6 Ways forward

This section outlines some broad ways forward for the financing of agrifood systems. These have been derived from the conclusions and the recommendations of the reports covered in this document and insights from the key informant interviews. The perspectives presented below are tentative and intended for stimulating debate during the GDPRD Annual General Assembly.

6.1 Shifting the narrative

Change requires, and is driven by, storylines or narratives that resonate with people and provide coherent articulation of the potential benefits. This lesson is increasingly evident in political shifts across the globe. So, what is the narrative that will bring investors to the table for agrifood systems transformation? A more positive and opportunity-oriented narrative is likely needed, one that puts more emphasis on the potential returns on investment.

Key issues and ways forward include:

Broadening the narrative: There is an urgent need to change the narrative from one that is looking at food security and nutrition as an isolated challenge, to one that sees investment in agrifood systems as a critical opportunity to future-proof livelihoods and support the realisation of a host of global public goods, including better health, nutrition, livelihoods, biodiversity conservation, migration and climate resilience. Donors, private sector entities and DFIs should approach agrifood systems funding as a long-term investment opportunity with substantive returns in addressing global public goods issues such as health, food security and migration. Shifting the conversation from a gap mindset to one that sees investing in agrifood systems transformation as an opportunity could potentially be a much more effective means to bring in greater financing and investment and build constituencies of support at national, regional and international levels.

Balancing risk and reward: Changing the narrative around financing for agrifood systems involves highlighting the investment rewards in addition to the risks. Investing in agrifood systems and rural development is often seen as a risky endeavour, particularly in fragile and conflict-affected contexts where countries face high debt burdens and political instability. However, the focus tends to be more on the risks associated with these investments rather than the potential rewards, such as building greater resilience, enhancing economic security and promoting social stability. Governments, donors, DFIs and other stakeholders need to put as much emphasis on the rewards as they do on the risks. This balanced approach can help attract both private and public investment in agrifood systems and rural development.

Redirecting and reinventing financing mechanisms: Instead of focusing on meeting a set cash figure, which can quickly feel overwhelming and unrealistic, reinventing how existing financial flows from the public and private sector are channelled, coordinated and used as efficiently and effectively as possible will allow stakeholders to meet specific and varied challenges in different geographies and points in the food system. This involves leveraging diverse financing tools not only to address core food security and nutrition needs but also to build broader resilience and security outcomes that relate as well to climate change, human conflict, and other hazards.

Highlighting good examples and best practices: As highlighted in this paper, while there are undoubtedly several challenges, there are a number of emerging examples and best practices when it comes to innovative financing tools, approaches and initiatives. To get more donors, governments and the private sector to support these solutions, there needs to be a greater emphasis on highlighting what is working, rather than what is not.

Bringing citizens and governments on board: A focus on solutions and best practices can also help to build greater public support for investments in the agrifood space among both citizens and policymakers. What is the narrative to get parliamentarians, politicians and citizens on board? A sense of common good, identity, understanding and emotional connection may be key to garnering communal support.

This reframing encourages a transition from a short-term crisis management approach that focuses on the financing gap for food security and nutrition in vulnerable, fragile and high-risk settings, to a focus on how the substantial resources that are available could be better utilized to build a more robust and sustainable food system overall. Part of shifting the narrative is making it apparent to all players involved that the costs of inaction far outweigh the costs of action, and that investments in agrifood systems transformation today will deliver benefits for generations to come.

6.2 Mitigating risk in the agrifood sector

As outlined in this paper, one of the fundamental financing challenges for agrifood systems is managing risk. At the national level, local banks and investors still limit their involvement in the agriculture sector, viewing it as an area where the upfront investment costs, sectoral risks, high transaction costs and lengthy timeframes required to see a return on investments don’t match the investment proposition. This needs to change. De-risking investments in agrifood systems and rural development requires donors, governments and other stakeholders to commit to understanding the range and diversity of risks within the sector, while investing in and leveraging the wide range of innovative de-risking instruments and solutions.

