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Toward Productive, Inclusive, and Sustainable Farms and Agribusiness Firms

Management Response

Management of the World Bank Group would like to thank the Independent Evaluation Group (IEG) for preparing the evaluation report Toward Productive, Inclusive, and Sustainable Farms and Agribusiness Firms: An Evaluation of the World Bank Group’s Support for the Development of Agrifood Economies (2010–20). The report comes amid heightened global concerns about the rising prices of food and energy commodities and the difficult financial conditions worldwide arising from multiple compounding crises.

World Bank Management Response

Overall

Management welcomes IEG’s findings that World Bank projects targeting productivity, inclusion, and sustainability were effective in supporting agrifood system development and increased adoption of improved inputs, thereby narrowing yield gaps and raising both production and the incomes of farmers. The decade covered by the report, FY10–20, came shortly after the 2008 global financial and food crises. Emerging from this global downturn, the agricultural sector in developing countries went through a deep transformation, triggering increased investments in the agrifood sector with greater focus on value chains. Against this backdrop, the Bank Group made decisive efforts to address both the supply and demand side of global food production. In this context, management is pleased to note that “World Bank efforts to strengthen producer groups have helped facilitate the integration of farmers and firms into value chains” (xiii). Notwithstanding this success, the World Bank will continue supporting agrifood system development even more decisively now as multiple overlapping crises create an unprecedented demand for urgent outcomes.

Management notes the report’s findings that the World Bank was most successful at improving the productivity of major staple cereals and livestock, and that investments in farm production inputs and technologies as well as improvements in market linkages increased incomes for producers. For the past several decades, management made intensive efforts to shift the focus from primarily production-based frameworks to agrifood systems, with increased investments in upstream inputs and technologies for production in certain regions. Given the complexities involved in such a transition, the engagements often involved managing a challenging political economy. Management emphasizes that agrifood system transformation is far more complex and multilayered than what was covered under this evaluation and is pleased that this fact has been acknowledged in the report.

Country Conditions

Management is pleased with the report’s recognition that lower performance in Western and Central Africa should be understood in the context of the complex and fragile operating environment and that differentiated approaches may be needed. Several countries in Western and Central Africa have complex and fragile operating environments, and a more specific and differential approach is needed to enhance the effectiveness of the World Bank’s development interventions in these countries. Climate change vulnerabilities in the Region have resulted in water scarcities, severe drought conditions, and crop failures, which distress production systems and dent growth from agricultural operations. Further, at least 10 of the region’s countries have been categorized as involving fragile and conflict-affected situations (FCS). The report further recognizes that FCS countries in Western and Central Africa face difficult conditions and capacity constraints that contribute to lower project effectiveness. It also correctly identifies the role of several limiting factors, including the limited capacity of producers in supporting value chain integration; the role of climate, epidemic, and conflict-induced shocks; and the distinctive challenges that the World Bank is facing in enhancing the performance of development policy financing in the Region. Nevertheless, the World Bank’s engagement in the region has remained constant despite reversals due to externalities. The World Bank aims to strengthen its impact in the field in such FCS countries through the implementation of the World Bank Group Strategy for Fragility, Conflict and Violence 2020–2025.

Outcome Orientation

Management reaffirms the report’s recognition of the World Bank’s growing efforts to integrate gender, food safety standards, and climate change issues into agrifood systems through corporate strategies and approaches to deliver high-level outcomes. The World Bank continues to look at a wide range of possibilities for “repurposing current agricultural policies and support to achieve better economic, environmental, social, nutritional, and climate outcomes” (Gautam et al. 2022, xiv). In the Climate Change Action Plan (CCAP) for 2021–25, for example, the World Bank has committed to stepping up support for climate-smart agriculture across the entire agriculture and food value chain through robust policy and technological interventions. In addition, the Outcome Orientation Roadmap (June 2021) and the Country Partnership Framework (CPF) guidelines (as revised in July 2021) ensure that country engagement valuably informs decision-making and addresses country-level development issues more holistically, facilitating horizontal integration.

Management acknowledges that, while gender is a critical aspect of social inclusion in agrifood systems, steady efforts are needed to continue improving coverage of this matter in CPFs and connecting it to the desired outcomes. The World Bank’s report Implementing the World Bank Group’s Gender Strategy—From Analysis to Action to Impact: Follow-up Note and Action Plan focuses on how to close gender gaps in agriculture in client countries and the usage of the new gender tag to track integration of gender in project documents. At the operational level, several agricultural projects have already demonstrated sustainable agricultural outcomes reached through empowering women and enhancing their role in decision-making and in taking up agronomical practices, among others.1 Extended efforts are now needed to ensure gender outcomes in agrifood systems are well evidenced in CPF documentation.

