ADDENDUM TO BUSINESS CASE

INCLUDING FOR BRIDGE FUNDING AND SCALE-UP COST EXTENSIONS

SUMMARY INFORMATION
Project Name	The Global Agriculture and Food Security Programme (GAFSP)
Country or region targeted	World Bank IDA (and IDA blend) countries
Type of cost extension (if applicable)	Scale-up
Original project budget	£186m, consisting of £76m-2012/13, £60m-2015/16, £40m-2018/19, £10m-2021/22
Original project start and end dates	2012/13-30 June 2031
Cost extension value (if applicable)	£20 million CDEL
New reduced budget (if applicable)	N/A
New project end date (if applicable)	30 June 2034
Business Case Quest Document No.	3744990

INFORMATION
What is the project’s purpose?
GAFSP: A multi-donor Fund enhancing the impact of multilateral spending on Food & Agriculture The Global Agriculture and Food Security Programme (GAFSP) is c.$3bn global initiative, started in 2009 by the G7/8 and G20, in response to the global food price crisis. It works towards lasting food security in the poorest and most vulnerable countries through support to sustainable food and agricultural programmes. Its purpose is to help fill significant gaps left by bilateral and multilateral programmes and enhance the impact of the leading multilaterals’ investments. It is ICF funded: its approach supports the delivery of multilateral COP commitments on adaptation and resilience in agriculture, in addition to mitigation, albeit recognising the lower-level emissions of the lower income economies. Funding is allocated across five priorities: (i) Raising agricultural productivity, (ii) linking farmers to markets, (iii) reducing risk and vulnerability, (iv) improving non-farm livelihoods, and (v) technical assistance, institution building and capacity development. It provides competitive, catalytic, innovative, well-sequenced public- and private-sector finance and technical advisory services in response to country demand. Annex A outlines GAFSP’s delivery mechanisms and their results achieved since its inception, alongside its operating model, footprint and theory of change. As a source of financing and not an implementing vehicle, GAFSP uses experienced multilateral development partners, with the choice of partner made by recipients. The World Bank Group (including the World Bank and the International Finance Corporation (IFC) its private sector investment arm), the African Development Bank (AfDB), the Asian Development Bank (ADB), the Inter-American Development Bank (IADB), the International Fund for Rural Development (IFAD), the World Food Programme (WFP), and the Food and Agriculture Organisation (FAO) are accredited supervising entities. GAFSP currently has 12 donors and is co-chaired by Canada and the US (after being co-led by Germany and the UK until May 2022). Its inclusive governance Please refer to the central GAFSP Governance document here: https://www.gafspfund.org/sites/default/files/2020-10/GAFSP%20Framework%20Document%20FINAL%20%28external%29_2.pdf assembles donors, governments, supervising entities, farmers’ and CSOs from the north and south around the same table. Decisions in the Steering Committee are taken by members, including donors and governments. GAFSP is incentivising multilaterals to do more in very poor and fragile geographies, where food insecurity and malnutrition are worst, and where climate change as well as conflict and economic pressure affect countries most. GAFSP seeks to help the international system overcome duplication and inefficiencies and close gaps, by incentivising each agency to focus on its comparative advantage, and to model what good looks like. Through the UK’s co-chairing the Steering Committee, including through its reform process and recent shocks and stresses, and then continuing to be a proactive donor that others look towards, we have successfully led efforts to improve the coherence between GAFSP support for governments and its lending to the private sector. Through our co-chairing of the Steering Committee and chairing both the Private Sector Donor Committee and the Results Group until May 2022, the UK secured strong commitments that all projects and investments achieve climate co-benefits (including significant emissions reductions), nutrition outcomes, and benefits for women. Almost 2/3 of projects include adaptation and mitigation measures. In impact evaluations, c.70% of projects are satisfactory or highly satisfactory. An independent 2018 global evaluation confirmed a strong performance for GAFSP; its unique role in bringing together public and private sector finance for agriculture; and its success in ensuring public finance helps attract funding into high impact investments. FCDO has judged GASFP to be a well performing programme. Our Annual Review of November 2022 scored A+. In 2024, GAFSP portfolio will undergo its next 5-year independent global evaluation. The GAFSP Private Sector Window One of its delivery mechanisms is the Private Sector Window: the cost extension injects a further investment into this window. The Private Sector Window provides concessional finance to farmers and direct investment to private sector agribusinesses, with advisory services. Performance. The performance of the Private Sector Window to date is particularly noteworthy for its innovative character for IFI finance and strong value add, in addition to the clearly demonstrated additionality of the finance provided. It is judged that IFC investments supported by GAFSP would not have happened without GAFSP support, as otherwise considered too high risk, given sector, geographic and poverty profile of target groups. Investing in agriculture in frontier markets is considered to be a high baseline risk and needs patient longer-term investments and long lead times. The availability of GAFSP advisory services “first” and along the full investment cycle is an additional asset that not even the sector-agnostic IDA Private Sector Window provides. Most frontier market investments require substantial advisory services. Evaluation. A global evaluation of the Independent Evaluation Group (IEG) of the “World Bank Group’s Support to the Development of Agri Food Economies 2010-20” https://ieg.worldbankgroup.org/evaluations/toward-productive-inclusive-and-sustainable-farms-and-agribusiness-firms published in May 2023, while critical