5th July 24

Climate Adaptation and Challenges for Agribusinesses

Globally, the agriculture sector is undergoing significant challenges because of climate change. Across Sub-Saharan Africa, climate change is intensifying food insecurity. In a predominantly agrarian economy characterized by small scale farming that is rain fed, the region is acutely vulnerable to the adverse climatic shocks from erratic weather patterns causing natural disasters such as intense floods, droughts that are frequently occurring and emergence of new pests and diseases. These challenges are not only stifling agricultural productivity, but also the sector’s contribution towards the continent’s Gross domestic product (GDP).

While these challenges persist across the globe, the agriculture sector has played a hand in promoting climate change. According to Food and Agriculture Organization, about 1.4 billion hectares of land is under crop cultivation, an additional 2.5 billion hectares is used for pasture and another 4 billion hectares is forested land – 5% of which is planted forestry. On the cultivated land at least 2 billion metric tons of grains are produced for food and feeds annually, grown with significant quantities of chemicals fertilizers to achieve high productivity. Also, as a major consumer of water, over 200 million hectares of arable land under irrigation represents about 75% of freshwater resources withdrawn from lakes and rivers. Also, the sector emits 13 to 15 billion metric tons of carbon dioxide (CO2) from deforestation an equivalent to 25% in comparison to other activities, 50% methane emissions from agri food systems and biodiversity loss and 75% nitrogen dioxide (N2O) from fertilizer applications. Overall, 30% of global greenhouse gas emissions can be traced to agriculture activities and the rising demand for food from a population nearing 10 billion people will exacerbate the situation.

Agribusinesses in developing countries are disproportionately affected by the climate shocks, despite their little contribution to the emissions in comparison to their large-scale, intensive commercial counterparts in in Europe, the Americas, and China. According to Initiative for Smallholder Finance (ISF), Sub-Saharan Africa and Southeast Asia contribute to only 10% and 12.5% of global food systems emissions.

In the coming years the climate crisis will linger on, affecting more agribusinesses. A multidisciplinary and holistic approach that gravitates towards supporting the agribusiness to align their business models towards the Paris Agreement goals advocates for Climate Smart Agriculture (CSA). World Bank defines CSA as a comprehensive strategy for addressing the interconnected challenges in the agriculture sector focusing on three main goals namely;

  • Increasing agricultural productivity: Aims at improving the quantity and quality of food without straining natural resources, while promoting nutrition security and boost incomes for particularly for low-income households.
  • Adapting and building resilience to climate change: Planting climate-resilient crop varieties, trying out conservation agriculture techniques, agroforestry, precision farming, water management strategies, use of renewable energy sources and improved livestock management
  • Reducing emissions: Minimizing deforestation due to cropland expansion and increase the carbon sequestration of plants and soils. According to McKinsey, investing in reforestation and in sustainable agricultural technologies has the potential to reduce about 20% of total global emissions by 2050.

Along the value chain, agribusiness have different exposure to climate change depending on their role and position in the value chain. Their ability to mitigate and adapt to climate is determined by their levels of awareness and resources. Some are incrementally changing aspects of their model and operations as they experience climate change impacts while others are adjusting their business model in anticipation of the climate change impacts to remain resilient in the face of disruption.

Many of the agribusinesses lack financing to effectively implement climate mitigation and adaptation strategies. Currently, climate financing for agribusinesses outweighs the overall demand by far. Climate Policy Initiative highlights that only 3% (USD 20 million) of the global climate financing was invested in agriculture, land and forestry in 2020. About 1.5% (about USD 10 billion) of the amount is channeled to small-scale agriculture. Of that, only 7% (about USD 700 million) goes to value chain actors (small scale producers and rural community initiatives) funded by public capital providers.

This builds a strong case for climate smart financial inclusion to support more agribusiness with their mitigation adaptation strategies. While different finance channels support agribusinesses with different products, climate finance for agribusinesses is yet to emerge as a conduit of funding their climate related initiatives. The existing public sector funding is primarily focused on big-ticket initiatives providing grants and concessional debt that may not be suitable for the agribusinesses. Agri Frontier is playing a critical role in supporting more agribusinesses to articulate their climate transition strategies and position them for climate financing. By incorporating the climate lens, these agri businesses stand a chance to secure more funding to adapt and actively mitigate climate change.

By Inzillia Sasi, Agribusiness Financial Consultant, Agri Frontier Growth Hub

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