Methodology

Management welcomes the rich findings and lessons of IEG’s report while noting that the methodology only allowed an analysis of some aspects of the World Bank’s engagement on the subject matter. First, a comprehensive picture of the World Bank’s engagement on agriculture finance, targeting of the poorest of poor people and marginalized groups, and support for diversification toward high-value agriculture could have been obtained if the portfolios of other Global Practices such as Finance, Competitiveness, and Innovation; Social Protection; and Water had been taken into consideration. Second, more adequate distinctions were required among investment operations and policy support and the recent shift to other instruments, such as the Program-for-Results. Third, due to the COVID-19 travel restrictions, IEG was unable to obtain or validate findings through field missions because all consultations and interviews were conducted virtually. Finally, the reduced number of case studies limited the representativeness of the conclusions. The evaluative evidence, which excludes a large number of operations from the analysis, thus provides a partial picture of a large and complex reality.

Recommendations

Management commends IEG for well-crafted recommendations that are limited in number and pointed toward outcomes, thus leaving sufficient flexibility for managerial discretion. The 2020 Management Action Record reform encouraged IEG to increase the strategic focus and relevance of its recommendations by limiting their number in each evaluation and by ensuring that each recommendation clearly articulates a proposed outcome. The Management Action Record for fiscal year (FY)22 states that this principle is even more important today because the evolving situation demands that the Bank Group fix its line of sight on outcomes but take an agile approach to reach those outcomes as it navigates emerging opportunities and challenges. Management also appreciates the dedicated discussion held between IEG and management to clarify the expected outcomes of the report’s recommendations and possible pathways toward them.

Management agrees with the recommendation to complement the World Bank’s efforts to support production technologies with improved market access, especially in low-income countries (LIC) and in countries at the traditional stage of agrifood system development. Management clarifies that this recommendation is more relevant for operations designed for a reduced scale affecting a limited number of beneficiaries. As the report highlights, more evidence is needed to adopt the recommendation when delivering at a large scale. Although management agrees that access to finance and the promotion of an enabling environment to attract private investment are critical to improving both production and access to markets, the integrated systemic approach often results in more complex projects, which are more difficult to scale to national levels. Pairing production with market access would support consolidation of production activities and support market integration of various actors in agrifood systems. The World Bank’s agricultural operations already contribute to research, extension, and input delivery systems activities. Management is exploring opportunities to increase the adoption and adaptation of specific technologies, innovations, and sustainable practices, including building capacity of agricultural producer groups and small and medium enterprises (SMEs), supporting market infrastructure, and facilitating linkages with potential buyers. To better implement this recommendation, management will continue building synergies across the Bank Group and through partnerships with other donor agencies.

Management also agrees with the recommendation to support production diversification where conditions permit, while ensuring that smallholder farmers and SMEs benefit from that diversification. Management recognizes the potential of high-value products for a developing economy, as they are likely to bring benefits with respect to climate change, nutrition, employment, and productivity. Although smallholder farmers and SMEs can benefit from successful production and marketing of higher-value products, this requires greater attention to agricultural finance, food safety standards, capacity building, market infrastructure, and aggregation and wholesale activities. It is imperative for the World Bank to work with governments to facilitate agrifood system reforms, including efficient and effective uses of public support mechanisms. This would also mean tackling the political economy challenges of diversifying into higher-value products, attaining the food security objectives of agricultural policies, and managing the transition costs in terms of risks for farmers. More concerted efforts will also be required to fully reflect the diversification opportunities that exist in the World Bank’s productivity-enhancing investments beyond major staples and livestock.

International Finance Corporation Management Response

International Finance Corporation (IFC) management appreciates IEG’s evaluation Toward Productive, Inclusive, and Sustainable Farms and Agribusiness Firms: An Evaluation of the World Bank Group’s Support for the Development of Agrifood Economies (2010–20). The evaluation has a broad scope and offers us a useful opportunity to reflect on progress and consider course corrections in our work in agrifood systems. It also comes at an especially relevant point in time, given the occurrence of multiple overlapping crises and the resultant threat to food security in many client countries. Management also expresses its appreciation for the analysis of IFC’s contributions to building more inclusive, productive, and sustainable agribusiness operations.