Key issues and ways forward:

Recognizing and managing multiple forms of risk: The agrifood sector inherently faces a wide and intersecting range of risks including:

• Variability in yields and production: Weather and climate change induced factors, pest infestations and disease outbreaks can significantly affect crop yields, leading to unstable production levels.
• Limited capital and uncertainty in the return on investments: Access to capital for the upfront costs associated with agriculture and food production requires significant upfront investment, which is out of reach for many farmers. The uncertainty of the return and timeframe for returns makes it a risky proposition for local investors and banks, making it a no-win situation.
• Market access and price fluctuation: Market prices for agricultural products can vary dramatically due to global demand-supply imbalances, trade policies and market disruptions. Disruptions in market access due to poor infrastructure, logistics and lack of access to information can further skew market access and cause price variability.
• Policy unpredictability: Frequent and unpredictable shifts in government priorities and policies including debt waivers, farm subsidies, procurement and trade policies can create unstable and uncertain environments for domestic and international investors.
• Transition risks in changing practices: There are also financial, social, and cultural risks associated with shifting to more sustainable or innovative agricultural practices, which can be expensive and difficult to implement.

These and other risks combine to make investment in the sector challenging, even where there are viable business opportunities. Addressing these risks requires a tailored approach and set of solutions.

Investing in innovative de-risking instruments: There are several emerging innovations that are designed to de-risk investment in the agrifood sector, such as weather and flood indexed insurance – helping to protect farmers from the financial impact of crop losses due to unpredictable weather and climate events; guarantee funds – designed to provide guarantees to lenders and low the risk of lending to farmers and agribusinesses; credit enhancement mechanisms – designed to help improve access to finance by providing partial risk guarantees and making it easier for smallholders and agricultural enterprises to secure loans; and incentive-based risk sharing systems – aimed at increasing access to finance and risk sharing in agricultural value chains. In addition to these established risk instruments, there are range of emerging innovative financing mechanisms in the field of regenerative agriculture. These instruments include regenerative operating loans that typically finance farm expenses to bridge seasonal illiquidity of farmers from preparation to harvest; climate risk-adjusted insurance that aligns insurance with risk assessments that include regenerative practices; blended funds that help increase access to finance by combining private investments with strategies that spread out risk, making it safer for private investors and guarantee mechanisms that seek to mobilize private capital by insuring a proportion of investment losses in the event of default.⁸¹ These and other derisking instruments illustrate how targeted financial products can help mitigate the risks that investors and farmers face in the agrifood sector.

Building a holistic financing ecosystem to mitigate risk: To effectively manage the various risks in the agrifood sector, it is essential to view risk mitigation as part of a broader financing ecosystem. This means moving beyond standalone solutions and ensuring that players across the entire system – financial institutions, governments, private investors and development organizations – work together to reduce risk. Blended finance is a key component of this ecosystem, combining public and private funds to lower risks for investors. For example, blended finance mechanisms can help bridge the gap between commercial investment and development goals, by reducing the exposure to risk for private investors. This approach has proven particularly effective in fragile and conflict-affected contexts where traditional financing models are less viable.

Increasing financing to support risk mitigation: Given the complexity of managing risk in the agrifood sector, donors have a critical role to play. There is a clear need for increased investment in risk mitigation mechanisms. Donors can contribute by:

• Funding de-risking instruments: Supporting the development and scaling of financial instruments that reduce risk for both investors and agricultural producers.
• Strengthening public-private partnerships: Facilitating collaborations that leverage both public and private resources to create more resilient financing ecosystems.
• Scaling up transition finance: Private sector financing is not a magic bullet. Transition finance will be needed to provide incentives and capital to farmers and small-scale producers to spur the transition to and adoption of more ecologically and climate sound approaches.
• Investing in knowledge and innovation: Supporting research and initiatives that focus on new approaches to risk management in agriculture.
• Investing in better data, monitoring and evaluation, and risk assessment: Supporting investments in and access to better data and information, as well as monitoring and evaluation of the performance and impact of de-risking innovations and instruments, is critical to ensuring the validity of these schemes, understanding their relative advantages and disadvantages, and enhancing their scalability and replicability.

Donors can help build a more sustainable and resilient agrifood sector that attracts private investment even in challenging contexts by focusing more resources in these areas.

6.3 Tackling the last mile of smallholder and SME finance

The ultimate enduring challenge for agrifood sector financing is being able to provide financially viable lending to large numbers of small-scale producers and SMEs. This is where the entire financing ecosystem must come together in an integrated way.

Key issues and ways forward include:

Mobilising domestic banks: For most domestic banks, lending to the agrifood sector is a very small proportion of their portfolio, often significantly less than 10 per cent. Given the inherent risks and costs of lending to the sector, there is little incentive for this to change. However, domestic banks are potentially a significant source of financing for agrifood systems transformation. For this potential to be unlocked, there is a need to better couple domestic banks with blended finance and risk management mechanisms, financial intermediaries and improved fintech. There is also a need for domestic banking and financial regulatory changes to shift incentive structures.

