The Global Food Security Challenge Has Evolved
Around the world, food insecurity is no longer only about hunger. After decades of progress in increasing caloric availability, we now face a more complex reality:
3.5 billion | 2.8 billion | 30% | 40% |
As a result, global food systems impose US$19 trillion in annual health, social, and environmental costs.
This new reality calls for a shift in how we think about food security — not only how food systems can be transformed, but also how this transformation can be financed to ensure nutritious, affordable, and sustainably produced food reaches those who need it most, especially in low- and middle-income countries (LMICs).
Inclusive finance has a crucial role to play in that transformation.
Re-thinking Agricultural Investments for Food Systems Transformation
Efforts to finance food security have largely centered on investments in certain agricultural value chains (AVCs) —mainly cereals like wheat, maize, and rice— aimed at increasing productivity gains to boost the availability and affordability of calories. While these investments have been critical in addressing acute food insecurity, they have also led to a relative underinvestment in other AVCs of high nutritional value, like fruits, vegetables, pulses, dairy, or poultry.
In this context, the food industry often prefers to use mostly highly caloric ingredients for its processing activities, given that these ingredients are more affordable. Conversely, relatively little investment has been made in highly nutritious ingredients, leading to them being more expensive, less utilized by the food industry, and less affordable, especially for people living in poverty.
It is increasingly apparent that the next frontier for improving food security lies in financing investments that drive sustainable productivity gains among more nutritious AVCs – resulting in more affordable nutritious food that is produced sustainably.
Promoting AgTech innovation in high-impact AVCs
There are already some encouraging developments that are enabling progress:
- New analytical tools are helping to identify the AVCs that contribute the most to improving nutritional and environmental outcomes within each country (IFPRI, FAO). This more targeted focus is important for finance and investment, as bottlenecks and investment requirements vary across value chains.
- The rise in school meal programs is driving demand for nutritious, sustainably produced food. This growing demand can catalyze investments in high-impact AVCs in ways that benefit low-income communities.
However, many of these high-impact AVCs face chronic bottlenecks. They are often loosely structured, face low productivity and efficiency, and rely on rural smallholders and agri-SMEs who are essential to these value chains but often costly and difficult for other actors to reach.
To address these bottlenecks, a wave of agriculture technology (AgTech) innovation is emerging in LMICs, offering local solutions to local problems throughout AVCs – from production and processing to commercialization and distribution. Post-pandemic, these innovations have attracted about $30 billion in investment and span a wide range of technologies, from regenerative agriculture practices that sustainably boost productivity to high-yield seeds, solar-powered cold storage and irrigation, or digital marketplaces that connect value chain actors more efficiently.
AgTech innovations need better direction and adoption
If key AgTech innovations were adopted along those high-impact AVCs in ways that address their chronic bottlenecks, they could improve nutrition and sustainability outcomes at the national level. These AgTechs could drive productivity gains that translate into more affordable nutritious food that is produced sustainably.
Building on the global landscape of AgTechs emerging in LMICs, CGAP developed a theory of change to show how different AgTech categories can contribute to key dimensions of food security when adopted across high-impact AVCs (Figure 1).
CGAP research suggests that the lack of access to adequate financial services is a key cause for the low adoption of AgTechs in general, and in particular for the adoption in high-impact AVCs (Figure 2).
Figure 1: AgTech taxonomy category and its relative incidence on each of the dimensions that define food security.
Figure 2: Type and number of challenges self-reported by AgTech firms of various categories.
Financial innovation can help scale local solutions
In LMICs, current financial services for AVC actors and AgTech firms are often overly risk-averse, too costly, and poorly tailored to agricultural investment needs. These bottlenecks prevent AVC actors from adopting AgTech solutions and increasing their productivity and prevent AgTech firms from making investments that improve the quality and affordability of their products and services.
Tailored financial solutions can unlock productivity increases in those AVCs that have the greatest impact on nutrition, sustainability, and affordability. Bridging this finance gap will require financial innovation in the form of tailored, context-specific, and innovative financial service provision.
The moment is ripe for financial innovation, especially with the significant progress in mainstreaming digital technology in the financial supply chain and the expansion of digital public infrastructure (DPI).
Unlocking Inclusive Finance for Food Systems Transformation
Inclusive finance plays a critical role in promoting food security when aligned with broader food systems transformation efforts. At CGAP, we are currently developing a practical, evidence-based framework to help public and private sector actors channel targeted investments where they are most needed.
We work with financial service providers (FSPs), impact investors and funders, policymakers, and other development and agricultural stakeholders to:
- Prioritize high-impact AVCs that have the greatest potential to improve food security at the local level.
- Identify and support AgTech solutions that address critical bottlenecks—such as low productivity, high food loss, or poor access to markets and inputs.
- Enable financial solutions and mechanisms that foster adoption and better serve local communities.
In our focus countries, CGAP facilitates collective action to help local FSPs and investors deliver tailored retail financial products through:
- Digital Innovation: Encouraging the use of open data frameworks, alternative credit scoring, remote customer and agent onboarding, risk analysis, and digitized processes to enable AgTech adoption in key AVCs.
- Customer-Centric Financial Services: Helping FSPs assess financial needs, partner with agribusinesses and AgTech firms, pilot tailored products, and secure FSP board approval for new offerings.
- Financial Policy Engagement: Working with financial regulators to enable scalable innovations, such as DPI, to reduce service costs in remote areas and encourage risk-based exposure to the agriculture sector.
Photo credit: CGAP/World Bank
Interested in learning more or partnering with us?
CGAP works with over 40 inclusive finance partners, including our global members, to scale insights from successful local innovation aimed at building sustainable and nutritious food systems.
To learn more, contact Emilio Hernandez at ehhernandez@worldbank.org.