The Ukraine crisis has triggered spikes in food and fertiliser prices, increasing poverty and hunger worldwide. But with a significant financing gap in investments aimed at supporting food systems, could unlocking new markets prove a fruitful way of mitigating food insecurity? Jenny Messenger reports on the opportunities and limits for private sector investments in sustainable agriculture.


When Russia began its full-scale invasion of Ukraine on February 24 last year, countries at risk of food insecurity – already contending with the effects of the pandemic, climate change, economic shocks, pests and disease – were no longer able to rely on two of the biggest exporters of wheat, barley and fertilisers. While global hunger was on the rise before the war, the situation is now undoubtedly worse. According to a forecast from the Food and Agricultural Organization (FAO) and the World Food Programme, acute food insecurity is likely to further deteriorate in 19 countries by early 2023, affecting up to 205 million people.

John Hammond, professor of crop science at the University of Reading, tells GTR that as fertiliser prices are nearly 300% higher than they were pre-pandemic, “farmers are having to make hard decisions about what to do around next year’s crop”, deciding whether to switch to a crop less reliant on nitrogen fertilisers, reduce fertiliser inputs or fallow the land for a year.

“Some of the costs were protected this year because of fertiliser purchases prior to the situation in Ukraine, which is going to be passed on to subsequent crops. There’s still that inflationary and supply pressure going forward that we’ve not seen the full extent of yet,” he says.

Despite the ‘Grain from Ukraine’ programme, an initiative unveiled in November to fund more shipments of wheat and corn to low-income countries, the roots of food insecurity run too deep to be solved by attempts to make sure exports reach those who need them most immediately. Current agricultural practices are one of the biggest drivers of climate change: according to research published in the journal Nature Food, a third of global greenhouse gas emissions are caused by food systems.

Agriculture also damages biodiversity – necessary for disease resistance in plants and animals, pollination and soil fertility – through the heavy use of fertilisers, pesticides, energy and water, alongside farming practices that degrade the soil. A Chatham House paper from February 2021, assessing the impact of food systems on biodiversity loss, concludes that “over the past 50 years, the conversion of natural ecosystems for crop production or pasture has been the principal cause of habitat loss, in turn reducing biodiversity”.

Solving the problem involves redesigning agricultural systems to make them more regenerative and preserving land to foster biodiversity, the Chatham House report says. Yet a significant financing gap exists in the pursuit of this goal – the International Institute for Sustainable Development estimates that an annual investment of US$140bn is needed to end poverty and hunger by 2030, one of the UN’s 17 Sustainable Development Goals adopted in 2015.


Investment opportunities?

According to an October 2022 report published by Imperial College Business School, the private sector is missing an opportunity to invest far more heavily in the agricultural sector. At the moment, though, means of investing in sustainable agriculture remain relatively limited. While mechanisms that target climate change like carbon credits are more advanced, the opportunities for nature finance are lagging behind, largely because it is more difficult to put a price on something like biodiversity, which can have far-reaching benefits – or public goods that are valuable to everyone, including those who might benefit without paying for them.

One of the report’s case studies is the Queensland government’s Land Restoration Fund, whereby landowners alter their land management practices and receive carbon offset credits in return, which can then be sold to corporations or the Australian government. The investment opportunity is not entirely clear, however – the report says that investors are generally the landowners themselves, though it adds there is scope for outside investors to inject private equity funds into a farming cooperative.

While bonds and equity investments in sectors such as sustainable timber produce well-developed revenue streams, the report notes that “investments in biodiversity or ecosystem services are at an immature stage – undergoing research and development and involving small business start-ups – and the instruments used to finance them are also small scale and likely to change”.

Adonai Herrera-Martinez, director for environment and sustainability at the European Bank for Reconstruction and Development (EBRD), clarifies the difference between climate and biodiversity markets. “Climate action is focused on mitigating and adapting to climate change, whereas what we now call the biodiversity finance, or alternatively the nature-positive agenda, is mostly focused on addressing the loss of biodiversity and the recovery of ecosystems as a primary objective,” he tells GTR.

He points out the crucial sticking point: investors need returns. “When we’re dealing with energy projects, the market and the revenue streams are there: you get paid for a commodity. But that does not exist for nature,” he says, adding “all multilateral development banks and financial institutions are being challenged by the fact that there are no revenue streams in investments associated with nature”.

Herrera-Martinez explains that carbon markets try “to effectively allocate economic resources, internalise environmental or climate externalities, allocate those financial resources to people who could help resolve the issue, and then support additional projects”, a move that might be mirrored in the case of biodiversity markets.

“That would require the equivalent of a cap-and-trade system for nature to make sure that all our products are nature-positive,” he adds, referring to emissions trading schemes that limit company emissions by allowing them a certain level of credits to cover their polluting activities, with the surplus able to be sold on.

Such initiatives have their detractors. Critics question how effective they are in practice, and highlight the risk of fraud and exploitation due to weak regulation, lack of oversight and the substantial sums involved. Figures published by non-profit Forest Trends valued the global carbon market at over US$1bn in 2021. At last year’s Cop27 climate summit, the International Organization of Securities Commissions called for tighter regulation of carbon markets, with chairman Jean Paul Servais saying “they have so far fallen short of their objectives”, lacking “appropriate levels of integrity and, transparency, and liquidity”.

