United Nations Food Systems Summit 2021 Scientific Group https://sc-fss2021.org/ Food Systems Summit Brief Prepared by Research Partners of the Scientific Group for the Food Systems Summit, May 11th, 2021. Financing SGD2 and Ending Hunger by Eugenio Díaz-Bonilla1 Executive Summary Food Systems Transformation and Sustainable Development Among the important tasks of the UNFSS is identifying ways to finance Goals the transformation of the global food system. This report analyses options for The operation of food systems affects financing a specific, but crucial, part of the incomes and employment; poverty and overall food system transformation, food security; diets, health, and nutrition; namely achieving SDG2 (and in particular energy sources and uses; climate change, “zero hunger”) by 2030 and examines environmental sustainability, biodiversity, the role of external finance in this and ecosystems; and even aspects of peace effort. It reviews costs and possible and governance. Hence, the adequate resources and offers ideas for effective functioning of food systems is crucial for mobilization and use of the funds. achieving the Sustainable Development Goals (SDGs) by 2030. However, current food systems are falling short in many of these economic, social, environmental, and political dimensions, and there are 1 The author acknowledges the detailed and very useful comments from Joachim von Braun, Johan Swinnen, and Rob Vos. Those comments significantly improved this document. However, they are not responsible for any of my remaining errors and omissions. 1 mounting calls for their transformation. financial resources, several problems and This will require defining the specific constraints must be addressed, both at the objectives desired and the interventions, aggregate level and at the country level. At costs, incentives, and financing that would the aggregate level, the expansion and lead to their achievement. adjustment of existing sources of funding Financing food systems are required. At the national transformation will involve a variety of (implementation) level, even when financial resources, including funds necessary financial resources can be “internal” to food systems (consumer food effectively mobilized, they will only be expenditures and outlays by agrifood utilized in effective programs to end actors) and “external” funds (international hunger and achieve SDG2 if individual development flows, public budgets, countries are willing and capable of doing banking systems, and capital markets). The so. Therefore, institutional mechanisms are contributions of the different funding needed to support developing countries in sources are likely to vary across different the design, financing, and implementation aspects of the transformation. of national programs, particularly considering the fiscal constraints that have Financing of SDG2 and Ending been created by government responses to the current pandemic. Hunger Mobilizing sufficient resources would require a series of changes for This paper focuses on one critical part of different sources of funds. Some ideas for the overall food system transformation, mobilizing these resources are listed namely achieving SDG2 (and in particular below. “zero hunger”) by 2030. It explores the role of external finance in achieving SDG2—that is, the availability and use of external flows Mobilizing Additional Financial to food systems that can augment the Resources internal flows to help meet the additional costs of reaching SDG2 and ending hunger. For public budgets The paper reviews cost estimates • Implement public expenditure and tax from several studies and compares these reviews to increase and reallocate with potential sources of funding. There agricultural subsidies in developing are significant data limitations for this countries (about 50 billion dollars, exercise. With the available data, estimates without China) and scale up, better suggest that, in aggregate, sufficient target, and redesign social safety nets additional resources are potentially using new and evolving cash transfer available to finance the costs of ending instruments that combine poverty, hunger by 2030 (with “ending hunger” productive, nutritional, environmental, understood as lifting from 870 million to 1 and financial inclusion components billion people from hunger), including (such as the Cash Transfers Plus interventions that also contribute to analyzed by FAO or the evolving nutritional objectives and to mitigation and instruments of social inclusion adaptation to climate change in considered by the World Bank). agriculture. • Increase public expenditures/ However, to move from investments in agriculture (for “potentially available” to actual example, to an Agricultural Orientation mobilization and effective use of those 2 Index [AOI] of 0.5) and social protection institutes (NARIs). This facility can also expenditures (to 2% of GDP). support enhanced environmental • Strengthen revenues in developing lending by the agricultural public banks countries through better tax mentioned above. administration and revision of sales, • Design, guarantee, and launch a “zero income, wealth, and trade taxes, and by hunger bond” (see below). implementing international initiatives to control corruption, tax evasion, and Zero Hunger Bond and a Zero other practices that erode those countries’ tax bases. The use of carbon Hunger Alliance & Fund taxes needs to be considered. To finance food systems transformation to For banking systems end hunger and achieve SDG2, the international development funds • Reactivate the tools of the dedicated to agricultural and rural “developmental central banks,” using development, food and nutrition security, rediscounts to offer credit to small and environmental aspects of food systems farmers, rural populations, and small would need to be increased by about 15 and medium enterprises (SMEs) in food billion dollars annually—this implies value chains (within a consistent doubling current levels. Two billion dollars monetary program that controls of these 15 billion would be used to finance inflation). a Zero Hunger Alliance & Fund (ZHAF), • Revitalize and modernize public designed to support institutionally and development and agricultural banks financially those countries that want to join (with incentives, performance metrics, a global partnership to end hunger. and controls to avoid the problems of Creation of the ZHAF would be the past in this type of institution) to complemented by the development of a increase credit (supported by central “zero hunger bond,” with 2% of the future bank discounts) and offer other issue of Special Drawing Rights (SDRs) of financial services to small farmers, rural 650 billion dollars allocated to offer populations, and SMEs in food systems, guarantees for this new bond. The zero- with particular consideration for hunger bond would help finance the women, vulnerable ethnic minorities, economic, social, and environmental and youth. interventions (possibly a subcategory of • Increase the AOI of agricultural credit “zero hunger green bonds”) needed to to at least 0.5. achieve SDG2 and end hunger. These instruments can be perpetual or very long- For capital markets termed bonds, with an adjustable coupon • Create a project preparation/ and a cap on the maximum interest rate. incubation/acceleration facility to This proposal follows the structure productive opportunities for suggestions of global leaders (including small farmers into investable Pope Francis) and builds on the idea of a opportunities for impact investors, Zero Hunger Fund presented by Action using economic, social, and Track One of the United Nations Food environmentally sound technologies Systems Summit (UNFSS). The ideas with the support of One CGIAR and developed here aim to guide the national agricultural research institutional design with experiences and lessons learned from other initiatives, 3 including the Global Agriculture and Food used for (c), but the most important Security Program (GAFSP), the Poverty use, operationally, will be for (b). Reduction Strategy Papers or Programs • Funding will come from the additional (PRSPs), and GAVI, the Vaccine Alliance. international development funds (as Key lessons from these experiences discussed above, about 2 billion are: (1) the importance of supporting dollars), plus an effort to mobilize country-owned, medium-term, integrated private funds, with the target of programs; (2) the need for clear and obtaining commitments from at least measurable objectives; (3) the strategic 50 companies (from food and other potential of scarce development funds to sectors) to donate about 10 million mobilize a far larger amount of financial dollars each (these companies will be resources, rather than financing individual, recognized as Champions of the Zero isolated projects directly; and (4) the Hunger Alliance). Combined, those benefits of flexible public–private funds would reach 2.5 billion dollars institutions with strong coordination and per year. operational capabilities. • In addition, 2% of the planned Based on these lessons, the allocation of SDRs (or 13 billion dollars) proposed Zero Hunger Alliance & Fund will be used to design, launch, and would have the following characteristics guarantee zero hunger bonds (and zero and objectives: hunger green bonds) issued by • It focuses on a clearly measurable countries with “zero hunger programs” objective: eliminating hunger by 2030. supported by the Alliance. Depending • It is an independent public–private