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Toward Productive, Inclusive, and Sustainable Farms and Agribusiness Firms

Overview

Agrifood system development increases productivity, inclusion, sustainability, and nutrition, in turn contributing to reducing hunger and poverty and to improving shared prosperity. The agrifood system comprises the actors engaged in agriculture and the related food industry and services, the activities they perform, and the enabling environment (policies, standards, and investments) that shapes its dynamic development. In low-income countries (LICs), the agrifood system accounts for more than 30 percent of gross domestic product and about 70 percent of all jobs; in middle-income countries, it accounts for more than 15 percent of gross domestic product and about 30 percent of all jobs.

Agrifood systems face several challenges that put inclusive growth and sustainable development at risk. Weak market links, fragmentation of production, and insufficient market integration of various actors contribute to low productivity and lead to low incomes and precarious living conditions for smallholders and small producers, especially in LICs. LICs’ high reliance on production of low-value commodities for local markets also limits their potential to respond to the growing global demand for higher-value products (for example, fruits and vegetables). Current agrifood systems also face the challenge of—and contribute to—climate change: the agrifood sector is responsible for more than one-quarter of global greenhouse gas emissions, accounts for 70 percent of all water use, and is a major source of biodiversity loss and environmental degradation. Yet climate change is projected to cut agricultural production, especially in the most food-insecure regions (Jägermeyr, Müller, and Ruane 2021; World Bank 2010). The convergence of climate change, the coronavirus pandemic, and conflict exacerbate the challenges that agrifood systems are facing.

The purpose of the evaluation is to assess how relevant and effective the World Bank Group has been in its support for agrifood system development—that is, in developing more productive, inclusive, and sustainable farms and agribusiness firms. In the evaluation, we focus on the Bank Group’s support during fiscal years 2010–20. We use a mixed methods approach that leverages a range of data to generate evidence on Bank Group interventions supporting productivity, inclusion, and sustainability. We look at interventions in countries at different income levels throughout the evaluation. When possible, we complement the income-level analysis with an analysis of agrifood systems at three stages of development: traditional, transitional, and integrated. Traditional agrifood systems are typical of LICs, with agricultural production not integrated into markets and mostly geared toward home consumption. Transitional agrifood systems are typical of countries with growing incomes, where farms and agribusiness firms are becoming part of supply chains. Integrated agrifood systems are typical of middle-income countries and upper-middle-income countries with highly specialized agribusiness firms and highly developed supply chains. The evaluation methods include a review of the Bank Group’s strategies; an assessment of the alignment of interventions to country needs; and analyses of portfolio data, a key performance indicator database, and case studies, supplemented by interviews and structured literature reviews.

The evaluation was approved as a focused exercise. At the time of approval, it was agreed that we would assess the relevance and effectiveness of Bank Group support to agrifood system development by focusing on specific aspects of the system and based on selected analysis that could be carried out remotely in a limited amount of time. Consistent with this agreement, the evaluation focuses on productivity, inclusion, and sustainability and excludes nutrition; we center the relevance and effectiveness analyses in relation to selected indicators; we base the effectiveness analysis on project-level analysis rather than a mix of project and country-level analyses; and we avoid in-depth causal analysis of interventions and their outcomes. We address gender-related issues partially, and we do not address other beneficiaries, such as youth and vulnerable groups, or we address them only marginally. We could not fully evaluate the effectiveness of the portfolio of the Multilateral Investment Guarantee Agency (MIGA) because of the limited number of evaluated MIGA projects.

Relevance

The Bank Group’s interventions in support of agrifood system development have been broadly relevant, but gaps remain in scaling up and better targeting support to countries that need it the most. Bank Group interventions supporting agrifood system development reached many countries that needed this support, including to increase agricultural productivity, improve social inclusion, and mitigate and adapt to climate change. However, support to increase access to agricultural finance, improve the enabling business environment, and enhance food safety standards did not reach enough countries with relevant needs. Although the targeting of countries with relevant interventions works quite well overall, it could be improved. In fact, while the intensity of Bank Group support (the number of interventions per country) for enhancing food safety standards, social inclusion, and climate mitigation is commensurate with need, the intensity of Bank Group support to increase agricultural productivity, enhance access to agricultural finance, and improve the enabling business environment is not. In addition, only about two-thirds of countries with multiple constraints on agrifood system development received the appropriate mix of interventions. For example, the Bank Group often provided productivity-enhancing measures without support for agricultural finance in countries that needed both types of support. It is important to note that in some cases, other development partners may be providing support in one of the two areas (or in other complementary areas), but the evaluation’s analysis was limited to Bank Group activities.

