Blended Finance and its impact on food systems

Agricultural production will need to increase by 60% in the years to 2050, to feed a growing world population. But even at the current levels of production, agriculture continues to be among the most powerful drivers of deforestation, soil degradation, biodiversity loss and greenhouse gas emissions. The preservation of forests, soils and biodiversity are, however, essential for food production in the longer term. The path to sustainable food systems requires finance for the agricultural sector, which is generally perceived as a high-risk sector by banks, while transitions in agricultural value chains usually come with even more uncertainties. So, what has been done to change this?

Blended finance is one instrument used to facilitate the financing of these high-risk transitions, combining public and philanthropical funding with commercial money. The AGRI3 Fund is an example of a blended finance vehicle having raised both types of funding. The Fund has been set up by Rabo Partnerships, and now operates independently of the bank. It offers risk participations in loans, which fall beyond the banks’ risk boundaries. As a condition for providing this type of risk mitigation, all of these loans should create measurable positive impact on sustainable agriculture and/or combat deforestation. The first two transactions with risk mitigation from AGRI3 Fund have been sourced by relationship managers within Rabobank, with the support of the Blended Finance team within Rabo Partnerships.

In a first transaction, AGRI3 Fund provided risk mitigation for a loan to a Brazilian farmer for the renovation of almost 7 thousand hectares of degraded pastureland by implementing a new cattle rotation system that allows for an increased number of cattle per hectare. At the same time, over two thousand hectares of forests will be preserved and protected by the farmer. All together this has a direct positive impact on soil and forests in Brazil for a total size comparable to the city of Utrecht.

The impact of renovating degraded land immediately reduces the pressure to open up or deforest new land. It can be seen as an example for other Brazilian farmers that have degraded land and are looking for ways to increase their production. Instead of clearing forests, which is still seen as the economically most viable option, the example of the Brazilian farmer demonstrates to other farmers that more sustainable practices can actually be financed. By showing an alternative, this transaction showcases the different choices farmers can make which can lead to actual food system change in the longer run.