Drawing on “the latest data available representing international financial commitments in 2017 and 2018,” a recent study has found a problematic gap in climate financing for small-scale farmers worldwide.
Comprising round 95% of the world’s farms and a cumulative area equivalent to 20% of global farmland, small-scale agriculture produces much of the world’s food—more than 80% in Asia and Sub-Saharan Africa. Worldwide, the industry—defined as farmers “operating on less than five hectares of land”—is a vital contributor to regional and national economies, writes the Climate Policy Initiative (CPI), which produced the report with the support of the International Fund for Agricultural Development (IFAD).
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But due to the climate crisis, many of these farmers face steep vulnerabilities. “Small-scale farmers in developing countries are disproportionately experiencing the effects of climate change and variability and are at risk of external shocks such as the COVID-19 pandemic,” writes CPI. And while the report pegged cumulative global climate finance for agriculture, forestry, and land use at US$20 billion per year in 2017/2018—already a low figure that “represents 3% of the total tracked global climate finance for the period”—the share of that targeted to small-scale farmers and the value chain that supports them was only $8.1 billion.
CPI reports that 95% of that financing comes from the public sector, with “governmental donors, multilateral development finance institutions, and bilateral development financial institutions contributing 39%, 32%, and 16%, respectively.” The organization adds that “the large proportion of funding coming from public sources may be explained by the lack of data on investments from the private sector, as well as the scarcity of investment by the private sector due to a lack of attractive and robust pipelines of investable projects in small-scale agriculture.”
The largest mechanism for dispersal of the funding was grants, at 50%, “followed by concessional debt (33%), and non-concessional debt (16%).” CPI notes that lack of collateral and limited land tenure rights constitute common and major barriers to loans.
In a significant departure, just 21% of climate financing for small-scale agriculture went to climate change mitigation, compared to 93% across all climate finance. Instead, 49% of the funding for small-scale farmers went to adaptation efforts, a find CPI says “is aligned with the increased vulnerability of small-scale agricultural actors to climate change.”
CPI commended funders’ strong focus on rural communities, and on using climate finance at the small-farm level in ways that “should address the knowledge barriers limiting the adoption by farmers of climate-smart agricultural practices.”
However, the organization cautioned that “only 10% of the funds were found to target value chain actors and formal financial institutions”, meaning that current climate finance efforts are failing to address a major obstacle for small operators. “As many of the barriers identified are of commercial nature, climate finance is insufficiently benefitting businesses and financial institutions that are essential for small-scale producers to improve yields and to access markets and finance.”
Pointing out that “climate finance covers only a small fraction of the total needs of small-scale farmers and agri-businesses,” CPI urged policy-makers to redress the gap. “Finance directed to small-scale agriculture has a major opportunity to mainstream climate, and particularly to bridge the immediate need for increased climate resilience of small-scale producers and their communities,” the organization states.
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