World Bank support for improving productivity was insufficiently diversified across product types. The World Bank provides support primarily for basic staples and certain livestock; it has not sufficiently diversified toward higher-value and nutritious products that are often undersupplied. In LICs, about 58 percent of the demand for fruits and vegetables is unmet, and animal source foods are typically undersupplied and expensive. However, only 4 percent of the World Bank’s product-targeted interventions supported the production of fruits and vegetables, and 11 percent supported grain legumes. Similarly, support for livestock production was focused on dairy (27 percent) and fish (34 percent), whereas only about 3 percent of projects explicitly supported production of small ruminants (sheep and goats) that offer income-generating opportunities for low-income households in rainfed and drought-prone environments.

MIGA’s portfolio of guarantees is geographically aligned with its strategic priority to deepen its impact in LICs. MIGA focused one-third of its 21 interventions on LICs. MIGA’s underwriting volume was relatively strong in Sub-Saharan Africa (85 percent of its projects) and in countries at the traditional stage of agrifood system development (76 percent of projects). All MIGA guarantees supported increasing the productivity of agrifood systems; 52 percent and 43 percent supported inclusion and sustainability, respectively.

Country Partnership Frameworks (CPFs) covered areas that are important for agrifood system development but did not consistently treat them in an integrated manner and missed opportunities to deepen engagement on gender, food safety standards, and climate change mitigation. The coverage of agrifood system issues in CPFs was adequate, given country-level shortcomings. However, about half of the CPFs (47 percent) did not treat productivity, inclusion, and sustainability in an integrated manner, even though these countries required support in all three areas. Fewer than half of CPFs indicated how agrifood system interventions would explicitly address gender. Additionally, fewer than half of the CPFs that were reviewed discussed or provided guidance on food safety standards. CPFs did not address climate change mitigation opportunities in about one-third (37 percent) of countries with high greenhouse gas emissions in agriculture, even though climate mitigation and adaptation interventions aligned with country needs at the operational level.

Effectiveness

Productivity

World Bank productivity-enhancing interventions were effective overall but were less so in countries at the traditional stage of development, particularly in West and Central Africa and in rainfed and less-favored environments. About 72 percent of World Bank projects targeting productivity were assessed as successful. The World Bank has been relatively more successful in improving the production and productivity of major staple cereals and livestock (such as poultry and dairy). Productivity was enhanced when producers bought improved inputs (such as modern seeds and fertilizers), invested in technologies, and gained increased access to markets. Interventions in countries at the traditional stage of agrifood system development were less effective, especially in West and Central Africa, where only 49 percent of projects were successful in achieving their productivity outcomes. Although the World Bank has remained actively engaged in agrifood system development in this challenging region, lower effectiveness in these countries is associated with the fragility context, ineffective extension and service delivery systems, weak producer groups and implementing capacity, inadequate market infrastructure and underdeveloped supply chains, weak midstream value-adding sectors, and high risks because of climatic shocks or conflict. Furthermore, although the World Bank has supported innovative efforts to increase productivity in project-targeted areas, it has built on these efforts insufficiently to help increase yields nationally. This is especially the case in rainfed and less-favored environments, which also face high risks from climate change. Scaling results to increase impacts at the national level, especially in challenging regions, requires long-term strategies; local adaptation, capacity, and learning; and incentives to address constraints that limit adoption of promising interventions.

World Bank interventions focused only on supporting production were less successful than interventions that combined production and market approaches. The production or supply-side approaches include interventions to improve access to inputs and technologies to increase crop and livestock yields. Market or demand-side approaches include interventions to create or strengthen market links among producers and buyers. Complementary investments in market infrastructure and equipment, such as collection points, cold storage, and transport, were particularly important to diversify production to perishable high-value products. The combination of production and market approaches to enhance effectiveness is especially important but challenging in LICs and countries at early stages of agrifood system development, where smallholder farmers and small and medium enterprises (SMEs) have limited access to markets.

