Mission Critical: An Urgent Call for Reform and Innovation for Food and Nutrition Financing at FfD4

By Asma Lateef, Chief of Policy and Advocacy Impact, SDG2 Advocacy Hub

Despite some advances, global efforts to reduce hunger and malnutrition have stagnated in recent years, leaving the world off track to achieve SDG Targets 2.1 (ending hunger) and 2.2 (ending malnutrition) by 2030. Current financing levels are insufficient to reverse these trends.

As world leaders gather in Sevilla, Spain, for the Fourth International Conference on Financing for Development (FfD4) at the end of June, the challenges couldn’t be greater and the stakes higher. At a time when the vast majority of low-income countries face unsustainable debt and limited fiscal space to respond to crises and make foundational investments in building resilience, spurring equitable economic growth, and promoting sustainable development, traditional donors are withdrawing in a dramatic fashion.

ODA has been slashed by the world’s richest G7 countries by 28 per cent or $44 billion relative to 2024 levels. There is an urgent need to claw back some of these cuts in the short run, to prevent deaths and to work towards regaining the financing at levels needed to temper the long-term damage. There is also a need to begin building resilient global financing systems to future-proof financing for sustainable development. 

A background paper for the 2024 State of Food Security and Nutrition in the World report discusses some of the financing options and the reforms to the global financing architecture. This blog presents its key findings to inform financing conversations at FfD4 and beyond.

 

Critical Role of Concessional Finance for Vulnerable Countries

Low- and middle-income countries (LMICs), particularly those facing high financial risk and debt distress, require concessional financing (such as grants and low-interest, longer repayment period loans) to sustain and expand food security and nutrition programs, to build resilience to shocks and to transform food systems to improve rural livelihoods and deliver healthy diets sustainably and equitably. These countries often lack access to affordable commercial financing options. SOFI2024 warns that 63% of low and middle-income countries have limited or moderate ability to access financing for food security and nutrition.  

The 21st replenishment of the World Bank’s IDA is a key source of concessional financing that aims to reach 1.9 billion people over the next three years, to 2028. 

Innovative Financing Approaches and Tools

Innovative financing refers to non-traditional sources of financing that can be leveraged by governments or other actors for development goals, encompassing a range of measures, from debt swaps to taxes. The choice of financial instruments depends heavily on a country’s ability to access financing, which is shaped by economic stability, debt levels, and the quality of governance. Different tools are appropriate for different country risk profiles.

1. Low-Hanging Financing Options 

  • Social and ESG Bonds: Social bonds, green bonds, and sustainability-linked bonds can finance projects with social and environmental impacts, but are currently underutilised for food security and nutrition. 

  • Debt-for-Nature Swaps: These have been successful in conservation but are underleveraged for food security and nutrition. There is potential to reimagine these swaps to address hunger and malnutrition. 

  • Health Taxes: Taxes on sugar-sweetened beverages and processed foods provide dual benefits—reducing non-communicable diseases and generating revenue for health and nutrition initiatives. 

  • Special Drawing Rights (SDRs): SDR reallocations by the IMF can be leveraged to support food security, but current disbursements are slow and limited. 

  • Donation Aggregation Mechanisms: Tools such as crowdfunding, lotteries, donor-advised funds, co-funding, giving circles, and brand partnerships are additional sources of financing that could be leveraged in countries with limited financing capacity.
2. Emerging Financing Approaches with Growth Potential

  • Blended Finance: Uses public or philanthropic capital to de-risk private investments. However, leverage ratios are currently low, requiring better structuring and outcome tracking. 

  • Non-Traditional Collateral: Exploring contracts or ecosystem services as collateral can expand lending opportunities, particularly in local currency markets. 

  • Parametric Insurance: Provides quick payouts based on pre-agreed triggers like climate events, supporting resilience for smallholder farmers and agrifood businesses. 

  • Payments for Ecosystem Services (PES): Incentivises environmental stewardship through payments for ecosystem services, including carbon markets, though challenges like greenwashing remain. 

  • Pull Mechanisms and Guaranteed Markets: Advance market commitments can stimulate innovation by providing guaranteed demand for solutions that address food security challenges. 

  • Pay-for-Results Mechanisms: Links financial returns to verified social or environmental outcomes, increasing accountability and impact orientation. 

  • Unlocking Philanthropic Endowments: Encouraging foundations to shift more of their capital into impact investments rather than traditional market returns.

Reimagining the Global Financing Architecture

The global financing architecture in which countries operate is plagued by fragmentation, donor-driven priorities, and a lack of coordination, which hinders the efficiency of financing. Reforms are necessary to streamline governance, enhance data transparency, and establish incentives for coordinated, systemic investments in food security and nutrition.

  1. Tackle Systemic Fragmentation and Power Imbalances

  • The current financing system is fragmented, donor-driven, and misaligned with the priorities of recipient countries. It is characterised by a lack of coordination, shared databases, and alignment on priorities and around a long-term vision. 

  1. Need for Bottom-Up and Locally Led Financing Models

  • Financing must reach smallholder farmers, small and medium-sized agro enterprises (SMAEs), and community organisations through local intermediaries that can manage smaller transactions and understand local contexts. 

  • Greater trust-based philanthropy and locally driven development are required to shift power dynamics and ensure funds address real community needs. 

  1. Changing the Risk Appetite of Investors and Donors

  • Donors and multilateral development banks (MDBs) need to increase their risk tolerance by offering first-loss guarantees and concessional finance to unlock private investment in high-risk markets. 

  • ESG investing must go beyond box-ticking exercises, with clearer standards and accountability for real social and environmental outcomes. 

  1. Maximising Existing Financial Resources

  • Countries can mobilise domestic resources through tax reforms, reducing tax evasion, and repurposing ineffective subsidies toward more impactful programs. 

  • Embedding food security and nutrition objectives in climate, health, and social protection financing can unlock new cross-sectoral funding streams. 

  1. Addressing Institutional and Market Failures

  • National and international competition policies need to promote inclusive agrifood markets, reducing the dominance of large players and supporting SMEs. 

  • Building data-sharing platforms can help financial institutions better assess risk and unlock financing for small and mid-sized agrifood enterprises. 

  1. Fostering a Shift in Financing Paradigms

  • Moving away from short-term, fragmented projects toward systemic, long-term investments with shared goals and clear accountability. 

  • Breaking down sectoral silos and creating multi-sector investment plans that treat food security and nutrition as foundational to broader development outcomes. 

  1. Leveraging Human Capital for Unleashing Innovation in Food and Nutrition Security

  • Increase diversity and gender balance in senior finance positions, bringing new perspectives as well as increasing productivity and innovation.

World Leaders gathered in Brazil to launch the Global Alliance Against Hunger and Poverty

  • Find actionable means of bridging the public and private sector divide – create more forums for coordinated action and cross-hire (ex, hire from the private sector for development finance positions). 

In 2024, the Brazilian-led G20 launched the Global Alliance Against Hunger and Poverty to reduce fragmentation and improve coordination to support countries that have joined the Alliance. FfD4 is a critical opportunity to agree on a financing framework that accelerates progress towards 2030 while tackling the drivers of hunger and malnutrition–unchecked climate change and its impacts, conflict and economic and other shocks, such as the COVID pandemic. With fewer than five years left, this is an urgent matter. 

This blog post is based on work done jointly with Sarah Zoubek, Food FutureZ, for the 2024 SOFI Report.

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