2 The challenges and costs of financing agrifood systems transformation

The cost of transforming agrifood systems to achieve better health, improved livelihoods and environmental sustainability is substantial—multiple orders of magnitude beyond current spending. At the same time, the hidden health, environmental and social costs (market externalities) of how food is produced, processed and consumed equals almost the entire monetary value of the global agrifood sector.

Almost one-third of the world’s population (31.9 per cent) cannot afford a healthy diet¹⁰ and food insecurity continues to rise. At the same time, 3.83 billion people – many of whom are among the poorest in the world – depend on agrifood systems for their livelihoods.¹¹ These interconnected pressures highlight both the fragility of current agrifood systems and the scale of the externalities they create.

Despite these challenges, there are also substantial economic opportunities in producing and distributing healthy and environmentally sustainable food for a growing population that is increasingly wealthy. In terms of societal social and economic benefits, as well as long-term returns on investment, there is a clear investment case for transforming agrifood systems. Although the required investments may appear high in comparison to current levels of ODA, the amount is relatively modest when viewed against global economic wealth and GDP.

Transforming agrifood systems is critical for addressing major global challenges, including food security, nutrition, livelihoods, equity and environmental sustainability. Food production, processing, distribution and consumption are deeply interconnected, and pressures such as climate change, conflict, rising costs, and limited access to healthy diets continue to expose systemic weaknesses in many countries. The SOFI 2026 report highlights the fact that in absolute terms, there are still large numbers of people – some 2.1 billion – facing moderate or severe food insecurity.¹² In addition, many people facing moderate food insecurity and lacking access to healthy diets could benefit from agrifood system transformation, not just targeted interventions addressing food security and basic nutrition.

Within this broader landscape, Sustainable Development Goal 2 (SDG2) on “Zero Hunger” remains relevant for its objectives related to reducing hunger, improving nutrition, boosting agricultural productivity and strengthening resilience. However, the hunger and nutrition components captured under SDG2 represent only a subset of the much wider transformation needed. Achieving healthy, sustainable, and inclusive agrifood systems requires coordinated action that extends well beyond these targets, and is important for countries at all income levels, including middle‑income countries (MICs). Opportunities for private sector engagement are substantial, although they are more constrained in fragile and conflict‑affected contexts.

2.1 The hidden costs of agrifood systems

Today’s agrifood systems are fundamental to food security, livelihoods and economic development. While advances in agricultural productivity, transport, storage and preservation have vastly expanded food production and availability, the way these systems currently operate also generates large, unpriced health, environmental and social impacts, stemming from the economic consequences of diet‑related diseases, productivity losses, pollution, greenhouse gas and nitrogen emissions, land use change, and water depletion. In the SOFA 2023 report, the United Nations estimated that the hidden annual costs of agrifood systems amount to at least US$12.7 trillion,¹³ equivalent to nearly 10 per cent of global GDP and more than the global GDP of the agrifood sector (estimated at US$10 trillion, or 12 per cent of global GDP).¹⁴ More than 70 per cent of these hidden costs originate from unhealthy dietary patterns, particularly in high‑income countries (HICs) and upper‑middle‑income countries (UMICs), while around 20 per cent are linked to environmental degradation.¹⁵ In low‑income countries (LICs), poverty and undernourishment constitute the most significant share of these impacts. The distribution of these costs varies across income groups: the United Nations’ analysis shows that LICs face hidden costs exceeding a quarter of their GDP, compared with less than 12 per cent in MICs and under 8 per cent in HICs.¹⁶

According to the Food and Land Use Coalition, investing in transforming food and land use systems could unlock over US$4.5 trillion in new business opportunities annually.¹⁷

These figures capture the extent to which current agrifood systems generate further spending on healthcare, lost productivity and environmental remediation. They also highlight how existing agrifood systems place mounting pressure on national budgets, particularly in countries where fiscal space is already constrained.

When substantial public resources are spent on such secondary impacts, less finance remains for investments in other areas, including making agrifood systems more sustainable and resilient. Over time, reducing these underlying burdens could ease pressure on national budgets. Conversely, not doing so will exacerbate financial pressures.

These hidden costs are also likely to increase as climate-related disasters become more frequent and severe. Without greater investment in resilient agrifood systems, governments are likely to face rising expenditure on disaster response, humanitarian assistance, infrastructure recovery and social protection, further reducing fiscal space for long-term development investments.