International Finance Corporation (IFC) investments and advisory interventions contributed to increased productivity. About 60 percent of the agribusiness investments across all countries increased productivity, which was higher than the average for the Manufacturing, Agribusiness, and Services portfolio at 45 percent. IFC designed investments that succeeded in increasing productivity based on a good understanding of the market. It derived this understanding from sound value chain analytics and stress testing during due diligence that factored in adverse exogenous factors that could affect the use of the assets in which IFC invested (such as production facilities). This was of particular importance for investments in protected value chains, where the investment can suffer from the removal of subsidies. Although the number of evaluated projects is too low to make strong generalizations, IFC agribusiness investments seem to have sound results in boosting productivity, even in LICs. IFC advisory projects targeting productivity also performed well, with 68 percent assessed as successful; however, such projects performed less well in LICs, with a 40 percent success rate resulting from weaker firm-level capacity in these countries.

Inclusion

The World Bank has been effective overall at including smallholder farmers and SMEs in value chains but was less so in countries at the traditional stage of agrifood system development, including LICs and lower-middle-income countries (LMICs). About 71 percent of World Bank agrifood projects that had inclusion as a focus achieved this objective. Successful efforts identify relevant market opportunities based on locally produced crop and livestock products. They then support tailored interventions to increase access to and participation of smallholder farmers and SMEs in value chains. Examples include smallholder cocoa farmers in Côte d’Ivoire and dairy producers in India and Kenya. Inclusion has, however, been lower in countries at the traditional stage of development, including LICs and LMICs, particularly in West and Central Africa, where less than half of projects achieved this aim.

World Bank efforts to strengthen producer groups have helped facilitate the integration of farmers and firms into value chains. The producer groups facilitated participation in value chains by increasing access to agricultural technologies, adoption of sustainable practices, and acquisition of business skills. Examples include support to strengthen common interest groups and cooperatives in Ethiopia and Kenya, farmer groups in productive alliances in Bolivia and Peru, and dairy and livestock cooperatives in India and Vietnam.

IFC’s agribusiness investments had a good record of including actors in value chains, even in LICs and LMICs, but IFC’s investments targeting the poorest agribusiness value chain actors faced challenges. The relatively high private sector development outcome ratings of IFC investment projects (66 percent) suggest generally satisfactory results on market integration (building and expanding value chains), including in LMICs and LICs. IFC achieved inclusion when it paired its investments with advisory services to provide extension services enhancing firm- or farm-level capacity in management, production quality, process management, or marketing. For example, IFC support to a dairy company in East Africa was successful in strengthening the firm’s supply chain through extension services and dairy farm development to improve the management of the dairy farms and dairy farming practices, increasing productivity and improving the quality of the raw milk output. As a result, about 10,000 smallholder farmers in 48 cooperatives succeeded at supplying raw milk to the dairy company. However, IFC’s inclusive business investments—investments that aim at integrating the poorest actors into value chains—faced challenges in remaining financially viable while integrating smallholder farmers and SMEs into agricultural value chains. Many small actors operating informal businesses before accessing value chains face difficulties achieving quality standards, lack managerial capacity, or engage in side selling when the spot market price exceeds the contracted one.

IFC advisory services in LICs had limited success. Advisory services projects had a good success rate overall (68 percent) but were less effective in achieving inclusion targets in LICs (25 percent) and in countries at the traditional stage of agrifood system development (33 percent).

Sustainability

The World Bank has contributed to enhancing sustainability but less so in LICs and countries at the traditional stage of agrifood system development. About 78 percent of all World Bank projects aimed at supporting sustainability were assessed as successful, whereas 67 percent of sustainability projects in LICs at the traditional stage were successful. Projects that successfully supported sustainability included those with climate-smart agriculture practices, those that supported diversification into climate-resilient crop and livestock activities, and those that improved public sustainability standards and regulations (in 83 percent and 78 percent of cases, respectively). World Bank support for market-led sustainability standards, which are key for enhancing the participation of farmers and SMEs in value chains, was prominent in high-value sectors or export commodities. The World Bank has faced challenges with building on sustainability results in LICs at the traditional stage because of difficulties in replicating successful pilots.