Before sharing IFC management observations on the recommendations, we would like to elaborate on some additional points as follows.

Application of the Cascade Approach in Agribusiness

IFC management welcomes IEG’s plan to evaluate the Cascade approach in FY24 and points to its relevance in understanding this evaluation. The Cascade approach has been adopted by the Bank Group for its engagement in agribusiness in the latter years of this evaluation period. Importantly, the form of Bank Group interventions in the sector, as well as their sequence, is different depending on the level of market maturity. The specific challenges of each type of market requires a customized IFC approach, bringing to bear the full range of solutions from across IFC and the broader Bank Group. The notion of deploying public funds strategically and leveraging them for mobilizing the private sector is central to Bank Group’s Cascade approach.

In the Cascade approach, IFC’s engagement is more limited in nascent markets. It may engage in professionalizing local producers and providing policy advice through its advisory work, but for the most part, these markets will require the World Bank to lead most interventions with basic infrastructure investments before private sector players can be incentivized to enter. By contrast, in more mature markets, the balance shifts to private sector–led development. In general, the best functioning agricultural sectors tend to rely on private finance, with public funding used for the provision of public good agribusiness infrastructure, safety nets, and enabling regulations. Actual agricultural production and processing has shifted to the private domain in these well-functioning markets.

Market maturity determines Bank Group institutional intervention. In the case of challenging markets, interventions typically begin with the World Bank, are followed by IFC advisory services, then blended finance solutions, and finally, mainstream IFC investments.

Factors Particularly Important for the Effectiveness of International Finance Corporation Agribusiness Activities

Management recognizes the factors highlighted in the report as critical to the effectiveness of IFC’s agribusiness activities and continues to focus on these important elements, namely sponsor selection, diversification of revenue streams, and the balancing of trade-offs between profitability and developmental impact. With regard to trade-offs, formalizing decision-making at the global level on agribusiness projects has allowed IFC to take a view across regional operations and adopt a portfolio approach by balancing financial sustainability and developmental impact. The availability of blended financing through the Private Sector Window of the International Development Association and Global Agriculture and Food Security Program has also allowed IFC to de-risk projects that have a weak financial profile but significant developmental impacts.

Collaboration across the World Bank Group

Management notes the report’s assessment that the collaboration among IFC, World Bank, and the Multilateral Investment Guarantee Agency (MIGA) could be more systematic and strategic. As recognized in the report, management agrees that the Bank Group collaboration through the newly formed Agribusiness Working Group is a step in the right direction. This collaboration allows Bank Group teams to check in and identify areas where alignment and collaboration make sense, considering various factors including resources, process, and timing.

In the Cascade approach, IFC’s engagement is more limited in nascent markets. It may engage in professionalizing local producers and providing policy advice through its advisory work, but for the most part, these markets will require the World Bank to lead most interventions with basic infrastructure investments before private sector players can be incentivized to enter. By contrast, in more mature markets, the balance shifts to private sector–led development while the public sector plays a key role. In general, the best-functioning agricultural sectors tend to rely on private finance, with public funding used for the provision of good agribusiness infrastructure and safety nets for the public and enabling regulations. Actual agricultural production and processing has shifted to the private domain in these well-functioning markets.

IFC management largely finds the recommendations relevant and helpful and would like to share some observations. Given the importance of the food security agenda and considering post-COVID impacts and the war in Ukraine, IFC management will ensure that these recommendations feed into its operations to enhance our work in the area of food security.

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” (xvii).

Broadly, IFC management agrees with the premise of the recommendation that helping improve market access should complement interventions aimed at adopting more efficient production technology. This is especially relevant in LICs and countries at the traditional stage of agrifood system development. At IFC, we are increasingly seeing projects that have elements of supporting both acquisition and implementation of production technology and access to markets, including in LICs. To maximize the impact of our scarce resources and add more value, IFC primarily leverages its reach through firms that have the capacity to absorb, use, and disseminate improved production techniques across their supply chains, while creating a viable market linkage for suppliers in their network.

Management, however, notes that improved access to finance is another important consideration for a well-functioning agrifood system. In this regard, it is important to acknowledge the differences between the mandates of the World Bank and IFC. Although the World Bank takes government risk, IFC must take commercial risk while engaging with counterparts without a sovereign guarantee. IFC must find creditworthy financial institutions and agribusinesses to work with, which is especially challenging in most LICs.

