Policy Solutions for Climate-Resilient Agricultural Value Chains

Climate change poses serious risks to agriculture in many developing countries.

Unpredictable weather can be disastrous for agricultural production, but climate change's impacts extend beyond just production: they affect the entire agricultural value chain, from the quality of seeds through to how food is processed, transported and consumed.

To date, most of the action taken to address climate challenges in agriculture has focused on production alone. However, IISD believes that we need policies and approaches that recognize that climate risks affect the entire value chain.

We have been partnering with the Economic Policy Research Centre to look at what kinds of policies can best support climate risk management along agricultural value chains.

Rice Value Chains in Uganda

Our research focused on rice value chains in Uganda—a priority crop for the Government of Uganda—and found that private sector investment has a key role to play in supporting climate risk management along the value chains. Our question at a recent policy dialogue in Kampala was: What can government do to promote private sector investment in climate-resilient rice value chains?

Based on data since 1960, Uganda is experiencing more frequent and intense droughts and rising temperatures. Climate projections suggest that temperatures in Uganda will continue to rise, and this rise will be accompanied by a decrease in rainfall and more frequent extreme weather events. According to value chain actors, these droughts, floods and changing rainfall patterns are already affecting their rice-related activities, as shown in the diagram below.

Recognizing the potential for increased risk and uncertainty, integrating climate change into policies and strategies related to agricultural value chain development will be critical for Uganda to achieve its development objectives, and the private sector is a key stakeholder in these processes.

Finance for Climate Risk Management

Financial services are a key enabling factor for climate risk management by actors involved in the Ugandan rice value chain. For example, credit allows them to diversify their income sources, while savings provide a buffer when shocks occur. The bank also benefits from their clients having stable incomes, as it means there is less chance of clients defaulting on loans because of climate hazards.

Our project involved a partnership with Centenary Bank, a Ugandan commercial bank that considers risk management a priority and part of its core business. Because of the mutual benefits for them and their clients, they want to build climate risk management into their banking practices by, for example, offering a better interest rate on loans for value chain actors who implement particular climate risk management activities.

Promoting Climate-Resilient Seeds

Like commercial banks, small and medium-sized enterprises (SMEs) are well placed to make the rice value chains better able to withstand climate hazards—for example, by promoting seeds that are tolerant to drought.

Our project also involved a partnership with Equator Seeds, a domestic seed company that invests in producing, processing and marketing climate-resilient seeds. For realizing the potential of climate-resilient seeds, Equator Seeds clients need to be further supported to make informed decisions about seed choice to improve climate risk management and business objectives.

Promoting these seeds' benefits in the market will take collaboration between a number of SMEs: agrodealers need to support access to the seeds; local radios need to inform farmers about the seeds’ benefits; and other actors in the value chain can develop demonstration plots near stock shops to show the seeds' advantages.

What Does It Mean for Policy?

For governments seeking to foster resilient agricultural sectors, climate risk management needs to be part of policies and strategies. For climate-resilient agricultural value chains in Uganda and other developing countries, our research suggests that the domestic private sector plays a vital role, and SMEs and commercial banks must be involved in the process of integrating climate change into relevant policies and strategies.

Dr. Annette Kuteesa from the Economic Policy Research Centre speaks to media about private-sector investment in climate-resilient value chains . Photo: Angie Dazé

Read the event proceedings report for "Policy Options to Support Private Sector Investment for Climate-Resilient Agricultural Value Chains in Uganda"​ held February 4, 2016, in Kampala.