2.2 The estimated costs of financing agrifood systems transformation and the financing shortfall

While agrifood systems are central to addressing climate change, tackling poverty and protecting biodiversity, ODA grants to the agriculture, forestry and fisheries sectors have remained flat since 2017, at 5-6 per cent of total ODA,¹⁸ amounting to only US$14.1 billion globally in 2022. By comparison, the annual National Health Service budget in the United Kingdom was approximately US$227 billion in 2022.¹⁹ Climate finance amounted to approximately US$1 trillion in 2022, yet less than 4 per cent of this financing is directed towards agriculture,²⁰ and less than 1 per cent supports small-scale agriculture.²¹ Furthermore, ODA to the sector is just a fraction of global spending on agricultural subsidies – even the most generous estimates of ODA to agriculture is only 10 per cent of global subsidies, which most often do not directly support activities aligned to sustainable development.

To address these issues, it is critical for governments, donors, development partners and the private sector to be clear about the scope of the challenge. Financing to address only hunger and nutrition specifically looks very different to financing for agrifood systems transformation. One key point from the SOFI 2024 report is that shifting from a narrow focus on food security and nutrition to a broader agenda of agrifood systems transformation dramatically increases the financing required, from billions of dollars to trillions.

Note: This figure illustrates the approximate investments needed to transform food systems relative to the hidden costs of not taking action and was originally developed for the GDPRD’s 2025 White Paper “Financing Agrifood Systems for People, Planet and Prosperity”. Based on 2024 data.

Figure 1 highlights the relative scale of costs associated with agrifood systems compared to total global GDP, estimated at about US$111 trillion.²² The Ceres2030 Report estimates that ending hunger by 2030 would require around US$33 billion each year (with US$14 billion in ODA and US$19 billion from LICs and MICs),²³ while the cost of fully transforming agrifood systems is larger, at approximately US$1.2–1.4 trillion annually.²⁴

Despite these differences, both the cost of ending hunger and the cost of transforming agrifood systems remain small in comparison to the massive hidden costs generated by current agrifood systems. The hidden cost of food amounts to roughly US$12.7 trillion per year, which includes about US$9.3 trillion in hidden costs of health, US$2.9 trillion in environmental costs, and US$0.5 trillion in social costs.²⁵ This figure thus illustrates that the economic burden of inaction far exceeds even the highest estimates of transformation costs. This stark contrast emphasizes that while investments in food system improvements may differ in magnitude, and that estimated costs vary, they are ultimately modest relative to the scale of the hidden costs they could help reduce, making a strong case for decisive and sustained action. Box 2 provides a complementary breakdown from an earlier analysis, illustrating how these hidden costs arise across health, environmental and social dimensions.

How donors, governments, the private sector and development partners approach the financing challenge thus significantly impacts the solutions for addressing such gaps. Public and private sector financing for hunger and malnutrition only is more concrete and targeted, as it tends to focus on specific outcomes that are measurable in the short- to medium-term, making it easier to determine countries’ progress and estimate the scale of financing required to close the gaps. On the other hand, transforming agrifood systems requires structural, normative and systemic changes in food production, distribution and consumption. Achieving this requires multistakeholder engagement and more diversified financing approaches, such as climate and blended finance, as well as public-private partnerships. Each approach requires tailored solutions and will entail different levels and modalities of funding.

Box 2: The hidden cost of food “Over half of the hidden costs (US$6.6 trillion) arise from the impacts of obesity, undernutrition and pollution. An additional US$3.3 trillion arise from the negative impacts of current food and land-use systems on the climate and natural capital …. The remaining US$2.1 trillion of hidden costs comprise the economic costs of food loss and waste, fertilizer leakage, and the negative impacts on rural welfare from unequal income distribution and people’s inclusion within the value chain.” FAO, United Nations Development Programme (UNDP) and the United Nations Environment Programme (UNEP). 2021. A Multi-Billion-Dollar Opportunity – Repurposing Agricultural Support to Transform Food Systems.

At a macro level, a key challenge for financing is not only defining the issues, but ensuring that these are consistently understood by everyone involved in making investments, including governments, donors, private sector and international financial institutions (IFIs). In this context, it is essential to acknowledge that ending hunger and overcoming food insecurity is just part of the wider challenge of transforming agrifood systems.

