachel Bezner KerrIf the signal is still weak, agroecological intensification, which takes into account all technical, environmental, economic and social dimensions, could be seen tomorrow, not as a constraint, but as an argument for hedging the risk in the face of climatic and environmental pressures.
As providers of financing for the economy, banks play a crucial role in the transition to more environmentally friendly practices. "They are a conduit for financing and the financial transition to a greener economy," explains Guillaume Lefebvre, director of IFCAM, the Crédit Agricole Group's professional university. This is achieved through various mechanisms, such as green loans, designed to support environmentally responsible projects, and index-linked loans, where interest rates are adjusted based on environmental or social performance. Measuring this performance relies on indicators often agreed upon between the borrower and the lender, allowing for personalized monitoring and alignment of interests. Extra-financial reporting is therefore of paramount importance, identifying the main drivers of performance and guiding decisions toward sustainability. This approach, according to Guillaume Lefebvre, promotes a “shared interest logic,” where increased environmental and social performance translates into financial benefits for borrowers.
The key role of national and European public policies
Public policies were described by the panelists as key elements in deploying financing to transform agricultural and food systems. Public policies can provide tax incentives and subsidies, enable the establishment of guarantees and guarantee funds to reduce the risk perceived by commercial banks. UEMOA Commissioner for Agriculture, Kako Nubukpo recalled on this subject the actions implemented by the regional institution via the regional agricultural development fund (FRDA), which aims in particular to allow interest rate subsidies so that producers can access financing at concessional rates.
Public policies also have a role to play in creating demand and therefore a market for products from sustainable agriculture. via public procurement. Gifty Narh mentioned the case of Burkina Faso where a government decree was adopted in 2017 to prioritize local products in school canteens and transfer these markets to communities. The country also published a 2023 strategy for promoting agroecologyto ensure access to markets for farmers who have committed to sustainable practices. This represents a significant step forward but still requires real implementation on the ground. The role of the State in regulating markets and inputs is also crucial, with significant potential to support access to alternative inputs (pesticides, fertilizers) via appropriate support. For states to fully play their role as catalysts in mobilizing public and private funding, they must develop and implement investment plans for the development of sectors. This is the purpose of the support offered by PARM in Tunisia and Madagascar, for example.
The debate also led to questions about the means available to states, particularly in Africa, to implement these ambitious policies. As mentioned above, public support for agriculture remains extremely low on the continent. This is why Kako Nubukpo advocates promoting carbon taxes to stimulate the development of sustainable agriculture in Africa. He noted that Africa contributes only 4% of greenhouse gas emissions, but accounts for 17% of the world's population, while Western countries remain the world's main polluters since the industrial revolution. He therefore advocates the creation of a "climate convergence fund" to mitigate this injustice and share the responsibility for climate change more equitably among nations.
In addition, the intervention of Stéphane Bijoux, Member of the European Parliament from the Renew Europe group and Vice-Chairman of the Parliament's Development Committee, served to recall the role of European policies in the transformation of agriculture, such as the regulation on ecosystem restoration or the one on the fight against imported deforestation. These policies were adopted in order to reduce carbon dioxide emissions by 55 % by 2030 and the carbon neutrality of the European Union by 2050. These regulations will lead to changes for agriculture in the countries of the South, particularly for consumer products (cocoa, coffee, etc.) but also for non-food agricultural and forestry products. The MEP insisted on the importance of supporting the countries of the South so that these regulations do not weigh in social and economic terms on the most vulnerable producers. He called on the EU to be a reliable partner for effective cooperation in the achievement of the Sustainable Development Goals. Guillaume Lefebvre, director of IFCAM, also noted that European policies stemming from the Green Deal or Fit for 55 are scrutinized by banks that finance businesses. As financiers of the real economy, banks monitor "brown" assets.[1] companies they finance in light of their own decarbonization commitments.
Measuring the impact of funding and avoiding “impact washing”
The challenges of transforming agriculture in the countries of the South are such that it appears necessary to make financing investments in transforming agriculture conditional as much as possible on impact assessments. rigorous methodologies are also expected by funders. Academic work, such as that of Esther Duflo and Abhijit Banerjee, have led to the development of complex methodologies. According to operators and financiers of agricultural systems, these methods should be supplemented by pragmatic and easy-to-implement monitoring and evaluation frameworks, in order to mobilize the greatest number of financial intermediaries. The implementation of environmental or extra-financial accounting for companies and farms would be a first step in reconciling environmental and economic sustainability. However, in the countries of the South, its implementation is still limited and poses numerous challenges.
The assessment of the social and environmental impact of investments and financing remains essential and this theme has given rise to numerous debates and questions that the Foundation wishes to address. Frank Eyhorn mentioned the tool B-ACT, developed by the Biovision Foundation, which allows these impacts to be assessed in a clear and educational way based on the 13 principles of agroecology.
A thorough discussion on impact assessment seems necessary, if only to avoid the "impact washing" described by the Vice President of IFAD, referring to the tendency for impact funds to claim social and environmental results that are not directly due to the investment. Furthermore, the lack of harmonized and recognized indicators to measure the environmental and social impact of these sustainable practices poses another problem. Without clear data on the positive effects of these practices, it is more difficult to convince investors and financial institutions to commit funds. These essential topics will be addressed in the coming months by the Foundation and during its next international conference on January 28, 2025.
To watch the replay of round table 3 devoted to this subject, Click here
[1] Unlike green assets, which are investments made in renewable energy and ecological projects in the broad sense, brown assets are closely linked to fossil fuels or those that are harmful to the environment.
