By Gernot Laganda
The term 'financing gap' has a menacing ring to it, especially when mentioned in connection with the world's food systems. As a result of climate change impacts, some developing countries are likely to experience losses of more than 50 percent of their agricultural output by 2080. A World Bank report puts a global price tag on these projections - it estimates that developing countries will need US$70-100 billion annually through 2050 to adapt to the effects of climate change.
To those plugged into international climate change negotiations it is clear that the public sector will not be able to provide this level of financing all by itself - which is why many analysts have started to look to the private sector as the missing piece of the puzzle.
Some experts apply a catchy model that divides the world into 3 layers. On the frontline of climate change there are local communities who bear the brunt of climate change impacts and require urgent assistance. Then there is the public sector with a mandate to provide support to these communities, but mostly failing to do so due to a lack of financial resources, good governance or technical capacities. Finally, there is the private sector which has been largely missing from the debate but has the investment capacity and business models to close the financing gap.
For someone working with smallholder farmers in developing countries, this worldview is slightly confusing as it fails to recognize the diversity of the private sector. It seems that when mentioning the term 'private sector' many people implicitly refer to the Nestle's and Coca Cola's of this world, forgetting that the vast majority of businesses in developing countries are small informal enterprises, from groundnut farmers to sheep herders, seed traders, rice millers and lorry drivers transporting goats to the market.
These small businesses are also part of the private sector, and even if they only have a limited set of assets available to draw on, these enterprises have their own business models, investment options and business risks. Small farmers are managing climate-sensitive resources on a regular basis, yet they barely feature in discussions about market-based adaptation. Very often they get relegated to the status of climate change victims rather than being recognized and empowered as private sector agents of change.
So how can we make smallholder farmers more visible in the current debates about private sector financing for climate change adaptation? At the 8th International Conference for Community-Based Adaptation in Kathmandu, IFAD used the well-known model of value chains to illustrate how the adaptation potential of smallholder farmers can get unlocked.
A typical value chain ranges from input suppliers and small producers to processors, wholesalers, retailers and consumers. In each step along such a chain, climate-related issues can cause losses and damages. At the lower end of the chain, more water may be required for irrigation because soil evaporation is increasing and yields are declining. New diseases may be emerging, reducing yields and eating up more capital for pest management.
Further up the chain, better energy supply may be required to store temperature-sensitive commodities (such as milk or fish) for longer periods of time; flooding events may interrupt transport and storage and consumers may experience price hikes in agricultural commodities.
At the same time, each value chain offers entry points to tackle these risks and keep the chain strong and connected.
Small farmers can play a critical role here. They can adopt inter-cropping and agroforestry techniques to maintain soil quality and reduce erosion. They can diversify crops and livestock to maintain commodity flows even under extreme conditions. Small farmers can install better storage facilities to protect harvests from climate extremes and diseases. They can also crowd-source weather and soil information to make weather forecasts and crop models more accurate.
IFAD's Adaptation for Smallholder Agriculture Programme has a number of examples to share on how the resilience of rural value chains is being strengthened through smallholder farmers.
So when asking how to harness the power of the private sector for climate change adaptation, the response should consider the vital role of smallholder farmers. Their full innovation potential can earn dividends and deliver scale effects in the context of value chains, where a multitude of private sector entities, both formal and informal, provide goods and services to each other.
If a small farmer is empowered with access to commercial lending, weather information, low-cost adaptation technologies and institutional networks, his actions can have a large ripple effect across the value chains he is connected with. What's missing to unlock this potential is often only a small step .
Let's start by realizing that small farmers are small businesses which need access to commercial lending so they can apply adaptation-relevant technologies.