Food security benefits from helping hand
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Food security benefits from helping hand

Stakeholders point out the significance of agriculture finance and how it can address many of the world's challenges now and in the near future

Food security benefits from helping hand

By 2050, the global demand for food will rise by 70%, according to data from the World Bank, as the world's population is expected to reach nine billion people. And in order to meet such a huge demand, at least US$80 billion annual investment will be required.

Now back to Asia. In terms of its regional food systems, food production also needs to increase by 77% by 2050 to feed the rapidly growing number of population. Despite such a challenging demand, it is found that 80% of Asia's food is produced yet by smallholder farmers, compared to only 18% in the United States and 16% in Europe. Also six of the world's climate-related disasters most damaging to agriculture from 2003 to 2013 were in Asia.

Such statistical data projects a challenging picture of how farmers especially those in Asian countries including Thailand are forced to cope with different agricultural struggles. With that said, finance-based solutions for agriculturists — or agriculture finance — is a significant tool for farmers to not just enhance their wealth but also to facilitate the development of food value chains. 

According to the World Bank, such financial solutions for farmers need to come from the private sector for various reasons, including limited public resources, and the need of large-scale mechanisation, climate smart technologies, and better processing and agri-food logistics.

Ernest Tan, Head of Consumer Goods Sector (Sector Solutions Group) at UOB, said finance can be an enabler for a just transition in food and agriculture for a more sustainable food system.

"While food systems are complex, there are opportunities for a just transition in the food and agriculture sector. Financial institutions have the ability to support this transition through collaborating with other stakeholders in the ecosystem," said Tan.

Given the complexity of food supply chains coupled with the urgency to address the needs of food security for the rising population and climate change in the Asean region, a successful transformation of food systems will require participation from all players along the spectrum of the food supply chain. This includes the upstream players such as the growers, to the processors and extend all the way to food service and modern trade for food distribution.

At UOB, there is an implementation of Food and Agribusiness Sustainable Financing Framework which aims to encourage the development of sustainable food supply chains across the region through a streamlined and transparent process. The framework simplifies the identification of green projects which are eligible for sustainable financing across the food and agribusiness value chain.

With increasing calls for  food and agribusiness companies to announce Net Zero or carbon neutrality goals, the framework will guide UOB’s mobilisation of capital for companies to progress towards their ambitions.

However, according to the World Bank, banks and microfinance institutions in most developing countries are nonetheless not well prepared to provide financing in the agriculture sector and currently agricultural loans and investment portfolios are disproportionately low.

Tan echoed the same sentiment. He added that at the moment, the majority of smallholder farmers are lacking access to financing, but at the same time, traditional financing mechanisms and structures are not able to be used for smallholder financing.

"Changes in business models may be required to enable finance structures. Shortening of supply chains, stronger support from off-takers including longer off-take contracts, implicit support for suppliers’ yield enhancement projects, among others is required to enable financing for smallholders. Blended finance mechanisms will also unlock more private capital towards agriculture financing." Tan added.

A report from the Food and Agriculture Organisation of the United Nations (FAO) points out that a vibrant agricultural sector has been the basis for a successful economic transformation in many of today’s developed countries. Investment in agriculture has been slow to keep real food prices low and stimulate overall economic growth.

Importantly, agriculture contributes to hunger reduction — which is one of the world's toughest challenges — and that does not just translate as producing food where needs are most pronounced, but also in creating employment, generating income and supporting rural livelihoods, according to the FAO.

This requires agriculture investments in a number of different areas including investments in sectors strongly linked to agricultural productivity growth, such as rural infrastructure (roads, ports, power, storage and irrigation systems); investments in institutions and the broader enabling environment for farmers (research and extension services, land tenure systems, veterinary and food safety control systems, insurance and risk management); and also non-agricultural investment to bring about positive impacts on human wellbeing, including targeted food safety nets, social programmes and cash transfers to the most needy.

"Agriculture is the main occupation for Thai citizens — approximately 30% of population is employed in the Food and Agribusiness space but it only contributes 8-10% of the country’s GDP, an indication of poverty within this sector. UOB Thailand, with its Food and Agribusiness Framework, aims to partner like-minded corporates in their decarbonisation journey for a just transition economically, socially and environmentally within this vulnerable sector," Tan concluded.

International and institutional pressures to shift to more sustainable practices

  • Asia is slowly catching up in environmental, social and governance (ESG) regulation and policy-making.
  • Most countries especially Asean nations have low Environmental Performance Index (EPI) despite growing concern over ESG.
  • 91% of Asean consumers desire more options in sustainable investment solutions.
  • More than 70% of investors in Asia want more sustainability.
  • Spending on sustainable food in Asia is projected to surpass US$ 2 trillion by 2030.

Data from UOB.

This article is part of a 20-part series that explores what it takes to create and secure a sustainable future. In collaboration with UOB. You can view the whole series here.

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