Better integrating finance into the supply chain: Improving supply chain management and contractual arrangements is a way of both enabling producers and SMEs to gain direct access to finance or to have guaranteed markets that make financing through other means easier. This requires general upgrading and formalization of markets, underpinned by transparent market information and supported by innovative market information technologies.

Cascading risk management: As mentioned repeatedly in this brief, risk is the most fundamental barrier to being able to finance the “last mile” of the agrifood sector. Reducing the risk requires an integrated and cascading system. At the immediate enterprise level are mechanisms, such as micro-insurance, property rights and collateral, formalised contracts, and access to technical assistance. Moving up the chain are mechanisms for underwriting the risk of collectivised financing instruments and funds, including blended finance. IFIs financing national agrifood sector programmes and multi-country natural or climate-related disaster funds are also part of this cascading risk management. Strengthening and better integrating all these mechanisms across scale is a key way forward.

Strengthening the intermediary function for aggregating servicing financial needs: Efficient and effective intermediary institutions which can aggregate financial demands and receive larger ticket loans are essential in the financing ecosystem. These can be cooperatives, specialised micro-finance institutions, out-grower mechanisms (groups of producers growing on contract), specialised banks, or blended finance funds. The challenge is to optimize the efficiency of such mechanisms, through innovative financial technologies and for these mechanisms themselves to be able to spread and mitigate risk. Supporting such institutions is likely to remain a key opportunity and need for donor and public financing to be catalytic.

Providing technical and business support: Ultimately, no financing system is going to work if producers and SMEs are not optimising their returns and profits through utilising the best technologies and management approaches available. This also extends to having the necessary business, accounting and IT skills. Consequently, integrating technical support with financial support is vital. This is another dimension of necessary coordination that needs to be strengthened, between value chain development, government advisory services, technical support from input supplier and off takers and technical support from financing institutions.

6.4 Tackling structural constraints

Deep structural constraints to the financing of agrifood systems need to be recognized and tackled. These include the way low-income countries are marginalised in the functioning of the global financing system, the low-risk appetite of IFIs, the unintended consequences of agricultural support and the large market externalities of the food system. Overall, investors of all types need to ensure that agrifood systems finance is incentivizing production practices and systems that integrate health, environmental protection, and social equity concerns, and that agrifood systems finance is fit-for-purpose for SMEs, in fragile contexts, as well as for the ensuring the availability and accessibility of nutritious food for the growing population.⁸²

“We tend to forget one important thing, and that is related to the prices of food, which remains stubbornly high in most developing countries. And that brings us down to the reality that if you are growing fruits and vegetables for the domestic market, you are practically left out of the financial system. It is very difficult to raise money, whereas if you’re growing tea and coffee commodities or green beans for export and you have a purchasing order in in a foreign currency, then raising money becomes easier. That brings us back to the point that to provide money for SMEs and farmers that will solve the food security problem, we need domestic financing in local currencies.” Report interviewee

Key issues and ways forward include:

IFIs and the funds within them need to expand their risk appetites and portfolios to support investments in places and parts of the food system where transformation is most needed but where risk remains high, in part due to the lack of resources currently available. For example, a specific action would be to lower the required debt-to-equity ratio to support investments in riskier environments.⁸³ This is especially important for global development banks, and there are examples of how even a change in debt-to-equity ratio of 1 per cent can have implications for the ability to lend.⁸⁴ Continued reflection on how the Basel III banking rules,⁸⁵ which set requirements for banks on topics like debt-to-equity ratios, can further support innovative finance and increased risk in IFI portfolios is needed to ensure that capital is available where it is needed most.⁸⁶ IFIs should also expand direct lending to subnational governments and local financial institutions, and consistently integrate climate, nutrition and gender indicators into all financing criteria and project appraisals to ensure investments contribute to systemic transformation.