of the World Bank’s public sector performance in the poorest countries, applauded the IFC’s investments’ reach, results and impacts enabled and delivered through GAFSP Private Sector Window support: “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.” “In the agribusiness sector, the Global Agriculture and Food Security Program Private Sector Window plays an important role in supporting projects designed to improve the livelihoods of smallholder farmers in LICs. The Global Agriculture and Food Security Program has been facilitating support outside IFC’s traditional investment and advisory activities, leading to benefits beyond the financing instrument itself through technical assistance and links to the client company and related beneficiaries. Examples include IFC support for a dairy operator in East Africa and a cocoa value chain in West Africa.” “The availability of blended financing through the Global Agriculture and Food Security Program has also allowed IFC to de-risk projects that have a weak initial financial profile but significant developmental impacts.” Leverage. To date, GAFSP Private Sector Window projects leverage on average 1.9 times funding from IFC and 6.5 times in total financing, delivering £6.5 of benefits for every £1 of UK funding provided. The number of farmers and their families reached by the Private Sector Window was almost 6 million, including direct, full-time employment for 35,000 people (almost 40% of whom are women). Beyond the farming community, agribusinesses supported by the Private Sector Window are projected to benefit as many as 22 million men and women directly, including smaller farmers struggling to access finance and markets. UK advisory services funding through the GAFSP Private Sector Window has also helped to deliver and strengthen a range of global institutions and global public goods, for example: GHG Food Loss Tool, Global https://www.gafspfund.org/food-loss-ghg-calculator – developed with the UK’s Carbon Trust Smallholder Platform Sustainable Crop Production Platform https://www.ifc.org/en/what-we-do/sector-expertise/agribusiness-forestry/supporting-sustainability/sustainable-crop-production Food Safety Platform 2.0, Global https://www.ifc.org/en/insights-reports/2020/food-safety-handbook Last Mile Retailer, Global https://www.ifc.org/en/what-we-do/sector-expertise/agribusiness-forestry/promoting-inclusive-development/last-mile-retailer-improving-outcomes-in-agribusiness Nutrition Synergies, Global WFP PPP (Umbrella), Tanzania, Rwanda, Malawi, Zambia Smallholder Handbook 3rd Edition, Global For the 2019 edition, see here: https://openknowledge.worldbank.org/entities/publication /56454844-d3cd-58a2-8e91-9b4a2ea82c84
What is the objective of the cost extension or other changes?
The cost extension (£20 million CDEL) boosts the 2021-25 GAFSP replenishment period and closes a gap to impact. For the wider five-year replenishment period to 2025 and target of US$1.5billion, a key objective as set out in the published Investment Case for the period is (1) is the creation of 1.1 million new jobs on and off-farm. Other objectives include: (2) At least 30 of the poorest countries building sustainable and resilient food systems https://www.gafspfund.org/news/agile-efficient-impactful-gafsp-publishes-new-program-brief (3) A 20% increase in income for an additional 10 million farmers, also including a significant improvement in their household food security (4) A 25% yield increase for an additional 10 million farmers through climate-resilient practices (5) All new projects including climate mitigation and adaptation approaches For the specific cost extension funding lift, it aims to strategically deploy ODA to de-risk local currency high-impact investments involving smallholders, with the objective of sustainable food security and agriculture sector transformation. A new approach within the Private Sector Window: The purpose of the new UK funding is to support the private sector to make new investments in agriculture and food security in some of the poorest countries in a way that demonstrates how one of the major gaps in the current investment ecosystem can be filled. The problem. There is agreement that there are billions of investment finance looking for deals in food and agriculture, including in low and middle/low-income countries and in fragile states. However, even those international donor-funded investors aiming to deliver a measurable development impact often cannot access the highest-impact options of smaller local businesses producing for local markets. Agri-food SMEs producing indigenous grains, fruits, and vegetables to serve local markets and working in local currencies are largely left out as they don’t earn foreign currency from exports to eventually repay the investment. Such companies cannot affordably take out Forex loans, and the governance principles of investors, including Development Financial Institutions (DFIs) such as BII or the IFC, tend to prohibit or avoid the issuing of local currency loans due to the high currency risk attached. Local lenders would have to fill this gap. However, this is not happening because local lenders do not value the agri-food sector in comparison with other more profitable sectors, and because sustainable agri-food businesses often take longer to become profitable. This realisation is just taking root. Local currency lending is not contentious, but many DFIs cannot take it on without an ODA subsidy to buy down the exchange rate risk, because of their investment rules and the need to return a profit within a relatively short time. Local currency lending from international investors in the agriculture sector is not novel or contentious, but it remains a very significant unmet gap in the international development finance architecture for agriculture and food security. because it requires patient and usually blended finance. The response. The objective of the cost extension is to scale up the UK’s contribution to GAFSP to demonstrate how to fill a major gap For recent literature on the issue, see, for example Shama Centre (Oct 2023), Unleashing the Catalytic Power of Donor Financing for SDG2, https://www.donorplatform.org/wp-content/uploads/2023/10/GDPRD_ Shamba-Centre-Finance-Enquiry_Summary-Report_18-OCT-2023_draft-5-unedited.pdf