Finance & Investment
We Must Invest in the Missing Middle to Boost Smallholder Farmers’ Climate Resilience

Climate change impacts all of us; but one group that is particularly vulnerable to its effects is smallholder farmers in the poorest developing countries. One extreme weather event can wipe out their already precarious livelihoods, leaving them and their communities facing poverty and hunger.

As leaders in politics, business and the public sector gather at COP27, we urge them to invest more in the solutions that can prevent this. By supporting smallholders to access agricultural innovation on their farms and in their communities, it will enable them to both thrive in a changing climate and contribute to tackling its causes.

This is crucial to achieve zero hunger (SDG 2) by 2030 and the agricultural sector’s greenhouse gas emission targets, set out in the Paris Agreement. According to the 2022 OECD-FAO Agricultural Outlook report, this will require a 28 percent growth in productivity. To unlock sustainable smallholder productivity, there needs to be a transformation in the availability of climate finance for agribusinesses in developing countries.

At a national level, funding is falling behind — the average government investment in the agricultural sector in Africa in 2021 was just 4.1 percent of total budgets. And locally, small and medium-sized enterprise (SME) agribusinesses that can reach deep into their communities to work with remote smallholders find it hard to access funding from local banks or investors, because they are too small or deemed too risky.

These SMEs are the ‘missing middle’ and an untapped opportunity. With the right investment, they can support the world’s smallholders to benefit from climate smart innovation. Since — according to FAO research — 84 percent of the world’s 608 million farms are under two hectares in size, the potential impact is huge.

At the Common Fund for Commodities (CFC), we bridge the gap between agri-SMEs and financing to boost development locally. The demand for our services is huge and growing as the sector faces multiple challenges. In our recent call for proposals, there was a 270 percent increase in interest; and supporting programmes that address the challenges of climate change is becoming one of our top priorities.

In 2017, we invested US$1.4 million in Kennemer Foods International — an agribusiness based in the Philippines that grows, sources and trades commodities such as cocoa. The company’s commitment to sustainability includes a forest restoration and protection programme that trains local smallholder farmers in techniques such as multi-crop agroforestry. This helps to transform areas of monoculture into carbon-rich, productive forests that support biodiversity, generate shade and reduce soil erosion while increasing their capacity to absorb and retain water. The reforestation project also links farmers to international carbon markets, generating an additional revenue stream that they can reinvest in the sustainable development of the landscapes around them.

In practice, this means farmers’ businesses and the forests they work in are better equipped to both succeed in a more volatile climate and become part of the solution to it.

We also recently invested US$800,000 in Enimiro — a Ugandan exporter of organic vanilla, coffee and dry fruits. Alongside training farmers to operate more sustainably, the company has embedded a digital traceability system that verifies the organic credentials of the crops they grow and the products customers buy. In return, farmers are able to sell their produce into premium markets and benefit from the fair and transparent pricing the system provides.

These investments, among others, demonstrate how embracing climate-smart and regenerative methods and technology is a win-win for farmers, agribusinesses and climate action. Improving smallholders’ resilience to the impacts of climate change helps to protect their incomes and de-risks investing in them, which means other lenders are likely to offer better terms than they might have previously.

But to reach more smallholders and have a greater impact, we need to expand the availability of affordable funding for agricultural SMEs even further. One way to do this is via loan guarantees that enable organisations such as the CFC to offer even more affordable financing, perhaps through a fast-track version of the Green Climate Fund.

Another is to invest directly with us. We are primarily funded by our member countries; we also recently launched a Commodity Impact Investing Facility (CIIF) aimed at private sector companies that want to lean on our expertise and experience to invest in purpose-driven agribusinesses.

Working with us is an opportunity to support an underserved group of the world’s poorest people through local development that builds prosperity for them and their communities, while contributing to the fight against climate change.