Opening Statement by Michael Hailu, Director of CTA

For immediate release
Brussels, 07 November 2016

Opening statement delivered by Michael Hailu, Director of CTA, at the Blending4Ag conference, on Monday 7 November. The Blending4Ag conference is taking place in Brussels and is focusing on the strategic use of international and national development finance and philanthropic funds to mobilise private capital flows into agricultural value chains in developing countries.

"Distinguished participants, colleagues, friends, ladies and gentlemen,

I am delighted to welcome you all to this exciting conference on Blending for Agriculture.

In the last few years, agriculture has been getting well-deserved attention from policy makers and investors, particularly in Africa. Indeed agriculture is central to achieving many of the Sustainable Development Goals, in particular SDG2 - to end hunger, achieve food security and improved nutrition, and promote sustainable agriculture.

FAO has estimated that food production has to increase by 60 % by 2050 from 2006 levels to meet the demand from population growth, urbanization and changing food preferences. Farmers will have to meet this demand largely from existing farmland and in the face of dramatic climate change.

On the other hand, the growth in demand for food opens up tremendous opportunities for smallholder farmers, who produce up to 80% of the food in developing countries, to increase their incomes and improve their livelihoods.

One of the major constraints developing country farmers face is the lack of affordable finance. This is particularly acute in short-distance value chains – in which farmers typically produce food grains for cities in their own or neighbouring countries. This is significant because in these short-distance chains lies the greatest potential for poverty alleviation, both because these crops tend to be more widely grown by poor farmers, and because they constitute a large part of the household budgets of the poor.

A study by Dalberg Advisors showed that less than a quarter of the financing need of smallholder farmers in developing countries is currently met, leaving an annual financing gap of more than US$ 150 billion. Another report concluded that the bulk of financing needs (as much as 90%) is in local markets that trade in crops like wheat, maize and cassava. This gap will remain largely unfilled over the next decades unless private financiers increase their appetite for lending to smallholder producers.

Public finance includes funds from governments, international organizations and private foundations. According to the Dalberg Advisors report I mentioned earlier, public finance provides US$ 9 billion out of the total 14 billion a year that formal financial institutions lend to smallholders. It is simply not realistic to expect that public funds would be increased from US$ 9 billion to 150 billion to fill the smallholder financing gap. Public financiers must leverage their funding to crowd in private capital.

That is what this conference is all about. Private sector investors – from family funds to private equity ventures, pension funds, insurance companies and sovereign wealth funds – have assets under management amounting to trillions of dollars. Many of these investors are willing to accept a lower return, at least on part of their funds, as long as they make a positive impact on development or the environment.

They are also willing to put part of their funds in otherwise risky environments if they can team up with the right public-sector partners that help them mitigate their risks. Agriculture offers the highest opportunity in development impact. According to FAO, specifically in sub-Saharan Africa growth in the agriculture sector is 11 times as effective at reducing poverty as growth in other sectors.

Some 2,250 years ago, Archimedes said "give me a lever long enough and a fulcrum on which to place it, and I shall move the world". If public financiers diligently explore how best to position their funding, they can provide the fulcrum on which to lever private finance.

The International Finance Corporation recently reported that over the past six years, using blended finance techniques they turned US$ 385 million of their own funding into more than US$ 4 billion. And they did so with projects across the board--from agriculture to SMEs and climate change.

Once public financiers achieve such leverage through targeted financing practices in agriculture, their relatively small funding will start making a significant impact towards achieving the SDGs. Indeed, the potential of blended finance was deemed high enough to merit seven mentions in the Addis Ababa Action Agenda of the Third International Conference on Financing for Development.

The Blending4Ag conference is premised on the idea that any kind of public finance – whether it's from international organizations, governments or foundations – can be structured to achieve leverage. Certainly for agricultural finance, it makes a lot of sense to cover all kinds of public financing sources. We've thus made an effort to incorporate key public financial institutions from developing countries, in particular Africa, into the conference programme.

The experience of western DFIs and foundations in developing effective blending structures will be certainly helpful to African Central Bankers and others in formulating effective agricultural lending facilities. Active collaboration among international and national financiers, guarantee agencies, value chain actors and technical advisors can make it possible to go to scale in bringing international funds to smallholder producers.

This conference is not about the concept of blended finance or whether it's useful or not. We believe that we've crossed that bridge, and the discussion should now focus on how to achieve the greatest possible leverage for public finance in transforming smallholder agriculture in developing countries.

The conference programme reflects this practical angle. We'll hear from a number of the largest new financing facilities, including the European Commission's AgriFI Initiative--how they are rolling out blended finance schemes in agriculture. A number of sessions will discuss finance for climate smart agriculture. We know that many private sector financiers are keen to support it, and together, we must now engineer ways for this money to reach smallholder farmers.

The 1 billion US$ Tropical Landscape Finance Facility, presented this morning by Tony Simons from the World Agroforetsry Centre, shows that this is feasible. And the conference will have a number of hands-on sessions on how such financing schemes can be designed and implemented – hopefully resulting in some concepts and new partnerships that can be converted into concrete projects after this conference.

For smallholder farmers to be good borrowers, they first have to be good farmers. Financiers often have to collaborate with technical agencies to help farmers improve their productivity and profitability. We'll be discussing how such collaboration can be made most beneficial.

We'll be discussing national schemes and how they can be linked to international ones. We'll have a session on venture capital funds, which look at risk in a very different way from other financiers and can thus play an important role in certain kinds of blended financing. We hope that you'll see scope for replicating and scaling up the use of such funds.

Successful blended finance needs careful structuring, with all risks identified and distributed properly to the parties best able to carry them. Weather insurance is often necessary to unlock a financing opportunity – we'll be discussing the state of the market.

Interest rates in many countries are much higher than they are for hard currencies in international markets. Wouldn't it be great if developing country farmers and agripreneurs got access to such cheap international funds? We will review the facilities out there that could make this possible.

The conference has brought together an impressive group of participants, and we thank our partners, in particular Convergence, OECD, the Initiative for Smallholder Finance, the African Rural and Agricultural Credit Association (AFRACA) and the Climate Bond Initiative for helping us to make this possible.

Finally, many of you are decision-makers, and we hope that this conference will make it possible for you to initiate and roll out new, better-leveraged facilities that benefit large numbers of smallholders and SMEs, particularly in Africa.

At CTA, we are keen to assist follow-ups, including by continuing to facilitate, in collaboration with others active in this domain, the exchange of experience in blended finance for agriculture. We will also continue documenting best practices on this topic and bringing together key stakeholders to learn from each other, collaborate and act.

I wish you all a fruitful conference."

[Ends]

For more information, visit:

Blending4Ag website:
http://blending4ag.org

CTA Blending4Ag web pages:
http://www.cta.int/en/news/blending4ag-conference.html 

Contact:
Stéphane Gambier, Senior Programme Coordinator, Communications (CTA)
gambier@cta.int