From the private sector perspective, access to finance is facilitated when you have a relatively well-organized supply chain with the potential for accessing inputs and markets. But if supply chains are disorganized, with limited access to inputs and markets, finance alone cannot solve the problem. For subsistence farming and financing very poor rural households, the solution lies more in a generic microfinance approach, which is rarely, if at all, tagged as “financing agriculture” in IFC’s systems. Thus, the nature of financing the poorest farmers not tagged as agricultural finance, may underestimate inclusion of the poorest in rural areas despite its contribution.

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” (xviii).

IFC management agrees with the recommendation in principle. Pursuing investments to diversify production to meet the growing demand for undersupplied high-value-added nutritious products is an important part of IFC’s investments for several reasons related to both farmer and consumer benefits.

Notwithstanding, we would emphasize the caveat of “where conditions permit” for the following reasons: First, there must be a path to competitive production of such crops and products in the market for the investments to diversify production to make sense. This often requires not only very particular climatic conditions but also more advanced farming skills, greater variety of inputs, and irrigation solutions.

Second, many of the higher-value crops are also highly perishable and rely on logistics (such as cold chains) that are scarce in LICs. Therefore, until certain fundamental requirements are met, local consumers may be better served by importing cheaper fresh fruits and vegetables to improve nutritional outcomes.

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 [environmental and social] Performance Standards, especially in LICs” (xix).

IFC management appreciates the recommendation and agrees that it is challenging for clients to meet IFC’s E&S Performance Standards, especially for projects in LICs. We would like to highlight some of the actions IFC management has taken to try and address the challenge and acknowledge that many of these developments have taken place in the latter part of the 2010–20 review period.

First, IFC’s Sustainability and Gender Solutions Department established an integrated Environmental, Social, and Governance advisory services program to support our clients in strengthening related practices where the particular need in International Development Association markets in FCS had already been observed. Established in 2019–20, the program focuses on client’s Environmental and Social Management System. In addition, a range of knowledge products developed in 2015 for the effort, such as the Environmental and Social Management System Implementation Handbook and the Self-Assessment and Improvement Guide, are currently being updated.

Second, the Sustainability and Gender Solutions Department established a sector lead for Agribusiness and Forestry. Part of the role of the sector lead is the development of focused client training programs. These programs aim to provide clients with deep-dive workshops on the Environmental and Social Management System, Human Resource Management System, Occupational Health and Safety Management System, Supply Chain Management System and Stakeholder Engagement Plan, and Community Grievance Mechanism. These issues represent most gaps with respect to Performance Standards for agribusiness clients at the time of appraisal.

Third, as approaches to improving climate adaptation, resilience, and, to some extent, mitigation in agriculture have become increasingly important in recent years, IFC has been helping its clients in these regards as requested. This is being formalized through focused training courses, including on climate risk assessment, integrated water resource management, wastewater management, and integrated pest management. In addition, the Sustainability and Gender Solutions Department is involved in the delivery of E&S training to prospective agriclients as part of the Risk Institute in Africa. The Sustainability and Gender Solutions Department Global Unit will provide additional specialized expertise to its regionally based E&S teams to help support clients on wastewater, pesticide use, and cleaner production, among other E&S challenges.

Multilateral Investment Guarantee Agency Management Response

MIGA welcomes the IEG evaluation on the Bank Group support for agrifood economies and finds it valuable and important. The evaluation recognizes and confirms MIGA’s contributions to supporting productive, inclusive, and sustainable farms and agribusiness firms, albeit based on a relatively small number of guarantee projects.

The evaluation found that MIGA’s projects for agrifood systems had a strong focus on LICs (41 percent), the highest share among Bank Group institutions. MIGA had a strong presence in Sub-Saharan Africa, with 85 percent of the underwriting volume of agrifood projects in Sub-Saharan Africa host countries. MIGA guarantees for agribusiness companies in LICs also facilitated foreign direct investment into International Development Association countries. Agribusiness is a challenging sector for political risk insurance due to small and fragmented value chains and traditionally low demand for political risk insurance. Nevertheless, the IEG findings indicate MIGA’s contribution to deepening MIGA’s development impact in this important sector in LICs.

The report also recognized that the E&S performance of MIGA-supported agribusiness projects was satisfactory, responsive, and proactive to MIGA requests. This finding is consistent with the overall high E&S success rates of MIGA guarantee projects highlighted in IEG’s flagship Results and Performance of the World Bank Group reports. The solid track record is attributable to the rapid strides made in applying MIGA’s Performance Standards and E&S policies after the adoption of the Performance Standards and Policy on Social and Environmental Sustainability and the intensification of E&S policy implementation monitoring and supervision of MIGA guarantee projects.

