Food systems must function well in order to achieve the Sustainable Development Goals (SDGs) by 2030. The operation of food systems affects incomes and employment; poverty and food security; diets, health, and nutrition; energy sources and uses; climate change, environmental sustainability, biodiversity, and ecosystems; and even aspects of peace and governance.
Yet progress toward SDG2 and its key component, ending hunger by 2030, has slowed in recent years amid conflicts, climate shocks, and lately, the COVID-19 pandemic. Focusing on food systems transformation offers an important opportunity to move forward. A new brief published by the UN Food Systems Summit Scientific Group analyzes how to finance the costs of transformation to reach SDG2 and Zero Hunger.
Recent estimates suggest an additional $33 billion per year is needed to reduce the number of hungry people around the world—about 870 million—by just over half and meet related objectives; costs increase to some $56 billion per year to eliminate hunger and meet other SGD2 goals. The pandemic, along with the possibility of new humanitarian, health, or environmental crises, would push more people into hunger, raising costs even higher, to an estimated $163 billion annually to lift 1.05 billion people from hunger by 2030.
Yet the available data suggest that sufficient additional financial resources are available on aggregate to meet those costs, while also contributing to nutritional objectives and to mitigation and adaptation to climate change in agriculture.
Financing the transformation of the food system will require a variety of resources, which can be classified in six flows of funds, two “internal” and four “external” to food systems (see chart).
Here, we focus on the external flows to food systems, including international development flows, public budgets, banking systems, and capital markets, which can all augment the internal flows. (Different policy interventions can also influence the size and allocation of consumer expenditures and the productive outlays of the operators of food value chains—the internal flows—in ways that support the achievement of different SDGs; see a discussion in Díaz-Bonilla, Swinnen, and Vos 2021).
While many variations are possible, there is a set of specific proposals that, if implemented, would lead to an additional $15 billion each year in development funds and mobilize up to $230 billion in public expenditures annually in developing countries (excluding China) for sustainable agricultural, rural development and social assistance. These suggestions could also increase the loan portfolio for agriculture, forestry, and fisheries by about $195 billion in those countries and would support the issuing of up to $260 billion in zero hunger funds.
The brief also proposes creating a Zero Hunger Alliance & Fund. This structure, the subject of a separate discussion, would mobilize resources in support of country-owned and country-coordinated programs, and to advise governments.
The $15 billion annual increase in international development funds—about double the current level—would be dedicated to agricultural and rural development, food and nutrition security, and environmental aspects of food systems.
Two billion dollars of that amount would be allocated to support the Zero Hunger Alliance & Fund, with an additional $500 million coming from private funds. Developed countries could also use a percentage of their holdings of the new issuing of Special Drawing Rights (SDRs) in the IMF to create a fund to guarantee a new “zero hunger bond,” and perhaps “zero hunger green bonds.” Using the SDRs to guarantee zero hunger bonds (as perpetual bonds with a floating interest rate capped at an agreed maximum) would multiply the impact of the SDR funds several times over, while also contributing to a specific humanitarian objective and addressing important environmental goals.
Government outlays in developing countries (excluding China) total some $3.7 trillion, but only $86 billion is now directed to agriculture, forestry, and fishing, and about $260 billion for social assistance. Compared to other regions, developing countries in Africa and Asia (again excluding China) devote comparatively fewer resources to those crucial interventions.
Thus, public expenditures/investments in agriculture should increase (for example, to a budget share not less than half the percentage of agriculture in the GDP), a well as social assistance expenditures (to at least 2% of GDP). Governments should also undertake a review of public spending and taxation, with a goal of increasing and reallocating agricultural subsidies in developing countries (some $50 billion, excluding China) and to scale up, better target, and redesign social safety nets, which could include new and evolving cash transfers that combine poverty, nutrition, environmental, and productive payments, as well as financial inclusion components.
Developing countries should also boost revenues through better tax administration, by revising sales, income, wealth, and trade taxes, and by implementing international initiatives to control corruption, tax evasion, and other practices that erode their tax bases. The use of carbon taxes should also be considered.
There is also an important role for the banking system in facilitating private investment to help transform food systems. But for that to occur, the systemic barriers that limit the supply of financial services for agriculture, small farmers, and the poor and vulnerable (women, disadvantaged ethnic groups, and youth) must be addressed.
The role of “developmental central banks”—operated in the past in many developing countries—should be reactivated. These institutions can offer loans (rediscount lines) to public agricultural banks and private financial institutions with specific purposes, such as providing credit to agricultural producers.
This approach was discontinued in many countries during the 1980s and 1990s amid criticism that it was fueling inflation, and that the public banks suffered from corruption and other problems. However, in the context of the 2008 global recession and the current pandemic, central banks, mainly in developed countries, have revived the use of dedicated lines of credit to buy public and private credit instruments, often under the name of “quantitative easing.”
Now, to eliminate hunger, similar dedicated lines of funding can be used to offer credit to small farmers, rural populations, and small- and medium-sized enterprises (SMEs) in food value chains.
In parallel, it is necessary to revitalize and modernize public development and agricultural banks—to increase loans and offer other financial services to small farmers, rural population, and SMEs, with particular consideration for women, vulnerable ethnic minorities, and youth.
Capital markets also have an essential role to play, beyond the zero hunger bonds discussed above. While social and environmentally-oriented investments have grown in popularity, the challenge is to mobilize those funds to support the transformation of food systems in developing countries.
This requires developing a robust pipeline of investment opportunities, with the adequate risk/reward profile and clear, measurable goals aligned with SDG2 and ending hunger.
To help with that, another proposal involves establishing a project preparation/ incubation/acceleration facility at the international level with the task of structuring productive opportunities for small farmers into investable opportunities for impact investors and green loans from banks, using economic, social, and environmentally sound technologies with the support of One CGIAR and national agricultural research institutes (NARIs).
Mobilizing all these resources through effective programs to end hunger and achieve SDG2 still depends on what individual countries are willing and capable of doing. That means that assessing potential sources of financing must also be done not just at the aggregate level, but also in each individual country. (The Zero Hunger Alliance & Fund discussed separately also helps in this regard.)
Marshaling these resources will not be a simple task, but with sustained attention from national governments and the international community, the data show it is possible to reach Zero Hunger by 2030—while facilitating food system transformation to build a better future.
Eugenio Díaz-Bonilla is Head of IFPRI’s Latin American and Caribbean Program.
