New Report Unveils Critical Investment Opportunities in Climate Adaptation for Smallholder Farmers

A first-of-its-kind report released today by AgFunder and ISF Advisors with support from the Bill & Melinda Gates Foundation sheds light on the pressing need and opportunities for private investment in climate adaptation within the agriculture sectors of emerging markets, focusing on the pivotal role of smallholder farmers.

Entitled Climate Capital: Financing Adaptation Pathways for Smallholder Farmers the report highlights how nearly half of the global population, approximately 3.6 billion people, are highly vulnerable to the impacts of climate change. But despite this vulnerability, investment in climate adaptation has far to go to catch up to the $212 billion needed annually by 2030 for low and middle-income countries. Smallholder farmers, who produce a significant portion of the world's food, are identified as crucial players in addressing food security challenges exacerbated by climate change.

Key findings from the report include:

• Varied private capital sources are investing in smallholder adaptation but most financing for small agribusinesses and farmers comes from financial institutions and microfinance providers. Since financial institutions don’t classify loans according to adaptation solutions, granular data on exact levels of investment are hard to find.

• Multilateral development banks are investing at an increasing pace; in 2021, they doubled adaptation investment in food, agricultural, and ecological resources to just over $2.4 billion compared to the year before.

• In smallholder-focused adaptation, tech investors -- predominantly venture capital, private equity and impact funds – have put over $5.7 billion of funding to work on adaptation tools and services for smallholders since 2012. And investment has increased year-over-year, except in 2023 when the whole venture capital market experienced a downturn.

• Digital tools and platforms for farmers, including agribusiness marketplaces and farm management services, are among the most popular categories for tech investors funding climate adaptation for smallholders.

• South Asia is the most active region for investment in smallholder-relevant adaptation tech, bringing in $1.9 billion since 2012, the vast majority of that from India, one of the world’s leading agtech markets.

What the data don’t show are other untapped adaptation initiatives for a range of investor types, which the report identifies via six key investment opportunities:

• On-farm/off-farm infrastructure
• Climate-smart inputs
• Enabling data and intelligence
• Financial services
• Climate adaptive supply chain connectors?
• Digital marketplaces?

Leveraging data from AgFunder and other industry peers, the research provides an in-depth analysis of tech investment in these areas and maps out specific opportunities where funders can make a significant impact outside of tech.

"Adapting to climate change is not just an urgent necessity for our food system but a significant investment opportunity," said Dan Zook , Executive Director at ISF Advisors. "This report lays the groundwork for investors to understand where their capital can not only foster resilience among smallholder farmers but also drive financial returns by tapping into underserved markets."

The report also stresses the importance of collaboration between different types of investors in adaptation projects, highlighting the need for strategic grants, technical assistance, and the application of impact measurement frameworks to enhance the success and scalability of investments.

"With the right investments, we can transform the agriculture sector in emerging markets to be more resilient, productive, and sustainable," said Louisa Burwood-Taylor , Head of News & Research at AgFunder. "This report is a useful resource for investors to contribute meaningfully to the protection of smallholder farmers against climate change while capitalizing on a relatively untapped segment.”

The full report, including detailed investment opportunities, case studies, and actionable insights for investors, is available here .

The executive summary is available here .

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