Steve Suppan, senior policy analyst at the Minneapolis-headquartered Institute for Agriculture and Trade Policy, also draws attention to the work of the Integrity Council for the Voluntary Carbon Market, an independent organisation that aims, in his view, to “improve the notoriously poor quality of emissions offset credits” in accounting and in environmental and social integrity.


Public-private collaboration

Until biodiversity markets are sufficiently mature, large-scale private investment will likely look to blended finance for encouragement. As Imperial’s Can Markets Save Nature? report emphasises, “markets need an exchange mechanism, a demand signal, enforceable property rights, and deals of a certain size to make up for transaction costs” – aspects that are generally lacking in sustainable agriculture projects, but that might be bolstered by structured investments using public or philanthropic capital.

The report adds that public support will probably be required to tempt institutional investors to take a chance on untested markets, as well as to prompt nature investments in emerging economies, which carry a “perceived added risk”.

Investors are moving further in that direction, however. At Cop27, the FAO pledged to create a roadmap “aligning food, finance and philanthropy” in time for the following year’s summit in response to calls for clarity on how the agricultural and forestry sector could achieve the aims of the Paris Agreement by 2050.

In June last year, a coalition of investors worth a total of US$18tn – led by investor and philanthropist Jeremy Coller via his Farm Animal Investment Risk and Return initiative – wrote an open letter to the FAO, urging it to set milestones for the agriculture industry to reduce greenhouse gas emissions and help investors align portfolios “to minimise environmental impacts and exposure to climate and biodiversity risk”.

Steve Waygood, chief responsible investment officer at Aviva Investors and one of the letter’s signatories, says that “without a map to get to net zero, the food sector will never get there”, adding that the roadmap “will help investors to better determine where capital should flow in order to finance those businesses and sectors best placed to deliver both food security and the low-carbon transition”.

These investments will add to existing initiatives carried out by multilateral development banks, such as those implemented by the EBRD. “Food security is an area where we’ve been working since the inception of the bank across all food systems, from primary agriculture to retail, with a strong focus also on introducing market mechanisms to facilitate trade and efficiency in the system,” says Gianpiero Nacci, the institution’s director in sustainable business and infrastructure.

“We established a large framework to provide working capital and support liquidity to agricultural companies in Ukraine in order to allow them to continue operations despite the disruption caused by the Russian invasion. It’s about buying the inputs that are needed for operations, but also supporting the link with regional and global markets,” he tells GTR.


Wheat upgrades

Another potential avenue for investment is collaboration between the private sector and non-profit organisations. Although wheat, which according to the Mexico-based International Maize and Wheat Improvement Center (CIMMYT) is the preferred staple food of 2.5 billion people, is adaptable and can be grown in very different geographies, climate change is putting crops under pressure at both ends of the season, making research and development a vital part of the response to food insecurity.

Director of CIMMYT’s global wheat programme Alison Bentley says that while overseas development assistance and national governments provide significant support to the organisation, private finance does play a role.

“We have some really nice collaborations with the private sector, which allow us to access technology. The private sector, in the space of plant genetics and plant breeding, has pioneered some methodologies and technologies,” she tells GTR.

While these businesses typically operate in North America and Northern Europe, they see the potential of bringing this technology to farmers in the global south, where Bentley says 50% of the world’s wheat is grown.

“We have many partnerships where we access their technology, with an agreement on how we enable farmers to have access to that technology without having to pay the same rates as you would if you were a North American farmer,” she says, adding that CIMMYT’s aim is to “translate the newest science and make it available in improved varieties, and make those available in Latin America, South Asia and Africa, to improve the productivity and the resilience of wheat production”.

In the immediate aftermath of Russia’s invasion of Ukraine, Bentley also explains that work began in East Africa, where grain siloes were empty and production had previously declined due to the availability of inexpensive imports.

“It was one of the hardest-hit regions because it has very low wheat production and very high dependence on imports of wheat from Russia and Ukraine,” she says. “Through the ability to buy really cheap wheat, we’ve kind of disincentivised farmers to grow it because they knew they weren’t going to get the best price for it.”

“The priority for us is to future-proof the system, and to advocate for the fact that it’s not just a biological question. We need to have a holistic approach to say, can we stabilise the market so the farmers know they’re going to get a secure income?” she says.

Private finance clearly has a role to play in supporting these initiatives as global organisations try and resolve food insecurity, a claim borne out by CIMMYT’s own history. Initially a 1940s pilot programme designed to increase farm productivity, with support from the Mexican government and the Rockefeller Foundation, CIMMYT went on to develop disease-resistant varieties of wheat under the leadership of agronomist Norman Borlaug.

Popularly known as ‘the man who saved a billion lives’, Borlaug won the Nobel Peace Prize for contributing to the so-called ‘green revolution’ – a wave of improved farming practices and wheat varieties instated across Mexico, India and Pakistan during the 1960s and 1970s that radically reduced food insecurity.