Why are sustainable food systems central to climate resilience and inclusive growth in emerging markets?
A sustainable food system is central to delivering food security, nutrition, climate resilience, and rural livelihoods. This holds true particularly in emerging markets across Africa, Asia, and Latin America where the impacts of climate change are already undermining agricultural productivity and food security. Climate hazards such as droughts, heatwaves, floods, and changing precipitation patterns are reducing crop yields and increasing volatility in food production. For example, climate change has already reduced yields of staple crops in many regions, and in the absence of ambitious climate action, global agricultural yields could decline by up to 30% by 2050 due to climate impacts alone.
Asia and Africa dominate global agrifood employment, with 830 million and 300 million people respectively. China and India alone account for nearly 60% of Asia’s total, and together these two continents represent 88% of the world’s agrifood workforce. Smallholder farms, which make up about 80% of all farms in low- and lower-middle-income countries, are particularly vulnerable, as they are concentrated in emerging markets such as East Asia and the Pacific, South Asia, and Sub-Saharan Africa. These systems are also under growing stress from land degradation and biodiversity loss, compounding climate risks. For example, extreme climate conditions have been linked to declines in staple crop yields in about 76% of cases studied in Africa. Around 757 million people faced hunger in 2023, nearly 152 million more than in 2019. The urgency of addressing these intersecting challenges is reflected in global commitments such as the United Nations’ Sustainable Development Goal 2 (Zero Hunger), yet progress is moving in the opposite direction. Transforming food systems is therefore not only a development priority but also a cornerstone of climate adaptation, resilience-building, and inclusive growth in emerging economies.
Despite this central role, food systems remain chronically underfunded relative to their climate, economic, and ecological importance. Globally, agrifood systems are responsible for nearly one-third of greenhouse gas emissions, about 16 billion tonnes of carbon dioxide in 2020, an increase of 9% since 2000. They are the largest source of emissions in many regions, especially in Asia, Oceania, and the Americas. They are also a major driver of environmental stress, contributing to pressure on 86% of species at risk of extinction and accounting for around 70% of freshwater withdrawals. Yet, food systems receive only a small fraction of overall climate and development finance. This mismatch between impact, importance, and investment highlights a critical financing gap. This makes the case for urgently scaling and reorienting capital flows towards sustainable, resilient, and inclusive food systems in emerging markets.
Flows to agrifood systems increased from US $28.5 billion in 2019/20 to US $94.9 billion in 2021/22, marking a rise in finance. While this growth is encouraging, it does not signal that the sector is on track. International Food Policy Research Institute (IFPRI) estimates that transforming food systems to achieve climate mitigation and adaptation targets and to meet other Sustainable Development Goals would require additional financial resources up to US $350 billion per year by 2030. While sustainable food systems can boost productivity, strengthen climate resilience, and raise rural incomes, realising these gains will require mobilising finance at much greater scale. In emerging markets, however, food system financing remains fragmented, insufficient, and poorly aligned with on-the-ground needs.
Why is financing for sustainable food systems in emerging markets constrained?
The constraints mentioned below limit both the volume and effectiveness of capital flows, particularly for smallholders and last-mile agribusinesses. They reflect a combination of structural, financial, and institutional barriers that continue to impede the transition to sustainable and resilient food systems.
- Limited access to affordable agricultural finance
Access to finance remains the most binding constraint for smallholder farmers, and small and medium agribusinesses. As noted by FAO, formal lenders face high transaction costs, lack of usable collateral, exposure to price volatility, and weather-related risks, leading banks to tighten lending standards and raise borrowing costs. As a result, smallholders rely heavily on informal sources such as traders and moneylenders, often at prohibitively expensive interest rates. This persistent financing gap constrains investment in productivity, resilience, and sustainability, while women farmers and entrepreneurs face even more acute barriers. - Dominance of public finance and weak private capital mobilisation
Food system finance in emerging markets remains heavily dependent on governments, donors, and Multilateral Development Banks (MDBs), with limited participation from private capital. While public finance plays a critical catalytic role, it has not yet succeeded in crowding in private investment at scale. Private investors continue to perceive agricultural and food system investments as high risk and low-return, especially given long gestation periods and climate exposure. This results in an overreliance on scarce public resources and a structural underutilisation of private capital pools. - Measurement, monitoring and data gaps
The lack of robust and standardised systems to measure, monitor, and verify sustainability outcomes remains a major deterrent to investment. This challenge is compounded by the inherent variability of agricultural systems across geographies, seasons, and climate conditions, which increases uncertainty and weakens investor confidence. In addition, weak tracking and transparency systems limit the ability of local financial institutions to monitor adaptation finance flows and assess their real-world impacts, with persistent data gaps continuing to impede effective last-mile tracking, as highlighted in the Triple Gap report.
