FAO statement at the SDG Investment Fair roundtable at ECOSOC 2023 Financing for Development Forum - 'Powering sustainable food systems by expanding access to innovative financing and export markets for agro-MSMEs'

SDG Investment Fair roundtable discussion

‘Powering sustainable food systems by expanding access to innovative financing
and export markets for agro-MSMEs'

Excellencies, Distinguished Delegates, Ladies and Gentlemen, all protocol observed.

On behalf of the Food and Agriculture Organization of the United Nations I am pleased to participate to this Round Table.

The finance required for investments by agri-MSMEs usually comes from self-financing (including family and friends), informal credit or from larger firms with stronger bargaining positions.

The small size of such enterprises makes transactions costs associated with large scale formal financing prohibitive.

The rise of new intermediaries has the potential to fill the credit vacuum left by the decline, starting in the 1990s, of agricultural credit schemes, which played an important role in developing countries for several decades.

Naturally, interventions that effective address such constraints have been met with interest:  

Mobilisation of private finance for agri-MSMEs requires both fiscal policies (incentives and disincentives), regulations, border measures, credit market interventions as well as innovative public-private partnerships. These are important for improving risk/ return ratios making investments (and businesses) more attractive to funders and financers.

An example comes from the area of green finance where evidence from several sectors has shown that policy and regulatory reforms represent the most important driver for greening the finance and investment market and this is valid for agrifood as well.

Technological innovations, such as digital financial solutions and high-growth agri-techs can provide solutions that again improve risk/ return profiles of actors and reduce costs of outreach by financial services to create commercially viable investment opportunities for private actors, improving access to debt and equity financing.

Experience has also shown that blended finance of various types is important for bringing finance to agri-SMEs. It can play a role in catalysing private sector involvement in agrifood investments thanks to its potential for de-risking and improving risk/return ratios.

To achieve this, the resources from the public sector (including from development financial institutions) are essential to de-risk in early stage of enterprise development and grow the agri-MSMEs into more commercially viable prospects.

The most recent report on “The state of the agri-SME sector – Bridging the finance gap” by ISF Advisors (March 2022), found that subsidy (funding from public and semipublic) and blended finance are essential to the vast majority of current flows of finance in the market for agri-SME.

The role of the public sector and finance is essential in all of the above:

Investing directly in areas where the private sector cannot (specific funding windows, concessional lending). This type of finance is best utilized to reach LDCs, but also to increase long-term financing in agriculture (to match length of transition); as catalytic for business model disruption, pre-seed and early-stage project/ investment as most risk is concentrated in those early stages.

Provision of guarantees and insurance as instruments for managing risks and attracting investments in agrifood systems.

Although right now, the role of the public sector is essential, “in the long term, only local financial institutions have the right capital, proximity to the clients, and cost structure to profitably serve agri-SMEs”.

It is therefore important that, over time, the public sector supports the development of capacities, provides incentives and puts in place financial infrastructure to enable local FIs to profitably serve smaller and less commercially viable agri-MSMEs, in the long-term.

 I conclude here and I wish to reaffirm FAO’s position in continuing working on this critical matter welcoming joint efforts and partnerships to strengthen delivery of impacts achieving the 2030 Agenda for Sustainable Development and the SDGs.

Thank you.