An innovation lab for agricultural financial incentives: Experiences from Latin America

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It takes serious investment by government, the private sector and civil society to make finance for nature work for small-scale farmers. This was the headline from a Latin American meeting where emerging findings from CoSAI’s latest study were debated by Costa Rica’s Vice Minister of Environment, International Union for the Conservation of Nature (IUCN), The Nature Conservancy and impact investors.

The meeting, held on Wednesday, September 29, was the first in a series of regional dialogues on innovative financial mechanisms for agriculture. It was hosted by CoSAI and co-organized with the Alliance of Bioversity International and CIAT, the SDG Center for Latin America and the Caribbean (CODS) and IUCN ORMACC-SUR.

Dialogue participants (from top left to bottom right): Grethel Aguilar (IUCN–CoSAI Commissioner), Ruben Echeverría (CoSAI Chair), Jesús Quintana (Alliance of Bioversity International and CIAT), Lina Moros (Uniandes–CODS), Ximena Rueda (Uniandes–CoSAI Commissioner), Vice Minister Franklin Paniagua (Ministry of Environment, Costa Rica), Andrés Zuluaga (The Nature Conservancy), Lis Cantaro (AIDER Perú), Juan Carlos Pereira (Add-Value Management), Bruna Pelegio (SITAWI), Josefina Achaval-Torre (CoSAI Secretariat).

Emerging evidence from CoSAI’s latest study

Lina Moros, professor at the University of Los Andes, began by presenting emerging evidence from a new study that examines existing financial instruments and asks how they can be improved to encourage farmers to conserve and restore nature in an equitable way. The study, commissioned by CoSAI and led by CODS, analyzes the environmental and social impacts of these instruments, the challenges and opportunities they provide, and the opportunities for innovation and upscaling.

The study has found that most instruments examined have not been used in mainstream agriculture and, when they have, environmental results are mixed and social results are often negative. To avoid these pitfalls, Professor Moros suggested ways to improve the design of these mechanisms: 

  • Agrobiodiversity and degraded lands offer an opportunity for investors.
  • Jurisdictional approaches can overcome the limitations of voluntary mechanisms.
  • Communities can play more definitive roles in training and monitoring.
  • Strong government policies need to supplement private instruments.

 

The CoSAI study found 143 payments for ecosystems services (PES) cases in 23 countries, 85 REDD+ cases in 21 countries, no emissions trading scheme (ETS) or clean development mechanism (CDM) cases in the Global South, 131 voluntary sustainability standards (VSS) cases in 12 countries, and more than 30 cases of impact investment at the global level (grey literature).

The presentation was followed by a panel discussion, moderated by CoSAI Commissioner Ximena Rueda. Acknowledging the importance of national contexts in the development and implementation of financial instruments, the panel looked to share real-life experiences of these instruments across Latin America.

Design, implementation and enabling environment

The multisectoral panel began with Vice Minister Franklin Paniagua (Ministry of the Environment of Costa Rica), who gave an overview of Costa Rica’s experiences of implementing payments for ecosystem services (PES). The Vice Minister highlighted the importance of investment in research and development, and of being open to monitoring, technical evaluation and improvement processes. He also explained how the benefits of PES go beyond environmental conservation to positively impact the empowerment of minority groups such as women and indigenous peoples.

Andrés Zuluaga of The Nature Conservancy shared lessons learned from the implementation of various PES schemes in Colombia, particularly those focused on livestock. Challenges include scale and the sector’s limited ability to make investments, given that it is formed mainly by small producers with low investment capacity. In response, the Nature Conservancy created a network of PES incentives for carbon, biodiversity and water resources, seeking to connect various ministries and actors in order to find a collaborative solution. They found that the combination of various innovative financial instruments can provide the liquidity necessary for small farmers to be part of the transformation of the sector.

Voluntary mechanisms

Lis Cantaro from the Association for Research and Integral Development (AIDER) shared experiences from the buffer zones of the Tambopata National Reserve and the Bahuaja Sonene National Park in Peru. In conjunction with the Peruvian Ministry of Environment and Althelia Funds, AIDER seeks to generate economic opportunities for farmers to conserve the forests of the region’s Natural Protected Areas by reducing deforestation and degradation, recovering degraded soils and encouraging the production of cocoa “free from deforestation.”

Different types of financial mechanisms were considered by the CoSAI study and the panel discussion.

Impact investment funds and verification mechanisms

Juan Carlos Pereira presented the experiences of Add-Value Management and the Small Farmers’ Climate Change Adaptation Fund (SMAF). SMAF seeks to finance sustainable and climate-smart agriculture for 20,000 small farmers in eight Latin American countries: Mexico, Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Ecuador and Peru. The fund channels its resources through 15 microfinance institutions that work in rural areas and that actively finance the smallholder sector. Finance mechanisms include medium-term loans and a technical assistance program that supports the transfer of climate-sustainable technology both to participating financial institutions and to small farmers.

Bruna Pelagio, representing SITAWI, discussed innovative crowdlending and peer-to-peer financial mechanisms. SITAWI has invested in more than 25 organizations with resources of BRL 13 million (USD 2.3 million) in order to mobilize actions that increase the positive impact on people and nature. The organization prioritizes accessible capital – 80% of its investments are less than BRL 5,000 (USD 900) – with the aim of democratizing sustainable investment and making capital abundant for impact organizations.

Next steps

The presentation of emerging evidence, together with a wide-ranging panel discussion, allowed the regional dialogue to highlight the urgent need for more innovation in equitable financial instruments to support environmental objectives in Latin America. Importantly, meeting participants also shared ways in which the design of these instruments can be changed to improve their replicability and scalability to better support sustainable and equitable development.

Upcoming CoSAI regional dialogues to discuss the need for innovation in financial mechanisms for agriculture will cover Asia, sub-Saharan Africa and potentially North Africa and the Middle East. The dialogue in Asia is scheduled for 16 November, and will be supported by the IUCN Regional Office for Asia and the Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA).

The CoSAI study will be published at the end of November. All the latest updates from CoSAI can be found here.