The urgency of the need to transition to more sustainable and regenerative types of farming was in no doubt among the group of experts brought together by Pollination and UNDP in New York during Climate Week. Farmers worldwide are already feeling the full force of climate change, with the United Nations’ Food and Agriculture Organization (FAO) estimating that $3.8 trillion of crops and livestock have been lost due to disaster events over the past 30 years, the equivalent of more than 5% of annual global agricultural GDP.

However, two of the biggest outstanding questions are who will pay for the change, and how can the transition be de-risked as far as possible? What made our roundtable event on this subject so fruitful and thought-provoking was the diversity of sectors represented, and the clear commitment to collaboration between them.

Leaders from philanthropic organizations, financial institutions, insurers, the world’s largest food producers and governments shared their experiences to date. Here, we have pulled together here the key takeaways of the discussion.

Who bears the risk

The first is the need for insurance for smallholder farmers, defined as those farming an area measuring 10 hectares or less. Smallholders produce 46% of the world’s food, and big food producers rely heavily on their crops, from barley to coffee. Yet this group has very little financial resilience – only 3% of smallholder farmers in sub-Saharan Africa, for example, have insurance. As the risk of drought and other extreme weather events wiping out crops , these farmers often have few resources to manage these risks and losses , creating disruptions in supply chains for food companies sourcing from these regions.

The UN Development Programme (UNDP) is seeking to use insurance to create a virtuous circle – the more smallholders with insurance, the more financial resilience in agriculture, the more investment in the sector, and then the more need for insurance. Crucially, having a measure of financial security means farmers can start to invest in climate adaptation, making their farms more insurable and sustainable.

The UNDP’s Insurance and Risk Finance Facility (IRFF), and in particular the Financial Resilience in Agriculture Initiative implemented in partnership with the Bill and Melinda Gates Foundation, is working to embed financial resilience into the policy objectives of the countries it works with. One of these is Uganda, which has launched an agriculture insurance scheme that provides a 50% subsidy on insurance premiums for smallholders (who make up 80% of the country’s farming population), and an 80% government subsidy on insurance premiums in high-risk areas such as semi-desert regions.

Hon. Frank Tumwebaze, Uganda’s Minister for Agriculture, Animal Industry and Fisheries told our roundtable that the insurance scheme has 259,000 subscribers and is growing, however highlighted the challenges of increasing coverage further, including raising awareness among farmers, and improving the capacity of insurance providers, which includes the need for more data to make risk assessment more effective.

As well as working with sovereign governments, the IRFF is facilitating partnerships between insurers and the food and beverage companies that rely on smallholders in their supply chain, to pilot innovative insurance models that offer protection to farmers while also building well-functioning local insurance markets.

Making economic sense

Insurance is certainly not the only way in which large food and drink manufacturers can support the smallholders they work with to farm more sustainably and increase their resilience. Ingrid De Ryck, chief sustainability officer of brewer AB InBev which sources ingredients directly from more than 23,000 farmers globally, told the roundtable about a partnership in Colombia with PepsiCo to pilot crop rotation between potatoes and barley, which has improved yields by 10% within a year. Corporate collaborations such as this are critical for supporting and financing regenerative practices that build soil health and diversify cropping systems.

AB InBev also assists farmers with access to mechanization, she said, such as sharing equipment, which further speeds up their adoption of regenerative practices.

In countries such as the US, where agricultural insurance is commonplace, farmers additional sources of funding and support can be critical for derisking the transition from conventional methods that rely heavily on chemical fertilizers and pesticides. During the roundtable, we looked at Pollination’s example of almond farmers in California, and options for de-risking loans to fund more regenerative methods that introduce greater numbers of pollinators to improve the crop.

Financial institutions rely on decades of data to calculate risk when lending to farms, and when farmers start working in new ways, they simply don’t have that data. So, one way to reduce the level of risk for banks, and bring down the interest rate they charge farmers, is using blended capital stacks, in which a small proportion of the loan is covered by philanthropic support.

Food and beverage companies can work alongside financial institutions by offering longer contracts, say five years rather than one year, to farmers who use regenerative methods, to smooth over any differences in yield as the new methods bed in.

As our discussion made clear, there is no single blueprint that will de-risk the transition to more regenerative farming, both for farmers and for their stakeholders. But globally, the upfront costs of transitioning to regenerative farming can be prohibitive without financial support.

Insurance has a key role to play, particularly in the parts of the world that are highly vulnerable to climate change and currently uninsured – it can unlock investments in regenerative approaches by reducing risks and uncertainties. But other de-risking tools such as philanthropic contributions to reduce the cost of loans are essential to mitigate potential losses during this period of change.

Ultimately, partnerships between a broad set of stakeholders – financial institutions, insurers, investors, governments, food producers and retailers – are critical to derisk the transition. The types of cooperation being discussed in New York made clear that the different groups involved recognize this, and we take a great deal of encouragement from their willingness to work together for change.