Local currency lending is also a priority of the BRICs’ New Development Bank, though not in food and agriculture: https://www.ndb.int/wp-content/uploads/2022/07/NDB_StrategyDocument_eVersion.pdf in the global theory of change for agriculture supporting food security in food insecure and vulnerable poor countries. The UK’s contribution will provide a potentially transformative contribution to GAFSP’s replenishment for the period 2021-25 This was launched in October 2020 by the then UK’s Co-Chair Germany. For the UK’s contribution at the launch delivered by FCDO Minister Duddridge, following the announcement of new financial commitments by Germany (EURO 202million), Australia, Gates Foundation, Spain, and Norway, please see here at 2:06-2:11 of the full event recording. The summary can be found here. Due to the replenishment being over a rolling period of five years, subsequent further contributions have been made, eg by Spain, the US, the UK and others. by enabling the Private Sector Window (PrSW)of the programme to invest in smaller agri business operations with high-risk, high-impact profile through local currency loans. Such operations would otherwise not be investible, because they are unable to access Forex-denominated loans. Smaller local investee businesses can make a major contribution to all five objectives. Strong learning and communications elements of this pilot are expected to incentivise others to follow the UK’s example and to help filling this key gap, which is preventing local currency loans from being issued and some of the most important businesses to thrive. Under the proposed local currency pilot supported by the UK, GAFSP will step in with a full buydown of the extra interest rate charged to manage the exchange rate risk, which reduces the interest rate for the client company to a reasonable and affordable percentage. If a local currency devaluation occurs, the UK ODA amount will be utilised; if it does not occur, and the investment produces positive reflows to the IFC-managed capital, the funding can be reutilised for new local currency loans. Initially, IFC plans to buy down the currency risk of at least 4-5 high-impact investments with the new UK funding and to propose similar schemes to the other GAFSP PrSW donors once this pilot will have proved success. Proposed investments are shared with the UK and the donor committee in summary for their approval, before going to the IFC Board to approve the full larger investments. The exchange rate buy-down mechanism proposed by the IFC for this GAFSP pilot is a proven approach and one that will enable local currency-financed projects to go ahead that wouldn’t otherwise be viable because of currency risk. This type of investment has the highest impact for smallholders, local food security, and smaller agri-businesses, none of them have access to other development finance, because that is denominated in Forex and is accessible for cash crops for exports and larger, often multinational companies, which can be at the expense of local supply chains and local food security. Impactful projects in the agriculture and food security sector warrant the use of UK ODA to provide a subsidy to buy down the exchange rate risk. The pilot will also contribute to the long term need for systemic change in the provision of local currency investment by conducting learning within and outside GAFSP and the IFC to incentivise scale over time and contribute towards the goal of deeper, more stable and more inclusive financial systems in the long term. This UK contribution is additional and complementary to other local currency investment initiatives, in particular: Advisory services - GAFSP PrSW offers both investment and advisory funding support for smallholder focused agribusiness and agri-finance projects. In many projects, the two go hand in hand. This combination is important and has been identified as such in evaluations. The World Bank IDA Private Sector Window (PSW) does not offer funding support for linked Advisory projects. Wider geographical focus – GAFSP PrSW’s country eligibility list includes 71 IDA-only, IDA-GAP and IDA-Blend countries compared to 55 for the World Bank IDA PSW; this allows more flexibility for supporting impactful projects. Key countries with smallholder agri-food projects no longer eligible for IDA PSW support from 2024 include Africa: Cabo Verde, Côte d’Ivoire, Djibouti, Ghana, Lesotho, LAC: Dominica, Grenada, Guyana, Honduras, Nicaragua, Asia: Bangladesh, Fiji. And for all geographies of 14 IDA-Blend countries (including some large economies such as Pakistan, Kenya, Nigeria, Cameroon, Uzbekistan, Fiji). Additional resource for local currency – the World Bank IDA PSW’s local currency window is heavily subscribed. This UK contribution to GAFSP PrSW is an additional source. Margins can be very tight for agriculture businesses with a strong smallholder element. Local currency can be really important to achieve impact towards the SDG2.
What is the additional and total support the UK will provide?
The UK will provide an additional £20 million to GAFSP in financial year 2024/25. 100% percent of GAFSP’s funding is classified as International Climate Finance (ICF), based on the programme’s track record of delivering climate smart approaches. 100% of the additional funding will be CDEL, for full FCDO disbursement in 24/25. The funding is within GFAL’s confirmed budgets for 2024/25. It takes our total allocation to £206 million over 13 years (2012/13-24/25). No further investments are planned within this Business Case that has previously been extended. IFC’s investments currently run through to 2031/32. The recently extended final commitment date in 2026 for investments made through the Private Sector Window takes the programme to a final repayment date in 2034. With new investments from the UK pilot being made in 2024, with a period of 8+2 years, this will extend the UK-funded ‘live’ programme of investments to 2034. Per PrOF rule 11, this programme counts as a Development Capital Grant programme, a grant from FCDO to a third party/intermediary to make investments on its behalf. The financial asset will be held by IFC, reflows will be re-invested by the IFC on same terms (agreed in a dedicated bilateral agreement) the funds will not return to FCDO.
