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August 09, 2012

How to Fund a Sustainable Food System
    by Robert Kropp

RSF Social Finance publishes a report on steps investors can take to help build a just and sustainable food system in the US. -- Institutional investors with a commitment to sustainability have focused for years on the negative impacts of agribusiness, engaging with food companies in an effort to reduce childhood obesity in developed nations and protect the environment from unsustainable business operations.

Recognizing the challenges to food availability from overpopulation and resource scarcity, the United Nations' Principles for Responsible Investment (PRI) published the Principles for Responsible Investment in Farmland last year. The signatories to the Principles agree to promote environmental sustainability, respect labor and human rights, respect existing land and resource rights, and promote high business and ethical standards.

But engaging with McDonald's to improve the quality of Happy Meals, or clashing with Monsanto over genetically modified organisms (GMOs), are not the only avenues for sustainable investors to address the numerous problems embedded in the US food production system, as a new report from RSF Social Finance points out.

The report, entitled Bridging the Gaps: Funding and Social Equity Across the Food System Supply Chain, highlights many of the concerns shared by sustainable investors, including obesity, environmental degradation, and agricultural pollution. In addition, the report observes, "Corporate control of the agriculture industry in the US… has contributed to the deterioration of rural agricultural communities and agricultural infrastructure in many regions as smaller farms have been swallowed up by larger ones and infrastructure has adapted to the industrial system or disappeared."

To create a sustainable food system in which everyone has equitable access to healthy, fresh, and safe food, the report continues, "Requires sufficient production of healthy food in every region of the US; widespread distribution systems to ensure adequate physical access to food; nutrition assistance for low-income families; education about basic nutrition; and changes in food preparation and consumption habits."

The report proceeds to identify the current sources of financing a sustainable food supply. The investors surveyed report that 65% of their financing is through grants; 52% through intermediaries; and 44% via debt. Only 9% of financing comes from equities.

Seventy-three percent of respondents identified "access for underserved communities (as) the impact area with the greatest amount of interest." A method for providing such access familiar to sustainable investors is through community loan funds and other community development financial institutions (CDFIs). Last year, the Community Development Financial Institutions Fund (CDFI Fund) awarded $25 million in grants to 12 CDFIs that are "focused on developing solutions for increasing access to affordable healthy foods."

Yet the challenges to developing a truly sustainable food supply in the US are considerable. Addressing the many challenges will require a foundation of education, technical assistance, and collaboration between funders and entrepreneurs, before a system of financing can be fully realized.

"There remains a need for more capital across the entire supply chain," the report concludes. Syndication on investments, regional community investment, and alternative "financing vehicles that address social equity and the unique aspects of food and agriculture businesses" will be required to achieve the scale needed for what amounts to a revolution in food production in the US.

"Our goals with this paper are two-fold," Taryn Goodman, RSF’s Director of Impact Investing and co-author of the report, said. "First, we want to help funders build a foundation of greater knowledge to encourage collaboration among peers and with entrepreneurs. Second, we want to propose solutions for designing targeted, high-impact, and effective funding strategies to increase the flow of capital."

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