Public Development Banks’ potential in Agricultural and Food systems to tackle food and nutrition insecurity from an agroecological perspective 

Title: Financing the Agroecological Transformation of Agri-food Systems

Author(s): Rajeswari S. Raina (professor, Shiv Nadar University) and Tara Nair (professor, Gujarat Institute of Development Research).

As a university space, we collaborate internationally on gathering and measuring data for the Sustainable Development Goals. The institutional collaboration and research create a platform for comparative approaches and international best practices for tackling the entire spectrum of suitable development goals.

One such example is a project under the Global Development Network’s program on Public Development Banks and Sustainable Development Goals that builds upon the Finance in Common initiative launched in 2020 to discuss how Public Development Banks can best step in to align Global Development Finance with Sustainable Development Goals. The partnership under GDN aims to produce research articles that develop lessons for a more representative, coordinated, targeted, and enlightened system of PDBs and DFIs around the implementation of the SDGs. 

Among the five projects the initiative supports, one of these is Dr. Rajeswari S. Raina, Professor Shiv Nadar University, and Dr. Tara Nair at the Gujrat Institute of Development Studies. The consultancy project is a part of the program on “Public Development Banks and the Sustainable Development Goals” coordinated by the Global Development Network (GDN), sponsored and coordinated by Agence Francaise de Development (AFD), Paris. 

Project Budget: 24,000 Euros

Project Duration: March 2022-July 2022 (Extended to October 2022)

A paper was presented at the International Society for Ecological Economics (ISEE) 17th Biennial Conference in Colombia, 26-28 October. Two papers are expected to appear in peer-reviewed journals in 2024.

A policy brief on the project was submitted as part of the Finance in Common (FIC) initiative.

 Enabling Sustainability: Financing Agroecological Transformations 

Rajeswari S. Raina (Shiv Nadar Institution of Eminence, Delhi NCR) and Tara Nair (Work Fair and Free Foundation, Bangalore) 

The demand for changes in the financial sector to enable and strengthen the transition to sustainability has been unequivocal over the past few decades. This study focuses on the extant arrangements and potential prospects for financial transfers by Public Development Banks (PDBs) for agroecological transformations in developing countries like India. It builds on the recent rationale from PDBs for financial services to account for investment externalities and work towards developing sustainable financial services and products. Agroecological transformations that result in the resilience and sustainability of social and natural systems recognize that agrifood systems are coupled social–ecological systems involving activities from food production to consumption and a holistic integration of science, practice, and social movement (HLPE 2019). 

Research Questions and Analysis 

Do prevalent innovations in financial services and products from PDBs potentially address the complexity of social and ecological systems involved in agroecological transformations? How can evidence, principles, and lessons from financial innovations in and for agroecological systems that have proven successful over time and some, at scale, be used to inspire and build capacities for agroecological transformations? Following a social-ecological economics framework, the study analyses secondary literature, data, stakeholder interviews, and case studies. 

Findings: 

Contrary to agriculture’s (product, market, and factor) contributions to economic growth and development, its role in sustainable agroecological food systems is guided by environmental, social, and economic well-being principles and is politically correct and just. Financial flows to agriculture from PDBs, apex institutions, and state agencies in the post-Green Revolution period have often ignored the linkages between agricultural production, the environment, consumption, and household access to health and nutrition. Higher growth rates in output and productivity have been indicators of success. Finance has been handy in incentivizing fossil fuel-intensive production decisions, the palliative political agenda of quelling farmer dissent, and managing short-term production disruptions. Except for a few initiatives by the National Bank for Agriculture and Rural Development (NABARD) in watershed and wadi (orchard) development, mainstream agricultural credit has destroyed location-specific farming systems, diversity in seeds, cultivars, and livestock, heterogeneity in markets, food cultures and valuation systems. 

Critical concerns 

Neglect of agroecological principles in financing: PDBs and the government need a cohesive and comprehensive approach to financing nature-positive transition based on the core operational principles of agroecology - improve resource efficiency, strengthen resilience, and secure social equity/responsibility. 

Poor budgetary allocation: In India, the national budget estimates for 2019-20 show that expenditure on schemes for the agroecological transformation of agriculture accounted for only six percent of the total spending under the centrally sponsored category and just 0.8 percent of the total expenditure on agriculture. Despite the constitution of the nationwide network, the National Coalition on Natural Farming (NCNF), there is limited government funding for agroecology. The latest budget announced for 2023-24 has provided meager public investment for local, sustainable infrastructure through allocations to establish 15,000 Bio Input Resource Centres. 

The trend towards financialization: The agri-finance vocabulary and instruments have expanded widely over the past few years to include crop and weather insurance, value chain financing, inventory financing, receivable financing, price hedging, and partial credit guarantees. As food production and consumption activities are organized increasingly as part of highly capital-intensive industrialized systems, shareholders' voices have become critical while making food system decisions and operationalizing these agri-finance instruments. 

Building capacities to finance agroecological transformations: 

Focus on sub-national actors: State Governments, mainly Andhra Pradesh, Sikkim, Karnataka, and Himachal Pradesh, and Civil Society Organizations (CSOs) like the Timbaktu Collective and Centre for Sustainable Agriculture, and the Revitalization of Rainfed Agriculture Network have tried out innovative approaches to mobilize financial resources for redesigning agri-food systems. These include innovations that combine the funds available under central assistance, and state plans to forge creative financing arrangements and mobilize grants from PDBs and philanthropic organizations. 

Expand and deepen the blended finance model: The unique blended financing partnership built on the philosophy to 'leverage private finance for the public good,' the Sustainable India Finance Facility (SIFF), under the leadership of the United Nations Environment Programme (UNEP), with participation from BNP Paribas and the World Agroforestry Centre, offers key lessons. Similar experiments with Farmer Field Schools, BioFarms, Integrated Farming Systems, and watershed development that facilitate bio-based landscape changes (with donors (like BMZ - through GIZ-India) also offer capacity-building lessons. Crucial macroeconomic policy lessons and appropriate instruments come from transnational agrarian and environmental movements. 

Build small-holder targeted financing capabilities: Though some impact investors and new-age lenders promote the idea of structured financing through private-public partnerships to address the specific agricultural challenges, there is little capacity to support smallholders who cannot bear the short-term risks, to design and fund the development of local food chains with decentralized processing, transport, and market infrastructure. Hence, a long-term structured financing arrangement that accepts initial loss in expectation of higher realization later on is considered an ideal solution. Such low-cost, longer-term funding necessitates setting up mechanisms like a consortium of philanthropic, commercial, and soft capital providers. 

Address regulatory and policy challenges: While NABARD has developed a list of indicators for financing agroecological/natural farming (the JIVA project, 2021), the policy void and regulatory challenges regarding supporting small-scale, regionally distributed financial players remain. As per the regulatory framework, all development-centric funds must go through the apex development finance institutions. Despite significant human and material capital capabilities and pioneering work in natural resource management and renewable energy (say, NABARD, Syndicate Bank/ Canara Bank since the early 1980s), PDBs need more agility and are bound by cumbersome processes. 

There is an urgent need for institutional reform of PDBs in India along agroecological principles, with a decentralized database, indicators of sustainability transitions, and healthy regard for local food cultures and agroecological knowledge vested with communities. 

Reference: 

HLPE 2019. Agroecological and other innovative approaches for sustainable agriculture and food systems that enhance food security and nutrition, A report by the High-Level Panel of Experts on Food Security and Nutrition of the Committee on World Food Security, Rome.