December 6, 2012

Navigating Finance for the Farmer

crops, climate change, finance, smallholder farmersFunding is always a prominent topic of discussion, and often a sensitive issue at such international gatherings as the UNFCCC COP18. Commitments made by member countries usually have some financial strings attached, and the question is largely ‘who will pay, how much, and for what?’ At Agriculture, Landscapes, and Livelihoods Day (ALL) the issue surfaced continuously over the course of the day – more money for technology transfer; more for neglected areas of research (climate impacts on pollination, pests, and disease); more for farmers. To manage overlapping objectives related to food security and nutrition, development, environment, and climate, there was undeniable agreement that increased and more efficient funding is necessary.

One Roundtable session at ALL Day honed in specifically on questions related to finance opportunities for smallholder farmers. This panel of private, government, and civil society experts attempted to cover all the bases, while still pulling from concrete case studies. The challenges identified by the panelists were telling about the key criteria for more integrated finance mechanisms.

Phil Franks (CARE International), in describing a smallholder carbon project in Kenya, noted how the value of the actual carbon revenue to each individual farmer is rather insignificant and the requirements to earn credits don’t allow for the level of flexibility farmers need to adapt. Initially touted as an innovative means to bring climate finance to farmers, smallholder carbon projects do in fact have benefits but largely in terms of soil fertility, water management, and productivity. For smallholder farmers, the dispersed nature of their holdings also makes it difficult to access carbon finance or insurance, due to high transaction costs.

Separation of adaptation and mitigation is one of the themes reiterated throughout the day, and a characteristic of the funding mechanisms within the UNFCCC. This split hinders implementing more integrated approaches to climate-smart land management. On the panel, Matthew Wyatt (DFID) noted how we need to get beyond this separation, because in agriculture the two go hand-in-hand. And yet funding, too, reflects this separation. Moreover, funding streams for climate change and agriculture and rural development also operate in their respective silos. One attempt to cross this divide, IFAD’s Adaptation for Smallholder Agriculture Programme (ASAP), is trying to blending climate and agriculture ‘know-how’ in financing resilient development for smallholders.

So what does all this mean when we take a landscape perspective? Panelists were generally of one mind, emphasizing that operating on a landscape scale allows for more carbon storage while also increasing adaptive capacity. Lou Munden (Munden Project), representing the private sector on the panel, argued that “we need to stop thinking about how to make this fit old models and start thinking about new ones.” His company takes this to heart, focusing on investing in a diverse portfolio of activities within the landscape to manage risk.

At the end of the day, though, the institutional structures in place are what will allow for better integration and efficiency for funding climate-smart landscapes. For example, in the opening panel of ALL Day, Judi Wakhungu (African Centre for Technological Studies) noted the restructuring of the Kenyan government and a proposal to integrate agriculture, environment, and climate change in one ministry. A move such as this may help streamline funding for agricultural development that achieves multiple objectives and benefits to smallholders. As several panelists noted, public sector funding is crucial for covering the high upfront costs and reducing risks, which will in turn entice more private sector funding.

As the 18th Convention of the Parties reaches a conclusion over the next few days, the decision of the negotiators regarding funding levels will have serious implications for how to proceed with supporting agriculture in a changing climate. More importantly, though, beyond the negotiations, how funding channels are structured and controlled will influence whether development proceeds in an integrated, climate-smart manner.

Further Reading:
Innovations in Smallholder Carbon Projects. CCAFS Report no.8

Coordinating Finance for Climate-Smart Agriculture. Ecoagriculture Discussion Paper no.8

National Policy for Climate-Smart Agriculture: The Kenya Experience. Ecoagriculture Policy Focus no.9

A Climate-Smart Guide to Investment. Landscapes Blog

Photo credit: Olive Thiong’o (CCAFS)
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