Interventions that cultivate behavioral changes among farmers and agribusiness firms enhance the adoption of sustainability practices and standards. Demonstrating tangible economic benefits—and developing business skills that enhance the adoption of improved and more sustainable practices and business models—nurtures behavior changes among farmers and agrifood SMEs. Examples include the World Bank’s Livestock Competitiveness and Food Safety Project in Vietnam, which facilitated adoption of food safety standards and environmental practices by smallholder farmers and slaughterhouses, and the Ethiopia Agricultural Growth Project II, which enhanced the uptake of climate-smart agriculture practices.

IFC agribusiness investments faced challenges with implementing environmental and social (E&S) standards, especially in LICs. Only 59 percent of agribusiness investments met IFC’s E&S requirements, compared with the long-term average of 70 percent for IFC’s investment portfolio evaluated by the Independent Evaluation Group team. Recurring issues include problems related to occupational health and safety, wastewater management, implementation of E&S action plans, and the Bank Group Environmental, Health, and Safety Guidelines. The E&S performance of investments was particularly weak in LICs because of weak firm-level capacity and commitment to implement E&S requirements. About 40 percent of IFC advisory services interventions supported farms and firms in improving their sustainability footprint, for example, by increasing the capacity of farms and firms in implementing food safety standards and by providing them with improved technologies and methods for addressing climate change. The effectiveness of such advisory services was about 73 percent, but none of the projects in LICs or countries at the traditional stage reached the satisfactory level because of weak firm capacity and commitment.

Factors Specific to the International Finance Corporation

Three factors are particularly important for the effectiveness of IFC agribusiness activities:

  • Careful sponsor selection. Sponsors with prior experience in the market with the relevant value chain actors are better able to contribute to enhancing productivity and facilitating value chain integration, which makes it more likely that investments will meet IFC E&S requirements.
  • Consideration of the level of diversification of a firm’s product portfolios and destination markets. Diversification of products and markets allows companies to offset reduced revenues in one market with increased revenues in others.
  • Careful balancing of trade-offs between development effectiveness and profitability. On average, IFC investments in frontier markets (such as LICs) have a sound development outcome but a negative risk-adjusted return on capital of –11 percent. IFC must offset this through above-average risk-adjusted return on capital rates from more profitable investments. Blended finance can help reduce the financial risks in frontier markets.

System-Level Considerations

The Bank Group is increasingly supporting system-level effects through multipurpose interventions that foster the development of more productive, inclusive, and sustainable agrifood systems. World Bank system-level interventions that target all three outcomes have an 80 percent success rate versus 72 percent on average for all interventions, and IFC advisory system-level interventions have a 77 percent success rate versus 69 percent on average for all interventions. This shows that generating system-level effects is possible despite potential trade-offs among different outcomes. Bundling interventions aimed at achieving the three outcomes is particularly important for addressing the overlapping challenges that smallholder farmers and SME agribusiness firms face.

Collaboration

The Bank Group has recognized the need for the three institutions (World Bank, IFC, and MIGA) to collaborate to mobilize private finance and increase results for agrifood system development, but collaboration remains largely informal, bilateral, and hard to assess. The establishment of the Agribusiness Sector Working Group marked an important step in strengthening strategic collaboration among the three institutions. It has contributed to improving knowledge sharing and the selection of priority themes for collaboration. However, operational collaboration for agrifood system development remains frequently bilateral (IFC with World Bank and IFC with MIGA), and it is difficult to identify joint projects among the World Bank, IFC, and MIGA in the current portfolio.

In conclusion, the current Bank Group approach to agrifood system development can be strengthened to address the continuing challenges that agrifood systems are facing and to fully support the Bank Group’s vision for sustainable agrifood systems. The Bank Group and its partners can enhance the focus of their interventions on increasing productivity, inclusion, and sustainability, especially in LICs, countries at a traditional stage of agrifood system development, and countries in fragile and conflict-affected situations. Such interventions are expected to address the enormous climate and other challenges that agrifood systems continue to face and facilitate transformation while ensuring that agrifood system approaches safeguard the environment and support improvements in people’s nutrition and health. This, in turn, will contribute to ending hunger and improving the well-being of all. In light of this, we offer three recommendations.

