Global agrifood system faces major financing gap for sustainability ambitions
Global agrifood systems require annual investments of $1.1 trillion over the next five years to transition to more sustainable and resilient food production models. Yet just a mere 5% of that needed amount is currently committed, warns a new report from Bain & Company and the World Economic Forum.
Food systems are vital to the global economy, accounting for around 10% of global GDP and providing over 40% of all jobs worldwide. They also are an important part of the Paris Agreement, with the broader food value chain accounting for more than 30% of global greenhouse gas emissions and agriculture responsible for almost 90% of global deforestation.
“It is therefore essential to transform the production, distribution, and consumption of food towards systems that are more sustainable and resilient,” said Iwona Steclik, a partner at Bain & Company in its London office.
Achieving that mission is impossible without serious funding. The report found that while $1.1 trillion is needed over the next five years to stay within the greenhouse gas emission targets of the Paris Agreement, only 5% of that, approximately $60 billion to $75 billion, is currently being invested. Notably, much of that capital is driven by governments, and where that happens, the funding is concentrated in Europe and North America.
“Those regions most in need of investment – Asia Pacific, Africa and Latin America – remain significantly underfunded,” said Steclik.
Barriers
Common barriers to funding the food system transformation include uncertainty around the financial returns, fragmented nature of food production creating operational challenges, inconsistent impact reporting and limited coordination across the value chain.
To trigger more funding, Bain & Company and the World Economic Forum argue that more push is needed from public and private players, and more “innovative mechanisms” should be introduced to stimulate investment dynamics.
“Significant opportunities exist for commercial capital to fund food systems transformation through ready-to-deploy climate solutions. While investability of these solutions varies, there are opportunities for commercial capital to generate returns now and in the future across the food value chain,” noted Steclik.
Given the diversity of food systems and varying starting points of financial institutions, there is no one-size-fits-all solution. The report focuses on financing the transformation – primarily through lending – while acknowledging the importance of other instruments like insurance.
The proposed financial models fall into three categories: direct farmer financing, lending via corporates, and multi-stakeholder platforms. Together, these models capture the breadth of innovation across markets, commodities, and de-risking strategies – highlighting the diverse pathways to transform food system finance.
“Food systems transformation is not just a climate imperative – it is a commercial opportunity,” she continued. “Investing in food systems also allows financiers to adhere to increasingly stringent portfolio sustainability regulations and to deliver on critical stakeholder commitments.”
“Transforming food systems presents major investment opportunities for commercial capital to unlock new markets, boost revenues, and enhance portfolio resilience. However, scaling such investments requires a customized strategy aligned with an institution’s strengths, portfolio, risk appetite, and sustainability goals”, said Christian Graf, partner at Bain & Company in Munich.
Coordination across the value chain
Initiatives such as Aceli Africa, Project Acorn, McCain’s regenerative agriculture program, and the Innovative Finance for the Amazon, Cerrado and Chaco (IFACC) platform demonstrate how commercial, philanthropic, and government capital can be aligned for scalable impact, according to the report.
“A defining feature of all these models is the need for coordinated action across the entire value chain, including farmers, agrifood companies, retailers, financial institutions, data providers and governments. Each of these models employs de-risking strategies that span from traditional financing tools like guarantees to innovative approaches such as monetizing ecosystem outcomes,” said Derek Baraldi, Head of Sustainable at the World Economic Forum.