What are the expected results?
As per the GAFSP results framework, the investment will broadly support food security and nutrition, raise incomes and jobs, and promote the economic empowerment of women alongside agricultural supply chains and, through mothers’ economic empowerment, improved livelihoods at household level, also girls’ education and broader futures. More strategically, our funding will enable us to shape the type of investments IFC makes in poor countries. It will support agri-tech investments benefiting large numbers of people and putting commercial operations on a more sustainable footing, in terms of financial, social, and of climate and environmental sustainability. GAFSP’s Private Sector Window invests both in the very poorest countries that can only access the World Bank’s International Development Association (IDA) on grant or highly concessional terms countries, and in more creditworthy countries such as Kenya, Nigeria, Pakistan and most ODA-eligible SIDS, if these can demonstrate strong need alongside their food and agriculture sector relying on large numbers of smallholder farmers (IDA blend countries, for the 2024 list of IDA and IDA Blend countries see the chart within Annex A). Our own new funding will be invested across these two groups, in areas that face increased food insecurity, adverse climate impacts, and other stresses, and where there is the potential to achieve climate transformation in the short- to medium-term future as well enabling benefits for the largest possible number of farmers and secondary beneficiaries. It is part of the GAFSP governance that donors do not earmark funding for pre-identified countries; yet, key parameters can be defined in line with the overall goal of the initiative. Two illustrative examples These examples serve to illustrate the type of investment that may be considered. They are not concrete investments proposed for funding but rather serve to set out the objectives, approach and benefits sought. GAFSP governance does not allow earmarking of specific countries or specific investments by donors. Parameters are set through donor allocations being committed to specific windows, and, as in this case, to more specific target conditions and objectives than set out in the overall GAFSP governance. For investments to be confirmed, investment proposals also require approval by the IFC Board. This happens after the investment preparation work has been completed. For preparation work to kick off, GAFSP funding has to be ensured “in principle”, ie committed by donors, and approved by the GAFSP Private Sector Window Committee. of the type of investment that could be considered for our new funding for Africa and Asia are set out in Annex B: an Inclusive Agribusiness Company in Madagascar and a Dairy Processing Project in Bangladesh, both with a potential loan value of $15m over 8 years. If selected, these indicative investments could deliver: Madagascar: Strengthened local food supply, local food security and nutrition, reduced import dependency, reduced GHG emissions, improved resilience and adaptation, increased farmer incomes and market access for up to 15,000 farmers, improved business and operational capacities, multiple benefits for women (as farmers, business operators along the supply chain, carers of their families, own food security and nutrition/health benefits). Bangladesh: Business expansion, increasing daily milk collection from 12,000 liters/day (l/d) to over 200,000 l/d, bringing in 4000 more farmers, strengthened local animal protein supply, local food security and nutrition, food safety, reduced food loss and waste, improved resilience and adaptation, increased farmer incomes and market access, improved business and operational capacities, multiple benefits for women (as farmers, business operators along the supply chain, carers of their families, own food security and nutrition/health benefits, enhanced capacities For example: https://www.gafspfund.org/news/making-difference-women-farmers-bangladesh ) Results are monitored against a robust results framework, applicable to all participating multilateral agencies and all windows. Regular central assessments are also undertaken. A sample of projects is thoroughly evaluated by the World Bank’s Development Impact Evaluation Group, in addition to scheduled independent programme evaluations. The Private Sector Window investments were also subject to a global IEG evaluation of the World Bank Group’s farm support and agribusiness programmes published in May 2023 IEG: Towards productivity, inclusivity, and sustainability: An evaluation of the World Bank Group’s support for the development of agrifood economies (2010–20), https://ieg.worldbankgroup.org /evaluations/toward-productive-inclusive-and-sustainable-farms-and-agribusiness-firms . In 2024, the entire GAFSP portfolio will undergo its next 5-year independent global evaluation.
What is the approach to implementation?
The additional £20 million CDEL UK funding will be committed to the high performing IFC-managed GAFSP Private Sector Window, designed for private sector investments and supportive advisory services, under a local currency pilot. Learning from Local Currency Pilot. Following discussions with IFD colleagues working on local currency pilots about avoiding such an investment working as an effective subsidy, the pilot will conduct strong learning within and outside IFC so as to incentivise scale over time and contribute towards the goal of deeper, more stable and more inclusive financial systems – including greater local currency use - in the long term. We will amplify lessons and galvanise donors also through our role as Co-Chair of the Global Donor Platform for Rural Development (from January 2024). Risk management. Risks (including risk of fraud, delivery risks and lack of momentum on reforms) will continue to be monitored and mitigated through strong donor coordination, robust monitoring and evaluation, and by delivering through established supervising entities with their regular risk management, safeguard and accountability mechanisms. The latter are also subject to regular scrutiny by contributing donors through Multilateral Organisation Performance Assessments (MOPAN) and bilateral reviews. The technical team in GFAL, with