Recommendations

Recommendation 1. To enhance its effectiveness in developing agrifood systems, the Bank Group’s efforts to support production technologies should be complemented by efforts to improve market access, especially in LICs and in countries at the traditional stage of agrifood system development. These complementarities can be pursued by enhancing synergies in Bank Group interventions or with partners. Pairing production with access to market support helps address the fragmentation of production activities and the insufficient market integration of various actors in agrifood systems. Production support entails strengthening research, extension, and input delivery systems to increase the adoption and adaptation of specific technologies, innovations (including digital solutions), and sustainable practices. Access to market support entails identifying buyers, developing the needed market infrastructure (for example, logistics and cold chains), and facilitating links between smallholder farmers and SMEs with potential buyers. Improving links, in turn, requires deepening support to agricultural producer groups and SMEs to enhance their capacity and business skills. Over time, this will help them adopt sustainability standards and potentially establish partnerships with larger private sector value chain actors—lead firms that have successful records in integrating small actors into value chains. Access to finance and support to improve the enabling environment to attract private investment at various stages of the value chain is critical to improve both production and access to markets. Supporting complementary interventions is particularly important in LICs and in countries at the traditional stage of agrifood system development, which often lack infrastructure for farmers and SMEs to access markets in urban areas. Complementarity can be achieved through synergies across the Bank Group using parallel or sequenced interventions, through partnerships with other donor agencies, or through client actions, and these expectations should be clarified in project documents.

Recommendation 2. To achieve more sustainable agrifood systems, where conditions permit, the Bank Group should support production diversification to meet the growing demand for undersupplied, high-value-added nutritious products while ensuring that smallholder farmers and SMEs benefit from the diversification. Although the World Bank should retain its support for staple crops and livestock that meet domestic needs, it should also seize opportunities to help smallholders and SMEs benefit from more sustainable agrifood systems by supporting increased production and marketing of higher-value nutritious products, such as fruits, vegetables, grain legumes, oil crops, small ruminants, dairy, fish, and poultry, where conditions permit. Higher-value products can have income-enhancing effects for smallholders and SMEs if constraints to entry are overcome; resource-efficient (for example, using less water and land) and diversified production can enhance climate resilience and sustainability; and highly nutritious products will also provide benefits to the overall household well-being. Successful production and marketing of higher-value products will require attention to (i) agricultural finance, so that farms and firms can invest in adequate technologies and processes; (ii) food safety standards to access competitive markets; (iii) capacity building; (iv) market infrastructure; and (v) aggregation and wholesale activities. These factors are particularly important for smallholder farmers and SMEs. Blended finance, including that provided by the Global Agriculture and Food Security Program, has been particularly effective at improving market access by helping smallholders in low-income and fragile contexts link with buyers and private sector investment. Illustrative examples of relevant diversification efforts that have benefited smallholders and SMEs include initiatives for diversifying cereal-based systems in Asia and efforts to increase access to small-scale irrigation and climate-smart agriculture in Africa, which allow smallholder farmers to integrate fruit trees and vegetables into their production activities. Similarly, IFC and MIGA could build on their successful experiences in the dairy, beef, and poultry sectors in Eastern and Southern Africa, where they provided access to finance paired with complementary investments in logistics infrastructure, capacity building, and marketing.

Recommendation 3. To enhance the contribution of IFC support for agrifood system development, IFC should pilot and adopt more effective ways to support clients to better meet E&S Performance Standards, especially in LICs. Progress in improving E&S performance was apparent when clients possessed the capacity and commitment to address E&S issues or when IFC was able to strengthen their capacity and commitment through loan covenants, tailored IFC advisory services, or blended finance. Improving the E&S performance of clients in LICs will require assistance to help them address recurring challenges (such as in wastewater management and occupational health and safety) and to support the implementation of E&S action plans and the Bank Group Environmental, Health, and Safety Guidelines.