National governments in LICs and MICs (especially in LICs), need to increase their investments in the agrifood sector and ensure that those funds are focused as much or more on national development priorities as on export-oriented food system activities. National governments should ensure that subsidies provide general support to the agrifood sector and rural communities.⁸⁷ Subsidies in MICs are often going to areas that are creating unintended negative outcomes (through commodity crop production using excessive external inputs) rather than investing in infrastructure and local financial institutions to make it more attractive for the private sector to invest in agriculture. Instead, governments should improve their nominal rate of assistance in LICs in a way that supports agrifood systems transformation in terms of production practices, nutrition, and local food system development. MICs can also focus resources on nutrition-sensitive policies and investments, including a focus on food labelling and taxes on unhealthy foods. More broadly, national governments should introduce tax incentives and regulatory frameworks that actively encourage sustainable agrifood investment, promote financial inclusion through local financial institutions, and strategically allocate public budgets to crowd in donor and private sector finance.

Donors can facilitate these structural changes by supporting the processes and dialogues that examine the unintended consequences of the current food finance environment, as well as exploring opportunities to expand and enhance innovative finance mechanisms. Donor investments, via ODA as well as in blended finance, vertical funds and other innovative approaches, can help de-risk changes for the broader financial system and leverage capital from a wide range of sources. In particular, donors should support strategic policy dialogue and provide concessional finance and guarantees to catalyse private investment, fund technical assistance for regulatory reforms around land tenure and rural financial markets, and support debt restructuring in lower-income countries.

Private financial institutions and domestic banks should recognise the strategic importance of agrifood systems as a profitable and stable sector that contributes to long-term growth. They should expand tailored financial products to agrifood SMEs and rural clients, offer preferential lending for investments meeting climate resilience, nutrition and sustainability standards, and partner with IFIs and donors to develop de-risking instruments that unlock access to credit for smaller-scale agrifood enterprises. Strengthening land tenure security and rural infrastructure remains a foundational prerequisite that both public and private actors must address to unlock investment at scale.

6.5 Scaling up innovative and blended finance mechanisms

Although there has been a significant upsurge in innovative and blended finance initiatives serving the agrifood sector, the scale of additional finance being mobilized remains relatively modest at this stage. Further, such initiatives remain much more difficult to establish in marginalised or fragile contexts, particularly in LICs, where the highest levels of hunger are concentrated.

Key issues and ways forward include:

Clarifying the “territory” of innovative finance: As illustrated above, there is a wide range of financial mechanisms being deployed and being integrated into fund mechanisms in various combinations. Blended finance has started to become a general term of initiatives that integrate different mechanisms, although, strictly speaking, blended finance is a risk mitigation mechanism. There would be value in a more comprehensive mapping of different instruments and how they are being combined in different ways and to what effect. For those without a finance background, the terminology can quickly become quite confusing, yet it is vital that those in the agrifood systems space do have a better comprehension of innovative financing and the implications for their work.

Strengthening the incentives for investors: Besides meeting shorter term profit objectives, there is a need to demonstrate more clearly how innovative financing in the agrifood sector can help financial institutions and other investors meet corporate environmental and social responsibility principles and guidelines, gain market share, be prepared for policy shifts, and avoid reputational risk.

Learning lessons: With the growing experience of innovative finance, it is critical to ensure lessons are learned and shared, which requires investment. There is already a range of networks and initiatives supporting blended and innovative finance, and these groups need the mandate and resources to effectively create a learning network.

Demonstrating impact: Ultimately, the investment of donors and financial institutions into innovative finance approaches requires demonstrated impact. Meta-level monitoring and reporting on impact and translating findings in ways that are convincing to investors can be strengthened.

Pooling and coordination of bilateral funds: The bulk of donor funding still flows to individual projects, which are often fragmented and poorly coordinated. Scaling innovative finance will require greater pooling and coordination of donor funds. However, coordination and integration must also align with individual donor policy priorities and their requirements for showing the direct impact of their investments.

Avoid fragmentation: Having many small innovative financing funds/mechanisms runs the risk of duplicating the same coordination problems that donors have. Further, there are clearly economies of scale and transaction costs when considering the appropriate size of funds. This is an overarching issue and challenge for the sector to consider.

“I know that’s an unpopular thing to say, but unless we reinvent donor financing and pull all the tools that we have available to us, we will still be talking about the US$33 to US$50 billion gap rather than the ability to reposition food system and food security as an incredible investment opportunity for the 21^st century. A lot of donors are existing in a 20^th century model, where they need to upgrade to a 21^st century model. Politics is always difficult, but we need institutional change.” Report interviewee

Buy-in from national governments, and domestic banks and agrifood sector firms: With notable exceptions, most innovative financing is coming from international and HIC institutions. A next phase of development is clearly to get greater buy-in from LIC and MIC national governments and domestic private sector players.

