Independent Dialogue
Geographical focus:
Italy
Main findings
ACCELERATION
Governments, financial institutions, research centers and investors as a whole need to partner to accelerate growth in the nutritious food production sector by facilitating access to funding. Banks typically must operate with a financial regulatory framework which, effectively, prevents banks from engaging in business activities that may have significant risk. Many ‘acceleration’ initiatives would not pass these regulatory hurdles and risk is the critical factor preventing ‘accelerated’ financial participation. Governments have a key role to play to provide the right envi
... Read moreronment to promote new financing modalities as even successful start-ups and high-growth opportunities must often be self-funded because the financial industry shows no interest until a threshold of EBITDA is attained. The need for acceleration will require the clarification of the costs of reforming food subsidies (both implementation and compensation costs) towards subsidy/taxation mechanism that offer positive incentives for sustainable food systems (payment for environmental services of food systems, better pricing of land and water; taxes for environmental degradation; and polluter pays principle for greenhouse gases) and financing for income support to poor households to increase the affordability of nutritious diets.
DERISKING
A strong political signal/leadership is needed to draw attention to opportunities in the middle of the value chain that can help to link changing consumer demand with the need for market-based incentives for farmers to take on risk and adopt new practices, inputs, food products, and processes. The environment farmers work in is full of risk and high borrowing rates compound the risks to farmers, and lenders in any case are unwilling to take on risk and prefer highly liquid or marketable collateral. There are various sources of risk in the natural as well as institutional environments and these need to be addressed. Technology can play an important role by providing specialized instruments that redistribute risk or directly cover against important specific sources of risk. It can also help by reducing transactions costs and hence the cost of borrowing, and by improving transparency in market functioning and reducing information asymmetries among borrowers, lenders, and other market intermediaries. It is important to take a larger perspective, embracing the whole value chain from production, transformation, distribution, and consumption.
INCLUSION
Ensure inclusion of women and youth specifically by addressing the problem of capacity building, especially for youth and startup companies and ensure that the voices of the youth are heard. This also includes the access to financing for women, improve their ability to start business and capacity to prepare a business plan etc; need for education for women; access to technology for women in rural areas; legislation to ensure that women can access the finance.
NATURE POSITIVE
A move to Nature based solutions will require the following: efforts to achieve Zero emissions; regenerative agriculture; and emphasis on a circular bioeconomy while maintaining economic viability. Therefore, its necessary find ways to valorize nature-based solutions – such as attributing value to biodiversity, carbon sequestration (carbon trading systems exist but the methods to reliably measure are not yet available). Other options include green bond issues, carbon credits and sequestration which could all create income for farmers to cover costs of transition – for ex. planting cover trees and using their carbon sequestration capacity to generate income while other crops grow to maturity underneath. There is a need to harness assets and technologies that were not available 5 or 10 years ago to develop out-of the-ordinary solution thinking: use of satellites/drones to monitor progress across multiple small holding reserves; and cheap monitoring sensors that were not previously available to help with issues like fertilizer, water, soil carbon etc. Academia and food producers must collaborate to reflect the realities at different scales for better policy and impactful finance.
VALUE CHAIN FINANCE
Value chain finance is obstructed by high transactions costs arising from lack of information, lack of understanding and trust between participants, lack of standards and regulations, and simple logistical challenges, all of which make it hard to measure and manage risks (as required to allow financing to flow). The responses mainly focus on different ways of reducing these transaction costs. Technology is key to overcoming informational challenges leveraging also financial innovations and improved warehouse receipt systems, improved regulations and standards also help overcome information gaps. Read less
Action Track(s): 1, 2, 3, 4, 5
Keywords: Data & Evidence, Environment and Climate, Finance, Governance, Human rights, Innovation, Policy, Trade-offs, Women & Youth Empowerment