2.3 Challenges

So why aren’t development and investment goals being met? Transforming agrifood systems, and mobilising investments to do so, presents several challenges, including:

1. Risk: weather, natural disasters, commodity price fluctuations, currency fluctuations and policy uncertainty all make investing in the agrifood sector inherently risky.
2. High costs associated with serving smallholders and small and medium-sized enterprises (SMEs): In LICs and MICs, the agrifood sector is predominantly made up of SMEs, whose owners often have limited financial understanding. The small loans sizes needed, along with the necessity for intermediary financing and technical support institutions, generates high costs to serve these groups.
3. Informality and lack of collateral: Much of the agrifood sector still operates with informal market structures, and many farmers and enterprises have limited or no collateral for securing loans.
4. Impeding domestic policy environment: Inadequate, excessive or poorly enforced regulations combined with corruption add additional complications and disincentives for investors.
5. Macroeconomic conditions: Monetary policy, export regulations, exchange rate volatility, credit ratings, inflation dynamics, weak property rights, poor infrastructure and geopolitical tensions are all factors that make it difficult for countries to attract investments into the agrifood sector.
6. Political economy factors: Ensuring populations have enough affordable food is a highly political issue. Furthermore, addressing the needs of large numbers of rural producers and urban consumers, both of whom experience high rates of poverty in many parts of the world, means that agricultural policy is highly influenced by political pressures. This can swing policy and government investment towards short-term political goals and away from focusing on long-term sustainability and sound economic strategies.
7. Distorting agricultural support mechanisms: Historically, support to the agrifood sector has prioritized the production of high calorie staples, often at the expense of the environment or more nutrient dense production. This, along with creating other market inefficiencies, adds further disincentives for transforming agrifood systems.

2.4 Repurposing Agricultural Support

Governments worldwide provide enormous sums to the agricultural sector, reaching US$851 billion annually in 2020–2022 across the 54 countries covered by OECD analysis.²⁶ The majority of this support is directed toward producers rather than general services or consumer support, and is often poorly targeted, disproportionately benefiting larger and wealthier farmers, particularly where support is linked to production volumes or area under cultivation.²⁷ As a result, existing support systems frequently reinforce inequalities within the agricultural sector while failing to align with broader development, environmental and nutrition goals. Evidence from joint FAO, UNEP and UNDP analysis (see also box 2) shows that repurposing even a portion of agricultural support and subsidies towards sustainable, climate-smart solutions and research and development could go a long way towards increasing productivity, reducing environmental impacts and improving livelihoods.²⁸

However, redirecting and repurposing agricultural subsidies is far from straightforward. In many agrarian economies, farmers represent politically influential constituencies, creating strong disincentives for governments to disrupt established support systems. Consequently, political considerations often constrain reform efforts, even where existing policies are inefficient or misaligned with broader development objectives.

The current structure of agricultural support generates significant negative outcomes across multiple dimensions. In particular, production-linked payments encourage the expansion of emission-intensive activities and the intensive use of inputs, amplifying environmental pressures while concentrating benefits among those already best positioned to scale production.²⁹ At the same time, the focus of market price support and budgetary payments on a narrow range of staples and protein-rich foods may have disproportionately encouraged production of calorie-dense foods relative to pulses, seeds, fruits, vegetables and other nutritious foods, with prices for fruits and vegetables rising relative to processed foods derived from cheap staples since the 1990s.³⁰ Repurposing this support could simultaneously reduce greenhouse gas emissions, improve equity and make healthy diets more accessible.³¹

A range of options exist for redirecting existing agricultural expenditure, though trade-offs between socioeconomic, environmental and health goals are inevitable.³²/³³ Some of the most substantial rewards could come from redirecting public support towards research and development in technologies that could simultaneously strengthen resilience and boost productivity while reducing emissions, supporting rural infrastructure, and paying farmers to supply public goods such as ecosystem services or carbon sequestration.³⁴ Importantly, even reallocating budget transfers in a way that reduces costs for farmers and boosts productivity over the longer term can reduce farming household incomes in the short term, meaning transitional assistance and extended social safety nets may be needed to bridge this period, particularly for poorer farming households.³⁵