Recommendation 1: MIGA agrees with the recommendation and strives to assist complementary investments by providing risk mitigation instruments for potential investors in the agrifood value chain. MIGA also agrees with the report’s finding that contributions to agribusiness development are more robust when collaboration is planned and deliberate. The Bank Group can provide development solutions along the entire delivery chain to client countries, from upstream support for the enabling environment to downstream transactions and execution, with unique and complementary roles for each of the Bank Group institutions. MIGA has been enhancing country-level collaboration within the Bank Group in recent years. MIGA is fully integrated into the Bank Group country engagement process, including the preparation of Systematic Country Diagnostics and CPFs; this has been recognized by IEG’s report The World Bank Group Outcome Orientation at the Country Level. Through these internal processes, we believe that MIGA is better positioned than in the past to support the complementary interventions that the recommendation is targeting.

Nonetheless, the report concludes, ”Bank Group collaboration remains largely informal and bilateral and is hard to identify and assess in the portfolio” (56). MIGA is concerned that IEG’s assessment of Bank Group collaboration was based chiefly on interviewing 15 key staff in the Bank Group. Documentation assessment was based on existing project-level self-evaluations done separately among Bank Group institutions and in a small number of cases. The case review did not thoroughly capture the collaboration and complementarity of interventions within the Bank Group. For example, MIGA recognized that in one IFC case, MIGA participated in the same project through a guarantee instrument, but the report did not recognize MIGA’s contributions. Although MIGA agrees that more can be done to enhance working together as one Bank Group, the report did not pinpoint areas where collaboration is challenging, identify specific areas of improvement, or suggest solutions in the agrifood systems area. We believe that field visits and beneficiary assessments would likely have surfaced results of sequenced interventions by the Bank Group. Views from other development partners also would have helped reveal the collaboration contributing to a long-term transformation of agrifood systems. MIGA understands the challenges IEG faced in conducting this evaluation under the pandemic-related restrictions and additional time constraints. Nevertheless, we would have liked to have seen more valuable and useful observations, which we believe would have been forthcoming if the evaluation had been conducted without the various constraints noted above and in the report.

Recommendation 2: The recommendation is that where conditions permit, the Bank Group should support product diversification to meet the demand for undersupplied, high-value-added nutritious products while ensuring that smallholder farmers and SMEs benefit from diversification. In this context, the evaluation recommends that MIGA build on its successful experiences in the poultry and beef sectors in Eastern and Southern Africa. However, MIGA is of the view that the recommendation for focusing on higher-value products should align with the country’s needs and present-day food security challenges. Furthermore, to replicate the successful cases, MIGA would emphasize the importance of enabling environments for foreign direct investments and the role of the Cascade approach in fostering private sector development. In addition, we agree with the sector-specific points raised by IFC, namely that there must be a path to competitive production of such crops and products for a diversification strategy to be appropriate and that the enabling logistics infrastructure needs to be in place. Hence, in our view, this recommendation needs to be assessed carefully on a case-by-case basis for its appropriateness at the country and sector level.

References

Gautam, Madhur; Debucquet,David Laborde; Al Mamun, Abdullah; Martin, Will; Piñeiro, Valeria; Vos, Ros. 2022. Repurposing Agricultural Policies and Support: Options to Transform Agriculture and Food Systems to Better Serve the Health of People, Economies, and the Planet. Washington, DC: World Bank Group. https://documentsinternal.worldbank.org/search/33711647.

World Bank Group. 2021. Climate Change Action Plan, 2021–2025: Supporting Green, Resilient, and Inclusive Development. Washington, DC: World Bank Group. https://openknowledge.worldbank.org/bitstream/handle/10986/35799/CCAP-2021-25.pdf?sequence=2&isAllowed=y.

World Bank. 2017. Implementing the World Bank Group’s Gender Strategy from Analysis to Action to Impact: Follow-up Note and Action Plan. Washington, DC: World Bank Group. https://documentsinternal.worldbank.org/search/27216919.

World Bank. 2021. Strengthening World Bank Group Outcome Orientation: A Roadmap. Washington, DC: World Bank Group. https://documentsinternal.worldbank.org/search/33161541

  1. Rwanda: Land Husbandry, Water Harvesting, and Hillside Irrigation Project (P114931); Regional Sahel Pastoralism Support Project (P147674); Morocco: Social and Integrated Agriculture Project (P129774) and Myanmar: Agricultural Development Support Project (P147629)