Scaling climate finance to the agrifood sector: A major priority is to substantially increase the flow of climate finance to the agrifood sector and to small-scale producers in particular. All actors should align their strategies to this goal: donors and IFIs by ensuring bilateral investments are designed to leverage climate finance streams; national governments by building the policy environments and project pipelines that attract climate capital; and private financial institutions by exploring underused tools such as green bonds and sustainability-linked lending that channel commercial finance toward climate-smart agrifood investments.

Strengthening SME access and value chain bankability: A persistent gap is the inability of small-scale producers and SMEs to access finance on viable terms. Donors and IFIs should substantially increase their support for the business services, value chain coordination, and technical assistance that make these actors bankable. National governments should support mechanisms that incentivise domestic banks to increase their agrifood loan portfolios, establish national or regional guarantee facilities, and prioritise aggregation and professionalization of local agribusinesses to reduce transaction costs. Private financial institutions should design SME financing tools around the actual needs of local entrepreneurs — with lower barriers to entry, faster disbursement, and revenue-based lending structures — and scale these with a specific focus on enterprises led by women and youth.

Drawing on proven models: Efforts to expand and coordinate innovative financing should be informed by a growing set of initiatives that demonstrate significant potential for scalability. These include pioneering public-private brokering models such as the aforementioned FAO Hand-in-Hand Initiative, IDH Sustainable Trade Initiative, and Grow Asia, as well as a new generation of blended finance funds specifically designed for the agrifood sector, including ACELI Africa, Root Capital, the Africa Agriculture and Trade Investment Fund, and the Nutritious Food Financing Facility (see more examples in table 5 above). Learning systematically from both the successes and limitations of these models — including through rigorous impact assessment and cross-regional knowledge sharing — is essential for scaling what works.

6.6 Accessing climate finance

The data presented above in Section 4 show a substantial disconnect between the volume of climate finance committed globally (estimated at over US$1 trillion in 2023)⁸⁸ and the proportion of that finance focused on agriculture, forestry and land use, as well as other parts of the food system. This gap exists for several reasons, some of which are unique to climate finance and some of which reflect more general challenges in financing agrifood systems transformation.

Key issues and way forward:

Most climate finance comes from the private sector, but most climate finance for agrifood systems comes from the public sector. This means that the overall pool of funds that could focus on food system transformation is substantially lower than the US$1 trillion available globally to finance climate change mitigation and adaptation. Private climate finance tends to be focused in sectors where regulatory requirements mean climate change mitigation investments will generate returns through market incentives or avoided penalties, or where there are strong market signals showing a return on investment through consumer spending. Agrifood systems, especially in LICs and MICs, do not necessarily provide a high-value proposition for private climate finance in terms of a return on investment.

Climate finance often uses blended mechanisms, and there are challenges in directing blended finance into higher-risk and lower financial return settings and projects. However, innovative finance mechanisms tend to focus on climate, so there are opportunities to pilot these approaches using public climate finance to de-risk private investments.

The climate change mitigation potential of agrifood systems is not nearly as simple nor as consistent over time and space as compared to the potential for mitigation through investments in the energy and transport sectors. Climate finance seeks not only (and often not even primarily) a financial return on investment, but also a carbon dioxide equivalent return on investment. Agriculture’s current and future contributions to climate change suggest that mitigation in the sector should be a key focus of investment;⁸⁹ however, the mitigation potential of changing production practices varies widely across contexts, making it challenging for development projects and investors to quickly and consistently assess the mitigation potential of specific investments. It is likely for this reason that most climate finance for agriculture focuses on adaptation or co-benefits, which are generally the focus areas of public rather than private finance.

Most climate finance focuses on investments that generate public goods (decreased emissions and mitigated risks associated with climate change) as well as returns on the investments. Investments in agrifood systems to drive climate change mitigation will require more financial flows focused on the public good outcomes, and the willingness and ableness to accept lower returns on that investment. Increasing climate finance flows into agrifood systems will require increased investment in public and private research and development to clearly quantify mitigation potential of practice changes and investments in new technology, and public finance to de-risk and underwrite investments that do not directly lead to returns or increased revenues. Enabling environments that include both pull factors, like consumer demand and corporate commitments, and push factors like increased regulation on emissions from agricultural production and supply chains, can also incentivize increased private investment in the sector.

