Building resilient food systems and value chains through financial services

African countries are among the most vulnerable to climate change. Adaptation in these nations at the regional, national, and local level it is therefore a pressing priority. However, adaptation finance makes up only five percent of funds flowing to climate change. The African Development Bank aims to close this gap by promoting resilience and adaptive capacities and, at the Katowice U.N. climate talks, promoted an Adaptation Day at its pavilion earlier this week. Over the course of this day, the Overseas Development Institute (ODI) and the Government of Senegal, along with ENDA Energie organized a side-event on the role of financial services in building resilient food systems and value chains.

The event was supported by the Building Resilience and Adaptation to Climate Extremes and Disasters (BRACED) Programme, which has a knowledge management component, led by ODI, focused on generating evidence and identifying best practices. BRACED has a strong presence in East Africa and in the Sahel region which was recently affected by widespread pasture and water deficits as a result of the poor performance of the 2017 rainy season. Identifying effective ways to improve access to markets and credit for food-producing small and medium enterprises is a crucial need for countries across the region and the continent so as to help farmers and herders prepare for and cope with weather shocks and other natural hazards.

The BRACED programme works on this by helping producers, traders, processors, and other actors along key agricultural and pastoral value chains manage climate-related risks. It also helps develop and increase their access to financial products, such as credit and insurance, that are tailored to the local socio-economic and environmental contexts. The event showcased the different experiences of BRACED implementing partners, along with those of international organisations, national policymakers, and private financial service providers. The FAO joined the event to provide the framing to think about the resilience of food systems and value chains. Sylvie Wabbes Candotti, an FAO officer, highlighted that financial inclusion is critical for strengthening coping mechanisms, decreasing vulnerability to climate shocks and stresses and diversifying agricultural livelihoods. She also stressed the importance of designing development finance and approaches that are climate-risk sensitive and risk-informed, and pointed out the value of social protection and community-based mechanisms, such as the Caisses de Résilience, for supporting the resilience of farmer and pastoralist communities.

Different examples from Senegal were presented to highlight the challenges and opportunities that come with supporting climate adaptation for the national government and public-private partnerships. Madeleine Diouf Sarr, head of the climate change unit at Senegal’s Ministry of Environment and Sustainable Development emphasized how the country is committed to promoting resilience in critical value chains through financial services and by supporting insurance instruments, such as the African Risk Capacity (ARC)’s risk pool, which can be taken out by governments to finance crisis response activities. However, Dame Sow, from the Senegal’s Ministry of Livestock, warned against the limitations of the current instruments by explaining how the livestock sector was severely affected by the 2017-2018 drought, but did not receive support from ARC as the instrument is calibrated against groundnut, which upheld satisfactory performance throughout the season. Mouhamadou Moustapha Fall, from the National Agricultural Insurance Company (CNAAS) talked about the challenges the insurance industry faces in trying to move beyond pilot programs and reaching scale with new products. The audience and panellists also discussed the current lack of, but potential for, greater interaction between risk financing instruments directed at governments, such as ARC, and microinsurance products such as those provisioned by CNAAS, when it comes to data, indices, contingency planning and targeting.

Three key messages emerged from the event. First, financial services for actors along the value chain need to be tailored to the local context and combined with interventions supporting access to markets and sustainable livelihood practices. Second, effective use of financial services should be facilitated by investing on building technical capacities and product understanding for small producers, processors, and traders. Third, public-private partnerships can help in building the resilience of value chains and food systems. As in the case of CNAAS, they can enhance access to markets, contribute to a conducive policy environment, and leverage aid with private sector investments. The key here is to find mechanisms that are profitable for the private sector, but at the same time sustainable to support resilience in the long run.

Margherita Calderone is a research fellow at the Overseas Development Institute, and Lena Weingärtner is a senior research officer at the Overseas Development Institute.