colleagues in DC, will closely monitor the progress of the pilot mechanism. Financial and operational management. The World Bank, as manager of the GAFSP overall Trust Fund, is responsible for ensuring compliance with the Bank’s financial and operational procedures; and maintaining up to date legal agreements between the Bank and each donor. The GAFSP Coordination Unit (based in the World Bank) has recourse to specialist in-house legal advice on all matters. The Trustee for the trust fund provides information to GAFSP’s Steering Committee voting members, with decision-making frequently applying a no-objection “silence” procedure. On more complex issues, donors share findings from their bilateral legal teams with other key donors, with the aim of developing an aligned position in feedback to the Bank. Specifically, for the proposed new funding, IFC’s Performance Standards https://www.ifc.org/wps/wcm/connect/Topics_Ext_Content/IFC_External_ Corporate_Site/Sustainability-At-IFC/Policies-Standards/Performance-Standards , acknowledged as ‘best in class’ for private sector investment, will apply in all relevant detail. Due regard to Gender Equality. GAFSP overall has a strong track record of considering the role and challenges faced by women in its target countries and will continue to prioritise gender equality as one of its cross-cutting areas. The gender marker for GAFSP is “Significant” (gender equality is explicitly stated but not the fundamental driver of the project). Gender equality is one of three cross-cutting priorities in GAFSP (alongside nutrition, and climate change). See Annex C for more detail on the approach. The new UK funding in particular will create opportunities for inclusive and sustainable business by linking farmers to global value chains and implementing approaches that target gender equality, including access to new technologies that often exclude women. Empowering women in agriculture supply chains invariably has ripple effects in other areas like education and health, for households and wider communities. The risk of funds being used for terrorism is low. Although GAFSP projects and investments operate across many countries, funds flow to supervising entities with strong financial systems and procedures in place to monitor and account for funding.
Describe any key changes to the original business case including the theory of change or new evidence from ongoing monitoring, evaluation or learning work?
A theory of change and value proposition for the whole programme including the reformed structure (GAFSP2.0) was agreed in April 2018, and changes to the legal governance documents are now being finalised. A graphic representation is attached within Annex A. The programme has learnt, developed and matured since the original business case and its extension in 2015, though its core purpose and mandate remain unchanged. It has developed a direct support option for farmers’ organisations to fill a gap in the programme’s operations and wider architecture, negotiated a robust new monitoring and evaluation framework, and has had its impact and systems monitored and evaluated by the Bank’s development impact evaluation office (DIME), civil society and independent evaluators, in addition to regular progress monitoring by the Coordination Unit and through the supervising entities. See also here: https://www.gafspfund.org/index.php/monitoring-and-evaluation The most recent independent global evaluation (2018) provided evidence on how the programme delivered during its first phase, with recommendations taken forward as part of the reform process and through the design of future calls for proposals. Of particular relevance here: It judged the GAFSP Private Sector Window has been unique in the agriculture architecture at modelling high impact investments that maximise the benefits to poor people, while being financially sustainable and demonstrating impact through robust evaluation. Through GAFSP, the IFC is now carrying out their first ex-post impact evaluations of a blended finance investment and is adopting poverty scorecards which track the impact of an investment on poverty; The evaluation highlighted that the public and private windows have operated almost completely independently. This has resulted in weak coordination and means opportunities were missed. Since the evaluation, the strategic focus of UK RDEL support to the IFC’s advisory services, and strong influencing on the public sector side, has led to more recent programming being better coordinated and integrated wherever this makes sense. See for example the Private Sector Window example linking public and private sector investment and advisory services for added, sustainable value, in Haiti. Featured in the GAFSP Private Sector Window’s flagship publication, IFC (Jan 2022), 10th anniversary edition of Changing Lives, available here and here. The next global evaluation will take place in 2024. The UK has shaped the Terms of Reference. GAFSP has flexed in times of need: it stepped up fast in 2020 and has responded well to the impacts of COVID-19, made worse by climate change and conflict. In the past year, alongside its regular programme implementation, GAFSP launched two competitive calls for proposals and awarded: US$220 million in new grants in 15 countries to public sector programmes March 2023: https://www.gafspfund.org/news/gafsp-provides-new-funding-countries-strengthen-resilience-smallholder-farmers ; US$33.93 million for 15 Producer Organizations in 13 countries July 2023: https://www.gafspfund.org/index.php/news/gafsp-builds-producer-organizations-capacity-future-crisis-responses ; and has made 5 new investments and supported 6 new and additional funding lines for 4 ongoing advisory services projects (1 July 2022 - 30 June 2023). Learning has additionally been supported through annual workshops https://www.gafspfund.org/sites/default/files/2023-04/2021%20GAFSP%20Knowledge%20Forum%20-%20Summary%20Note%20-%20FINAL%20%281%29.pdf convening the task team leaders of all supervising entities in a ‘safe space’ environment in which lessons from both failure and success stories were exchanged. Further Governance reforms are underway to improve effectiveness – with the planned model outlined within Annex A. The UK remains closely involved.