6.7 Disentangling social protection, fragile contexts and commercial agrifood sector development

The uncomfortable truth is that in many LICs and MICs, a significant number of small-scale farmers are unlikely to be able to make a commercial return on investments or repay loans. This situation arises from a broad range of factors such as the size of their land holdings, land tenure issues, commercial viability, debt levels and poverty. Therefore, when donors, governments, and the private sector consider investing in agrifood systems and rural development – regardless of the type of financing (ODA, grants, concessional loans, private investments, blended finance, etc.) – it is crucial to clarify whether these investments are aimed at social protection measures or at developing the commercial agrifood sector.⁹⁰ This distinction becomes critical in fragile and conflict-affected areas, where there are fewer financing and investment opportunities. In such contexts, funding for both social protection and commercial development is essential as is mobilizing private finance that is carefully structured and heavily backed by public resources.

Key issues and ways forward:

Balance investments in social protection with investments in agricultural development interventions for greater impact: Donors and governments should balance their agricultural development interventions to target both commercially viable farmers and the most marginal smallholder farmers. It cannot be an either-or approach. While it is important to support those who can scale and become market participants, there also needs to be stronger social protection mechanisms for those who are unable to make that leap. Development efforts should address this dual challenge to create more inclusive and sustainable agricultural systems.

Leverage market development programmes to drive economic growth: There are a growing number of innovative market development programmes that are blending public, private and multilateral efforts. By linking smallholder farmers to larger markets through aggregation, storage and distribution networks, these programmes can create sustainable economic pathways for smallholder farmers away from mere subsistence. For example, IFAD’s Agri-Business Capital (ABC) Fund is providing financing solutions including loans, equity and technical assistance to help scale agribusinesses and improve market access for farmers. In Asia, Grow Asia is a multistakeholder partnership with the World Economic Forum, Association of Southeast Asian Nations countries and the private sector focusing on value chain development, market access and capacity-building for smallholder farmers. In Africa, the Alliance for a Green Revolution in Africa’s Partnership for Inclusive Agricultural Transformation in Africa (PIATA) brings together multilaterals and the private sector and seeks to improve smallholder farmer productivity, market access, and income levels across sub-Saharan Africa by strengthening agricultural value chains and expanding access to inputs, markets and finance. Scaling and leveraging these efforts, with strong donor support, can help build more resilient smallholder farmers, local markets and economies. (See more examples of organizations and funds in table 5 above.)

Focus on tailoring private sector finance for fragile contexts: Attracting private sector investment in fragile and conflict-affected areas requires a tailored approach. Due to weak infrastructure, limited capacity, policy instability and poor market conditions, these contexts need unique private sector engagement strategies. Public and donor support will remain vital in attracting and building private sector confidence and in helping to underwrite some of the risks associated with these market conditions.

Expand the use of blended finance in high-risk areas: Blended finance should be further utilized in fragile contexts to de-risk private investments. By combining concessional finance with private capital, governments and development institutions can reduce investment risks and attract more private sector engagement. In fragile areas, this model must rely on a greater share of public and donor funding to create the necessary conditions for private investment to thrive.

Reform agricultural policy to support structural transition: Agricultural policy and financing support must evolve beyond serving as a default social protection mechanism. Policymakers and donors need to prioritize reforms that support structural transition, enabling those who cannot sustain livelihoods in agriculture to transition into other sectors, while continuing to provide social protection to those on the margins. This will require carefully balancing social protection systems with economic diversification strategies to create new opportunities for the rural poor.

6.8 Enhancing an integrated agrifood systems financing ecosystem

As discussed above in Section 5, the effective financing of agrifood systems transformation requires a sophisticated alignment of not only financing mechanisms but also value chain coordination, technical assistance and policy support. For many initiatives, this requires coordination and integration from local to global scales. To establish blended financing mechanisms and enable access to finance at a local level, a range of brokering and intermediary organisations are also necessary.

Key issues and ways forward include:

Mapping out and clarifying the key functions and interlinkages of the overall financing ecosystem: There is still much to learn about optimising the overall financing ecosystem for agrifood systems transformation. A starting point would be to use existing experiences to provide a clearer mapping of key functions and interlinkages. Such a mapping needs to be made simple and user friendly so that actors across both financing and agrifood systems can better understand the opportunities for engagement.

Clarifying the functions and complementarities of supporting networks:

Table 5 lists a range of different networks, alliances and initiatives involved in supporting the financing of agrifood systems. There would be value in reviewing the current work of these efforts to identify complementarities and assess the scale of resources needed for them to be effective.

