Policy Brief: Private sector and food security
Authors:   Commercial Agriculture for Smallholders and Agribusiness (CASA)
Published: May 2024

The global community is facing escalating acute food insecurity crises, predominantly in Sub- Saharan Africa, due to climate change, the Russia-Ukraine conflict, and COVID-19 shocks. Related impacts on donor government budgets, domestic conflicts and limited fiscal capacity in countries already experiencing acute food insecurity, often on top of high chronic food insecurity levels, further exacerbate the issue. This policy brief examines the potential of private sector financing to alleviate acute food insecurity, through providing a targeted review of key mechanisms for mobilizing private sector investment in priority regions affected by acute food insecurity. These mechanisms include (1) donor-private sector partnerships, (2) private sector industry initiatives, and (3) standalone investors and institutions. They have been analysed through case studies and stakeholder consultations, to offer insights into the potential of private sector investment to address acute food insecurity challenges. The analysis emphasizes the role of private sector commercial investment, including short-term investments in addressing immediate food supply needs and medium- to long-term investments in enhancing the resilience of local food systems, focusing on geographies experiencing Integrated Food Security Phase Classification (IPC) Acute Food Insecurity Phases 2 and 3.1 These are acute food insecurity contexts where the private sector might still perceive a viable investment opportunity and where such investments can contribute to building more resilient food systems. Based on this initial review of mechanisms to mobilize private sector financing, the brief concludes that private sector financing has a role to play in building the resilience of medium-term food systems in order to prevent future emergencies, but that it is not suitable for addressing short-term, urgent financing needs related to acute food insecurity that is at crisis levels or near to them. Private sector investors also need significant de-risking and blended finance in countries that are most affected by acute food insecurity, as well as policy predictability and demonstrated national commitments to domestic and regional food and agriculture strategies, due to the long timeframes of, and risks for, most agricultural investments. This indicates that substantial additional donor and public sector intervention is needed to catalyse private sector investment and to direct it towards investments that will have the biggest impact on food security. Learnings from the case studies and other documents reviewed for this policy brief, along with interviews with a range of sectoral stakeholders, indicate that initiatives to mobilize private sector investment should prioritize two objectives so as to achieve the most food security impact. These will shift countries that are experiencing acute food insecurity away from exporting unprocessed agricultural production and importing consumable food and towards national and regional processing and value addition for local consumption. First, focus efforts on catalysing private investment in local agricultural processing and value addition. The missing value chain link in many acutely food-insecure countries is local processing and value addition capacity, which would also provide local off-take for domestic agricultural production. Many initiatives to date have not focused on this piece of the equation, but rather on access to inputs and smallholder farmer support. Second, leverage blended financing to mobilize local financial institutional lending to processing and value addition SMEs. Local currency lending is often the type of financing that agricultural SMEs most need: SME financing needs are not well-matched with the types of foreign currency investment that development finance institutions (DFIs) and other international investors offer, especially with regard to ticket size and return expectations. This brief also recognizes the limitations of its approach and the complexity of the dynamics around using private sector investment to alleviate acute food insecurity. Therefore, the brief concludes by highlighting critical questions for further research, including the positioning of smallholder engagement for food security, innovation in blended financing instruments, and enabling trade and agricultural policy frameworks.