- Foreign exchange mismatch and currency risk
Emerging market borrowers are exposed to significant currency risks. This happens because most international climate and development finance is denominated in hard currencies (USD, EUR), while farm incomes are earned in local currencies. When exchange rates depreciate, as is common during macroeconomic stress, the real debt burden on borrowers increases sharply, undermining repayment capacity and increasing default risk. This foreign exchange mismatch raises the cost of capital, discourages international private investors, and is particularly damaging for smallholders and local agribusinesses that lack any natural hedging mechanisms - Structural constraints in local climate finance delivery
Local financial institutions in emerging markets face multiple constraints in effectively channelling climate finance. The currency risk as discussed above, is one of the risks. This challenge is compounded by capacity and institutional gaps, including limited expertise in climate risk assessment and impact monitoring. Moreover, short-term financing horizons, complex fund access requirements, and unstable regulatory environments further add to the issue
Financing pathways to scale investment in sustainable food systems
Overcoming these financing barriers will require mechanisms that reduce investor risk and unlock new sources of capital. Blended finance and market-based climate revenue streams offer practical pathways to mobilise private investment while aligning financial flows with climate and development outcomes in emerging markets.
- Blended finance
Blended finance offers a credible way to de-risk agrifood systems and mobilise private investment, with Aceli Africa serving as a replicable model. Through grant-funded instruments, it reduces lending risks for agrifood Small and Medium Enterprises (SMEs) by providing 5% portfolio-level first-loss coverage, origination incentives to offset the high costs of small loans (US $15,000–5,00,000), and impact bonuses linked to inclusion, food security, and climate outcomes. Commercial banks, non-bank financial institutions, and impact lenders originate the loans, supported by local service providers that deliver technical assistance to SMEs and capacity building for lenders. Together, this model has mobilised US $300 million across 3,500 loans, supported 5 million smallholder farmers and workers, achieved a 9.4× leverage ratio, and aims to unlock US $1.6 billion in agrifood lending by 2030. Aceli is a demonstration of how blended finance can be an important tool for developing and sustaining local markets.
Another blended finance case study model is the AGRI3 Fund that shows how this shift can be operationalised by using credit enhancements and technical assistance to crowd in private capital. Since its launch in 2020 with a target to mobilise US $1 billion for sustainable food systems in EMDEs, AGRI3 has enabled partnerships such as the US $50 million loan guarantee with HSBC in India in 2024, supporting climate-resilient agriculture and forest protection, highlighting the potential of NbS-focused finance to unlock private investment at scale.
- Voluntary Carbon Markets (VCM) as a catalytic financing channel
VCM though still limited in scale, represents a potentially catalytic solution to the chronic underfinancing of sustainable food systems in emerging markets. Agrifood-related projects, spanning across the supply chain from inputs to consumption and waste management, account for over 10% of VCM projects. However, they contribute only about 1% of issued credits, highlighting significant unrealised financing potential. Nearly two-thirds of these projects remain in the pipeline and credit volumes are expected to triple in the coming years. In 2023, VCM transactions reached approximately US $30 million for agriculture and US $350 million for forestry, with agriculture credits comprising just 5% of total market value but demonstrating steady growth since 2019. There have been improvements in terms of monitoring and reporting using advanced technologies such as AI. With targeted support, the VCM could therefore unlock new private capital flows into sustainable agrifood systems in emerging markets while delivering high-impact climate outcomes.
Conclusion
Financing sustainable food systems in emerging markets is both a development imperative and a climate necessity. Despite their central role in food security, employment, and emissions reduction, agrifood systems remain severely underfinanced. Bridging this gap will require moving beyond incremental increases in public finance toward mechanisms that systematically crowd in private capital at scale. Blended finance and innovative market-based instruments offer a clear pathway forward. Scaling solutions as discussed above, alongside stronger data systems and local financial capacity, will be critical to transforming food systems into engines of resilience, inclusion, and sustainable growth.
Bibliography
How much of the world’s food do smallholders produce? | FAO
Goal 2: Zero Hunger – United Nations Sustainable Development
Landscape-of-Climate-Finance-for-Agrifood-Systems-2025.pdf
How to Address the Gap in Climate-Smart Agricultural Finance
Microsoft Word – GACSA IAG – Climate Finance in AG Strawman Concept
Aceli Africa Case Study – Convergence Resources | Convergence
https://www.fmo.nl/agri3-fund-fgr
AGRI3 and HSBC India announce Partnership Agreement – AGRI3 Fund