Investing in research networking and learning: There is a need to more clearly identify an overall research and learning agenda for agrifood systems financing and, through collaborative funding mechanisms, ensure that such research can be done and shared through appropriate networks.

Investing in brokering: It is increasingly clear that the development of innovative financing mechanisms requires individuals and organisations who can play effective brokering, fund development and coordination roles. Such intermediaries need understanding and experience of both the financing and the agrifood sectors and experience that gives them credibility. The costs of such brokering and assembling of finance will often require at least some public funds.

Investing in capacity development: For the food financing ecosystem to be developed and work effectively, there is a broad set of capabilities that individuals and organisations require. This includes knowledge about how financing works, in-depth knowledge about risk and risk mitigation in the agrifood sector, understanding corporate social responsibility and reputational risk, knowledge of climate finance, ability to broker deals, multi-stakeholder facilitation skills, financial regulations, agrifood systems analysis, and abilities to communicate across the finance and agrifood sectors. More could be done to offer short courses, masterclasses, online resources, policy seminars, and to embed such capabilities into university curriculums.

Establishing collaborative agrifood financing agreements: A key gap in the current financing ecosystem is the absence of structured, multi-actor agreements that align diverse financing streams behind shared national or regional investment priorities. Collaborative agrifood financing agreements — voluntary frameworks that map how each actor’s contribution can unlock or de-risk others — offer a practical mechanism to address this. These agreements should be adaptive, evolve with experience and evidence, and be embedded within existing national, regional and global mechanisms to avoid creating new layers of duplication. National governments should establish such frameworks as part of their national agrifood systems transformation pathways; and bilateral donors and IFIs should make their development a central strategic priority, resource the facilitation needed at national, regional and global levels, and support ongoing learning platforms that capture lessons from innovative financing initiatives. Private financial institutions, philanthropic foundations and agrifood firms should actively engage in these agreements to align their efforts and identify co-investment opportunities. Regional platforms anchored in continental institutions such as the African Union and related Regional Economic Communities should be leveraged to foster political alignment, policy coherence and cross-border investment coordination.

6.9 Supporting effective target-setting, monitoring, and reporting

To track and quantify financial flows to agrifood systems more fully, definitions, targets and reporting systems must continue to converge and align. The current core approach to tracking ODA and OOF, as well as some IFI flows, is to utilize the OECD DAC’s Creditor Reporting System. DAC codes are applied to donor-reported finance based on the geography and sector (“purpose”) to which funds flow, as well as the funding mechanisms used (grants, various types of loans, etc.). DAC codes have continually expanded to reflect global development priorities and frameworks, but there is not a consistent, agreed-upon set of codes used to define investments in food security and nutrition, let alone a consistent set of codes for the much more expansive and complex tracking of investments across the entire food system.

Both the methodology piloted in the SOFI 2024 report⁹¹ and the 3FS methodology,⁹² developed as an outcome of the United Nations Food Systems Summit 2021, seek to standardize and characterize financial flows to different elements of the food system. The SOFI methodology takes a broader view of what counts as investment in food security and nutrition as well as drivers of change by relying not only on standard DAC codes, but also on keywords associated with specific projects and funding flows. The 3FS approach specifically tries to expand these categories beyond food security and nutrition to include commercial market development, subsidies, investment in research and development, and other activities in public (national government) budgets focused on the agrifood system. However, these methodologies are in their early stages and will require more deliberation and alignment with existing methodologies before being adopted as shared standards.

Donor coordination and prioritization of funding flows needs to start with a shared definition of “what counts” as investment in agrifood systems, and will require agreement on methodologies to track, report and analyse these flows. Donors should be explicit and consistent in their own target-setting and reporting around investments in agrifood systems and should align donor definitions with those being developed with LIC and MIC governments to track domestic spending. Consistent definitions and monitoring of flows across donors and national governments, as well as IFIs and the private sector, will enable a more accurate and detailed assessment of where there are gaps and additional needs for funding. Having a more accurate understanding of financial flows into agrifood systems is also an important first step in estimating the impact and the potential risks and returns of investments, which is necessary information for leveraging private sector investments and ensuring that public sector spending is leading to the intended outcomes. Bilateral donors should cooperate to ensure long-term institutional support for core monitoring and data gathering, review existing initiatives for gaps, work with United Nations agencies to clarify roles and responsibilities, and build collaborative mechanisms with private sector financing institutions to improve tracking of private financing flows to agrifood systems. All actors should enhance transparency and traceability in environmental, social and financial reporting across value chains and support research and development and innovation platforms focused on sustainable agrifood systems. Outcome-driven metrics should be adopted to communicate returns on investment clearly — including cost per person reached with healthy diets, jobs created in rural and agribusiness economies, and carbon or soil health improvements per dollar invested — while keeping frameworks practical and avoiding unnecessary administrative burdens.

