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.