Annex A – Understanding the wider GAFSP and its impact

The GAFSP operating model and new Governance structure is illustrated below, with an illustration of where it funds and its theory of change.

(i) The GAFSP Operating Model and results to date

It has developed over the years, flexing and learning, to deliver results in three ways:

It provides competitive grants to recipient countries, based on assessment of need, that enable them to implement activities included in their agriculture sector investment plans and updated national adaptation plans that they would otherwise not be able to carry out. Through this Public Sector Window, Governments can choose between the accredited supervising entities to support them to implement projects.

The Private Sector Window provides concessional finance to farmers and direct investment to private sector agribusinesses via GAFSP’s private sector window, delivered by the private sector arm of the World Bank Group, the IFC. This blended finance aims to increase access to finance in difficult contexts, and for clients with a smallholder focus, driving innovation (in particular on climate), technology transfer, leveraging and scaling impact. Specialised advisory services help to scope, shape and support investments to de-risk and deliver impacts as well as showcase innovation and emerging best practice.

A few years ago, at the request of the UK, GAFSP also piloted a ‘Missing Middle Initiative’ to bridge the gap between the public and private mechanisms, providing smaller grants to farmer organisations to increase their productivity or innovate.

The Public Sector Window has so far supported 96 projects in 41 countries through public grant awards totalling US$ 1.6 billion and provided direct support to producer organisations totalling US$ 46.4 million (by 31 December 2022). 16.6 million farmers and their families (41% women) were reported to have directly benefitted and received support to enhance their farm and off-farm livelihoods through these projects, in particular the rollout of new technology, improved irrigation, rural market infrastructure, climate adaptation, emissions reductions, and public health and nutrition services.

Donors provide development capital grants to the Private Sector Window for investments by the IFC that can be loans, equity or guarantees through risk sharing facilities with financial institutions including social lenders, microfinance institutions, and commercial banks, in addition to financing direct agri-clients (senior loans account for 44%, and subordinate loans 24%, guarantees 21% and equity constitute 11% of investments). By end of 2022, GAFSP had supported 179 private sector projects totalling $493 million, consisting of 89 investment projects in 29 countries totalling US$475 million of GAFSP finance invested, and 95 complementary advisory service engagements in 33 countries totalling US$47 million, increasingly preparing the ground for private sector investment in fragile and highly climate-vulnerable contexts. Total private sector finance leveraged by IFC through GAFSP amounts to ~U$3.4 billion.

By the end of 2022, GAFSP had invested US$2.1 billion in 275 projects in 50 of the world’s poorest countries, including 36 countries affected by fragility, conflict and violence. Due to significantly increased needs, stemming from high baseline, COVID-19, conflict, and climate vulnerability, GAFSP is vastly oversubscribed. Only a small percentage of proposals received in response to the two recent calls for public sector and producer organisation grants were funded.

IFC PrSW trust funds IFC PrSW projects Steering Committee FIF at the WB with a single window (unallocated) Centrally funded GAFSP Programme IFC Donor Committee

Agreed new ‘GAFSP 2.0’ Governance structure – in progress

(governance changes under finalisation)

The left-hand side of the graph shows the new single window mechanism. The right-hand side depicts an unchanged IFC window continuing to managed pre-committed existing investments. The IFC can participate in the single new window.

(ii) the Geography of GAFSP funding and private sector projects, December 2022

Source: GAFSP Annual Report 2022, pp. 16+18, available here

(iv) Eligible IDA and IDA Blend Countries as per FY 2024

(iii) GAFSP Theory of Change

Annex B: Two illustrative potential investment examples These examples serve to illustrate the type of investment that may be considered. They are not concrete investments proposed for funding but rather serve to set out the objectives, approach and benefits sought. GAFSP governance does not allow earmarking of specific countries or specific investments by donors. Parameters are set through donor allocations being committed to specific windows, and, as in this case, to more specific target conditions and objectives than set out in the overall GAFSP governance. For investments to be confirmed, investment proposals also require approval by the IFC Board. This happens after the investment preparation work has been completed. For preparation work to kick off, GAFSP funding has to be ensured “in principle”, ie committed by donors, and approved by the GAFSP Private Sector Window Committee.