Despite the theoretical potential of repurposing, there are substantial political economy barriers to reform, as illustrated by recent farmer protests in Europe and India.³⁶/³⁷ Opposition can come from interest groups benefitting from the status quo, and momentum for reform can be stalled through lack of information, concerns about government capacity, and governance structures that impede deeper reform.³⁸ For LICs and LMICs, where public funds to support agriculture are severely constrained, there is even more pressure to use those funds in a way that maximises inclusivity and sustainability while minimising trade-offs,³⁹ and tools such as FAO’s Monitoring and Analysing Food and Agricultural Policies (MAFAP) framework can help optimise budget allocations accordingly.⁴⁰ Ultimately, repurposing alone will not be sufficient, and complementary policies – such as carbon pricing, food taxation and expanded development finance flows to LICs – will also be required alongside inclusive reform processes that incorporate distributional, participative and recognitional justice.⁴¹

2.5 Addressing private sector investment challenges

Private sector financing in agrifood systems is critical to supplement limited public resources. However, at the country level, private sector investment in agrifood systems and agriculture remains challenging, especially for local investors and banks, due to the perceived risks associated with volatile markets, climate impacts and regulatory uncertainties. In addition, the limited availability of investable business models and large-scale bankable projects, alongside the perceived risks associated with early-stage business models that have long lead times and high levels of technical assistance (in particular those focused on smallholder farmers in developing countries) significantly dampens investor interest.⁴²

“Not all countries have access to the same amount of finance, and unfortunately the most vulnerable countries, the ones that have also been hurt by recent shocks like the climate and economic crisis, are also those that appear to be the riskiest. Financial actors do not like to invest in risky places. We really need to change the incentives.” Report interviewee

The public sector has a role to play in creating a more supportive environment for private sector investment, particularly in more fragile and conflict affected contexts. De-risking mechanisms, clear and consistent policy frameworks, and long-term government commitment to agricultural development strategies are essential to build investor confidence. Policy predictability is especially important, as it allows private actors to make longer-term investment decisions with greater certainty.⁴³ Strengthening data systems and improving risk assessment tools can further support investment by reducing information asymmetries and enhancing transparency, helping to build investor confidence and attract more private sector financing.⁴⁴

Ultimately, unlocking private sector financing will be key to addressing the broader agrifood financing gap. However, this will require coordinated efforts to align public policies with private investment incentives, alongside targeted interventions to mitigate risk and expand the pipeline of viable investment opportunities.

2.6 The critical role of ODA, the challenge of donor coordination and the need for better data and monitoring

Official development assistance is a critical piece of the food financing puzzle. Globally, ODA grants and loans remain one of the major sources of development finance for agriculture and food security. It is estimated that the global volume of ODA grants for agriculture and food security increased significantly from US$8.9 billion per year in 2007 to US$14 billion in 2021,⁴⁵ while total ODA and other official flows (OOF) for core investments in food security and nutrition totaled US$50 billion.⁴⁶ Investing in agrifood systems requires a long-term vision and approach that acknowledges that investments today will bear fruit over time. However, amid multiple crises, economic uncertainty, rising inflation, mounting debt and increasing demands for short-term humanitarian assistance, governments appear less willing and more risk averse to making long-term investments that could strengthen resilience to crises and shocks in a more sustainable manner. With less donor funding available, especially where it is most needed and in sectors where it can be the most transformative, donors need to be more willing to take risks and work towards mobilizing their resources more catalytically, so that they can attract domestic and private sector resources.

At the country level, the misalignment of country and donor financing mechanisms often makes delivering assistance on the ground challenging. The frequent incompatibility between the financing, budgeting and reporting cycles of different donors complicates coordination and increases transaction costs for partner governments. The lack of good data on available sources of financing – domestic public finance, international development finance and private sector finance – also challenges coordination. Effective monitoring and evaluation of new and innovative modalities of financing can help identify conditions for success, as well as failure, and provide opportunities for understanding which approaches work best and under what conditions.

These challenges are reflected across the recent literature on agrifood systems financing. Boxes 3–6 summarize the key findings of selected reports that inform the analysis in this paper, including evidence on financing gaps and allocation, coordination and transparency, the catalytic role of ODA, and opportunities to mobilize private capital.