6.10 Harnessing and optimising the potential of innovations and new technologies

Innovations and technology of all forms can be powerful enablers of investment in agrifood systems, but their development and use must be inclusive and targeted. Technologies including artificial intelligence (AI), blockchain, robotics, biotechnology, remote sensing, packaging, processing, alternative proteins, personalised nutrition, and energy systems are all developing rapidly, and their adoption will fundamentally reshape the future of food production and distribution. AI and other digital technologies in particular have massive potential for increasing access to financial services and lowering the costs of dealing with large numbers of small enterprises, while also improving coordination and efficiency along value chains. Production and processing technologies can reduce waste, create investable ecosystem services, and improve nutrition — all of which reduce the hidden costs of food while creating new and higher-value markets.

However, a profound and accelerating technology divide is opening up within global agrifood systems. While these technologies are transforming agrifood sectors in high-income countries, the small-scale farmers and SMEs who produce the majority of food consumed in the Global South are largely excluded from these advances. The implications for a fair, sustainable and healthy food future are severe. The World Bank’s Digital Progress and Trends Report 2025 is clear: access challenges prevent small firms and farmers from achieving the scale needed for collective AI investment, and information asymmetries — particularly in low-income countries — limit awareness of AI’s applicability and access to localised models.⁹³ Left unaddressed, these market failures will concentrate AI’s benefits among advanced nations, large corporations and high-skilled workers, thereby widening global inequality.

From a financing perspective there are two critical dimensions of the technology challenge: technology can be deployed to make the financing of small-scale producers and SMEs more cost effective, but the small-scale sector must also adopt a full suite of technologies to be competitive, commercially viable, and able to manage risk. Realising this potential requires coordinated packages of technology development that specifically serve the needs of small-scale producers and SMEs, with access to technology designed in from the outset rather than treated as an afterthought.

Key issues and ways forward include:

Investing in inclusive and coordinated technology initiatives: Development and private sector actors should align efforts to invest in digital public goods, open standards, data governance and locally adapted technologies as a foundation for inclusive innovation. This means promoting AI and digital solutions that improve financial access, reduce operational costs and enhance value chain coordination; investing in technical assistance and digital capacity-building for inclusive agri-finance; and supporting open digital platforms for market access, credit scoring and climate advisory services. These initiatives must be coordinated and designed for the contexts in which smallholders and SMEs actually operate — including low-connectivity environments and adapting to local language requirements.

Reforming and scaling inclusive financial services for underserved groups: Private financial institutions and domestic banks should reform financing models to specifically de-risk technology access for smallholders and agrifood SMEs, prioritising tailored financial products that leverage digital technologies to improve access to credit, insurance and payments. They should scale up inclusive financial services targeting underserved groups — especially women, young people and Indigenous producers — and fund equity-centred initiatives

that strengthen these groups’ ownership and market position within agrifood value chains. Where commercial models are not yet viable, public funding and blended finance should be used to demonstrate and de-risk these services.

Scaling cooperative and collective models: Cooperative and collective models should be scaled as vehicles for technology aggregation and shared access, enabling small-scale producers and SMEs to pool resources, share the costs of technology adoption, and achieve the scale needed for collective investment — addressing directly the access challenges the World Bank identifies as a barrier to AI adoption among small firms and farmers.

Harnessing innovation to reduce hidden costs and reach the most excluded: Beyond finance, a broader set of innovations — in processing, packaging, cold chain logistics, and energy — can reduce the hidden environmental and health costs of current agrifood systems while creating new investable opportunities. Donors and governments should invest in developing and disseminating these technologies as public goods, ensuring they are accessible to agrifood SMEs in low- and middle-income countries, and should design participatory, gender-responsive, and youth-centred capacity-building that reaches the most excluded. Public-private partnerships that share the cost and risk of technology development — with explicit conditions on access and affordability for smaller enterprises — offer the most promising path to scaling impact.