AGRICULTURE

THE STATE OF FOOD AND AGRICULTURE 2016
site-specific evidence base. First, a proper
assessment of the barriers smallholders face in
transitioning to climate-smart, sustainable
agricultural systems is undertaken (Box 14).
The initial assessment is then the subject of
dialogue among all stakeholders to decide
what changes in policies and incentive
structures are needed in order to create
enabling conditions for the transition.
Explicit recognition of the costs of making
changes is needed in order to adequately
identify where trade-offs are possible. For
example, the improvement of soil carbon stocks
through improved land management and
restoration carries investment costs in the form
of fencing, seed and machinery, opportunity
costs in the form of lost production, and
operating costs in the form of annual labour
inputs needed to maintain and enhance soil
carbon. The costs of adopting practices that
increase soil carbon can be quite significant for
smallholders, particularly in the initial and
transition phases. They can also outweigh the
benefits to the farmers themselves, while
generating benefits to others, by improving
landscape and watershed functions.
Table 10 provides an example of these costs,
indicating the number of years before a
positive return could be obtained by yak
herders in Qinghai Province, China, if they
invested in restoring their highly degraded
grazing lands. The smallest producers have the
smallest returns in terms of the net present
value (NPV) 6 per hectare of investment. They
also face the longest wait for positive returns –
it would take 10 years for their investment in
restoration of degraded grazing lands to yield
the same level of income they make with the
current degraded system. While the restoration
of highly degraded lands is considerably more
expensive, the costs associated with the
adoption of improved land management
practices on good soils also represents a
significant trade-off for farmers (FAO, 2009).
6 The NPV of an investment is the difference between the present value of
cash inflows and outflows
The costs that agricultural producers face – and
therefore also the trade-offs – are influenced
by the policy and institutional environment.
An important step in the transition to climatesmart
agriculture, therefore, is assessing the
need to modify existing policy measures, such
as input subsidies, and the potential of social
protection programmes to address risks
imposed by climate change. For example,
subsidies on mineral fertilizer generally do not
provide incentives to use fertilizer efficiently;
in fact, they may produce quite the opposite
effect. Likewise, integrating exposure to
climate risks as part of the targeting
methodology for social protection programmes
is a relatively easily implemented institutional
shift in the direction of climate-smart
agriculture. Re-orienting agricultural research
to integrate climate change adaptation and
mitigation is another important component of
an enabling environment (Box 15).
The financing challenge
The sustainability of smallholder food
production systems will depend upon the
ability of smallholders to adopt climate-smart
practices and technologies. To accomplish this
goal, additional financial investments are
needed. However, accessing finance for the
agriculture sectors – let alone for climatesmart
agriculture – is a challenge in many
developing countries and has been for decades.
Traditionally, agriculture’s share in the
portfolios of financial institutions has been
small, and especially so when compared to
agriculture’s contribution to GDP. Because the
agriculture sector is considered low-profit and
high-risk, sources of finance in most countries
limit their exposure, tighten lending criteria
and impose onerous lending conditions. They
often shy away from agriculture altogether,
preferring to seek more stable returns from
other sectors of the economy. The resulting
shortfall in finance severely impacts
agriculture, especially farmers and small and
medium-sized agribusinesses. »
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