(1) Inclusive Agribusiness Company – Madagascar

Project: IFC is considering an up to US$15 million equivalent senior loan in the Malagasy Ariary, with 8-year/2-year tenor/grace, to support capital expenditures and working capital expansion for an agro-industrial complex being developed in Madagascar, a low-income IDA country, by a leading inclusive agribusiness company, majority-owned by local farmers (12,000+ smallholders). The project supports domestic value addition and job creation, improves smallholder farmers’ access to high quality agricultural inputs, steady offtake of maize and rice and trainings on climate- and nature-beneficial agricultural practices to increase sustainable production, while increasing food security and nutrition for local consumers through access to safe, quality and affordable food products. The project support for sustainable farming on more than 13,000 ha of land mainly for maize and rice production for local markets, half of this land to be cultivated by smallholder farmers.

Financing: The project requires local currency debt, as it will generate local currency income. However, the only available MGA (Malagasy agiary, the local currency)/ US% cross-currency swap is offered by TCX, the leading local currency exchange fund which hedges related risk In many of the markets IFC is active in, efficient, commercial swap markets do not exist. Often there is not a single swap provider offering any swap; in other markets only one swap counterparty, the Currency Exchange Fund (TCX) offers swaps. TCX was specifically founded by a group of DFIs, specialized microfinance investment vehicles and donors to offer solutions to manage currency risk in developing and frontier markets. , at a rate of 9.5%, which, in addition to a credit spread of 6.1% results in a total interest rate of 15.6%, which is prohibitively high. At this cost the company would not be able to pursue the project. There is a major gap in real-life lending for development, through a systemic absence of medium- and long-term local currency financing available to companies in Madagascar and other low-income countries. Financing a project such as the presented example with short-term loans would expose it to significant refinancing risk, exceeding what DFIs and IFIs can do. Given the long gestation period, a tenor of 8 years is needed.

UK ODA / GAFSP support: Due to its internal policies, IFC would not be able to pursue this high-impact project on its own with the needed local-currency financing because of the prohibitively high USD-hedging cost which the client (and project) cannot afford. Strategically deployed ODA enables IFC to invest a significantly larger amount through local currency. Hypothetically, with about US$5.3 million of UK ODA funding over the life of the loan to support the buy down of the swap rate and thereby mobilize the IFC financing, the swap cost could be reduced from 9.5% to 3.1% for the client. This would reduce the total interest rate from 15.6% to 9.2%, which is in line with the Madagascar market level for shorter-tenor loans in local currency with a moderate-term premium for longer tenor. The IFC financing in turn would mobilize the remaining equity investment.

Results and impact:

Economy-wide effects: The project supports domestic value addition and employment generation by expanding food production, processing, and distribution in the country. It reduces the country’s import dependency through production of food for local markets that will otherwise need to be imported at currently much increased prices. The project will also be climate-beneficial through the reduction of GHG emissions related to international food trade, often via long distances, and the rollout of sustainable farming practices.

The project is expected to increase smallholder access to crop markets by sourcing more commodities from local farmers. Further, the project will offer technical support to farmers, and in particular promote sustainable practices. The project will onboard an additional 3,000 smallholder farmers in the company’s sourcing network (currently 12,000 farmers).

The project is expected to increase food security for consumers through increased access to safe, high quality, and affordable food products (maize, rice and groundnuts), contributing to reducing the high prevalence of undernourishment among vulnerable populations, especially BoP consumers in Madagascar.

(2) Dairy Processor – Bangladesh

Project: IFC is reviewing an up to US$15 million equivalent 8-year A loan in Bangladeshi Taka (BDT) for Company ABC to support its dairy business expansion. An additional US$4 million equivalent in BDT would be provided by local banks in the form of medium/short-term working capital; the company sponsors would invest US$10mn equivalent in equity. Over a period of five years, ABC wants to expand its currently small existing dairy production and increase daily milk collection from 12,000 liters/day (l/d) to over 200,000 l/d by investing in additional collection centers and milk processing capacity. To achieve that, ABC plans to increase the number of supplying farmers from 1,000 to ~5,000 and add 40 collection centers with varying capacities to its existing two. The logistics will be strengthened with additional refrigerated trucks for the raw milk transport between collection hubs and collection centers, 100 chilling freezers for distribution points and 10,000 coolers for retail outlets.

Financing: The project requires local currency debt, as the company has no US$ income. However, the only available BDT/USD cross-currency swap is offered by TCX at a rate of 13.4%, which, in addition to a credit spread of 3.5% results in a total interest rate of 16.9%, which is prohibitively high. At this cost, the company would not pursue the project (financing it with short-term loans would expose the project at significant refinancing risk). Given the long gestation period, 8 years is needed.

