Funding gaps a threat to food supplies

Posted by Josette Dunn on 6th December 2010

Floods and droughts in major grain producing countries this year have triggered a sharp increase in food prices, highlighting the vulnerability of the world’s food production systems and agricultural markets. Such developments are likely to reoccur more frequently and with greater intensity in the decades to come due to climate change.

Yet while there are many examples of how the agricultural sector can both become more resilient to climate change and reduce its own sizeable carbon emissions, mechanisms for funding such efforts are lacking.

World on a Plate

“Available financing, both current and projected, are substantially insufficient to meet the climate change and food security challenges faced by the agriculture sector,” said Peter Holmgren, Director of FAO’s Climate, Energy and Tenure Division.

This is one of the key messages that FAO is stressing during the annual meeting of the UN Climate Change Conference in Cancun, Mexico (29 Nov. – 10 Dec.)

Huge funding gaps

Even without considering the additional resources that will be necessary to prepare agriculture for climate change, resources for agricultural development are at a near-historic low.

Government spending on agriculture in developing countries is similarly low, amounting in agriculture-based economies to just around four percent of agricultural GDP – even though agriculture accounts for 29 percent of their overall GDP.

The annual costs of climate change adaptation in developing world agriculture have been estimated by the World Bank at $2.5-2.6 billion per year between 2010 and 2050, while the UNFCCC projects that additional investment and financial flows needed in developing countries for mitigation in the agricultural sector will run $14 billion per year by 2030.

Fast track to where?

At last year’s COP meeting, in Copenhagen, developed countries committed, via a nonbinding accord, to provide $30 billion in “fast-start” financing to be divided between efforts aimed at helping the world cope with climate change’s impacts and efforts to reduce carbon emissions in all sectors. So far roughly $28 billion has been promised, around $2 billion has been deposited into dedicated climate funds, and $700 million actually has been disbursed.

While various mechanisms have been established to mobilize resources for climate change mitigation (reducing emissions) and adaptation (coping with negative impacts) they for the most part exclude agriculture.

Created under the Kyoto Protocol, the Clean Development Mechanism (CDM) allows developed countries to offset their carbon emissions by investing in renewable energy, energy efficiency, and fuel switching projects in developing countries.

However, projects that sequester carbon in the soils are not eligible for CDM support – and soil carbon sequestration represents 89% of agriculture’s mitigation potential

Innovation, leveraging are needed

“If agriculture is going to feed 9 billion people by the year 2050 and live up to its potential to sequester vast amounts of atmospheric carbon, both higher levels of financing and more innovative approaches will be required,” said Holmgren.

Possibilities include a percentage of GNP from developed countries, levies on international transport emissions or financial transactions, carbon taxes, issuing bonds, auctioning of allowances within cap-and-trade schemes and an eventual global carbon market.

If such a market were established, one major source of possible support for climate change adaptation in developing world agriculture will be climate change mitigation in developing world agriculture. According to the IPCC, the sale of carbon offsets in agriculture in non-OECD countries could potentially generate on the order of $30 billion a year, which could be used to leverage additional financing on significant scale.

Reducing Emissions from Deforestation and Forest Degradation (REDD) in developing countries has been proposed within future financing mechanisms and it is predicted that financial flows for greenhouse gas emission reductions from REDD could reach up to $30 billion a year. FAO is assisting countries to prepare their REDD strategies through the United Nations Collaborative Programme on REDD in developing countries, UN-REDD.

Clearly, public resources alone are not going to be enough and will need to be leveraged or combined with other sources of funding. FAO has facilitated a public-private partnership in the Tibetan highlands of Qinghai that seeks to generate livestock productivity increases and removal of greenhouse gases through the restoration of rangelands. Eventually, carbon finance will be used to compensate farmers from temporary income losses that result when they take land out of production or reduce their herd size.

Developing countries should establish national policies that encourage private investment in mitigation and adaptation, and governments in food deficit countries should increase the share of agriculture in their national budgets from their current levels to at least 10 percent, according to FAO.