UK ODA / GAFSP support: IFC would not be able to pursue this high-impact project on its own with the needed local-currency financing because of the prohibitively high USD-hedging cost which the client (and project) cannot afford. Hypothetically, with about US$4.3 million of UK ODA funding over the life of the loan to support the buy-down of the swap rate and thereby mobilize the IFC financing, the swap cost could be reduced from 13.4% to 5.5% for the client. This would reduce the total interest rate to 9.0% which is in line with the Bangladesh market level for shorter tenor loans in local currency. The IFC financing in turn would mobilize the remaining local currency bank financing and equity investment.

Impact:

The project promotes inclusive economic growth via increased collection of milk from an additional ~4,000 dairy farmers, in combination with training and extension services to improve sustainable farming practices & increase dairy farm productivity.

Through more efficient dairy supply chains, loss and waste would be reduced significantly.

The investment enhances food security and animal protein intake by increasing production and access to safe consumption of dairy products. Malnutrition is significant and supply of animal protein in the form of affordable meat and dairy products is insufficient (daily per capita milk consumption of 40-50 ml in Bangladesh, compared to the WHO-recommended minimum of 250 ml).

Annex C: Gender Impacts and Approach in GAFSP

The strategic importance: Despite their high rate of participation in the agricultural workforce, many women in developing countries have very little decision-making power. If women globally had the same access to productive resources and information as men, they could increase the yields on their farms by 20–30%, thereby raising incomes and reducing the number of people facing hunger by up to 17%. UN Food and Agriculture Organisation: The State of Food and Agriculture, available here.

GAFSP approach. All projects carry out gender analysis during project preparation; build gender-focused actions into the project; and monitor gender-disaggregated data. The GAFSP monitoring and evaluation framework makes it mandatory for projects and investments to report sex-disaggregated data.

Shifting how things work. As of December 2022, GAFSP-funded projects have provided agricultural support to 7 million women, more than 41% of all people reached. In addition, 89% of a sample of 62 GAFSP projects include gender-gap narrowing activities. These include interventions aimed at addressing gender gaps in agricultural productivity, strengthening women’s involvement in collective decision-making bodies and local governance structures, improving women’s food security and dietary diversity, supporting women’s entrepreneurship, enhancing access to markets, addressing gender-based violence, building women’s organisational and operational capacities, and providing employment and income generation opportunities.

Public investment projects generally have a high proportion of female beneficiaries – GAFSP are working to further increase this proportion in the private sector investments (to at least 50%), and advisory services prioritise gender https://www.ifc.org/en/what-we-do/products-and-services/advisory-services . A recent evaluation confirms that IFC has broken new ground on focusing on gender in the organisation and in investing in the agriculture sector.

Annex D – List of Abbreviations

ADB	Asian Development Bank

AfDB	African Development Bank

BDT	Bangladeshi Taka

BIFT	Business Investment Finance Track

BoP	Bottom of the (Poverty) Pyramid

BRICs	Brazil, Russia, India, China

CDEL	Capital Departmental Expenditure Limits
(internal HMG terminology: for new investment and net policy lending such as acquiring capital resources, debt replenishment, development capital grants or development capital investment expenditure. This is divided into Fiscal CDEL and non-Fiscal CDEL)

COP	Conference of Parties

(supreme decision-making body of the UN Climate Convention)

DFI	Development Finance Institution

DIME	Development Impact Evaluation
(entity in the World Bank generating high-quality, operationally relevant evaluation and impact data and research to transform development policy, help reduce extreme poverty, and secure shared prosperity)

IEG	Independent Evaluation Group (of the World Bank Group)

FAO	Food and Agriculture Organisation

Forex	Foreign exchange

GAFSP	Global Agriculture and Food Security Program(me)

GDP	Gross Domestic Product

GHG	Greenhouse Gas

IADB	Inter-American Development Bank

ICF	International Climate Finance

(UK government commitment to support developing countries to respond to the challenges and opportunities of climate change)

IDA	International Development Association
(of the World Bank to help the poorest countries reduce poverty by providing zero to low-interest loans and grants for programs that boost economic growth, reduce inequalities, and improve people’s living conditions)

IFAD	International Fund for Agricultural Development

IFC	International Finance Corporation

IFI	International Financial Institution

l/d	Liters per day

MGA	Malagasy Agiary (local currency of Madagascar)

MOPAN	Multilateral Organisation Performance Assessment Network

PPP	Public-Private Partnership

RDEL	Resource Departmental Expenditure Limits
(internal HMG terminology: current expenditure such as pay, procurement or other costs directly associated with the delivery of policy objectives. This is divided into administration and programme RDEL.)

SDG2	Sustainable Development Goal 2: Zero Hunger

SIDS	Small Island Developing States

TCX	(The Currency Exchange Fund (‘TCX’) was founded in 2007 by a group of DFIs, specialized microfinance investment vehicles and donors to offer solutions to manage currency risk in developing and frontier markets. By hedging local currency loans, TCX contributes to more sustainable development in emerging and frontier markets.)

WFP	World Food Program(me)

WHO	World Health Organisation