Famine Action Mechanism launched to link early warnings with financing

by Artemis on October 23, 2018

A new partnership aims to put the powers of technology, big data and financing together to help prevent future famines, by bringing together science and technology to create forecast based financing models that can distribute capital when it is needed, in advance of famine breaking out.

famine-drought-imageThe United Nations, World Bank and International Committee of the Red Cross, have teamed up with technology giants Microsoft Corp., Google and Amazon Web Services on the initiative, launching the Famine Action Mechanism (FAM).

The technology firms will put their advanced and innovative data powered services to work to better predict the outbreak of famine around the world.

This technology will be used to trigger financing mechanisms that can be made available in the right places and at the right times, in order to get ahead of famine outbreaks and try to prevent their turning into crises.

The group call the FAM “The first global mechanism dedicated to preventing future famines” and say that “The initiative will use the predictive power of data to trigger funding through appropriate financing instruments, working closely with existing systems.”

“The Famine Action Mechanism, FAM, is an important new tool that will help to predict and therefore prevent food insecurity and famine before they have a chance to take hold. Crisis prevention saves lives. With the Famine Action Mechanism, we are renewing our pledge to Zero Tolerance for famine and acute food insecurity,” commented United Nations Secretary-General António Guterres.

“The fact that millions of people—many of them children—still suffer from severe malnutrition and famine in the 21st century is a global tragedy,” added World Bank Group President Jim Yong Kim. “We are forming an unprecedented global coalition to say, ‘no more.’ The Famine Action Mechanism is a preventative approach that knits together innovative technology, early financing, and strong partnerships on the ground in an effort to prevent famine. It will help us deploy our combined resources to protect the poorest and most vulnerable, and it will allow us to refocus our collective attention on the millions of chronically food-insecure people who suffer each year.”

“The ICRC, working on frontlines around the world, sees the deep suffering inflicted by conflict and violence. Famine is often a devastating symptom of protracted war. We are hopeful that new models of collaboration such as this will bring new solutions and reduce food insecurity at scale,” ICRC President Peter Maurer also said.

The involvement of the World Bank suggests that we could see insurance and reinsurance backed financing tools put to use as forecast-based financing instruments linked to the factors that predict a future famine outbreak.

This model is already being used for pandemics, with the insurance, reinsurance and pandemic catastrophe bond backed Pandemic Emergency Financing Facility (PEF), which the World Bank has already said it intends to emulate as a way to risk finance other humanitarian crises, such as famine.

Also of note in connection with the FAM is the recent launch of the Global Risk Financing Facility (GRiF), which the World Bank said would seek to address, “the high potential to apply risk financing instruments to wider crises, over time.”

The World Bank has also said that it intends to put insurance-linked securities (ILS) to work in addressing other crises, with plans to innovate on the work it has achieved in catastrophe bonds and with the PEF.

World Bank Group President Kim confirmed this could be the case, saying, “We are also exploring innovative financing such as potential risk-sharing solutions with the capital markets, and we’re identifying ways to harmonize these various resources into comprehensive and strategic funding plans across the international system.”

The FAM will promote investments that aim to tackle the root causes of famine at the first warning signs, something forecast-based financing through contingent tools, like insurance-linked securities (ILS), could become a part of.

“The FAM will use state-of-the-art technology to provide more powerful early warning to identify when food crises threaten to turn into famines. These alerts will trigger pre-arranged funding and action plans by donors, humanitarian agencies and governments to generate earlier and more efficient interventions,” the World Bank explained.

The use of indices based on weather, crop analytics, satellite data and perhaps other inputs, could create parametric triggers that forecast the outbreak of famine and in future could be used as triggers for financing products, including those backed by reinsurance and third-party capital, akin to the PEF’s insurance window and pandemic cat bonds.

“If we can better predict when and where future famines will occur, we can save lives by responding earlier and more effectively,” commented Brad Smith, President of Microsoft. “Artificial intelligence and machine learning hold huge promise for forecasting and detecting early signs of food shortages, like crop failures, droughts, natural disasters, and conflicts. Microsoft is proud to join Amazon and Google in developing solutions to address this humanitarian need.”

Interestingly (to us), the technology giants are planning to develop a suite of analytical models called “Artemis” that will put Artificial Intelligence (AI) and Machine Learning to work in order to estimate and forecast worsening food security crises in real-time. These forecasts could provide the trigger mechanisms required to disburse relief funding at precisely the right time.

“Artificial intelligence and other advanced technologies can be a powerful force for good, and we’ve already seen that they have the potential to help farmers identify disease in cassava plants, keep cows healthier and more productive, and integrate overall relief efforts. Google is proud to partner with the World Bank on the Famine Action Mechanism to help prevent future famine in communities around the world,” stated Kent Walker, Google’s Senior Vice President of Global Affairs and Chief Legal Officer.

“We are proud to play a role in the FAM initiative, and to work collaboratively to solve one of the world’s most pressing issues,” added Teresa Carlson, Vice President of Worldwide Public Sector, Amazon Web Services, Inc. “Public-private collaborations like this one allow us to collectively bring cutting-edge technology to leading humanitarian organizations, giving them innovative tools to predict and prevent famine, and to ultimately save lives.”

The World Bank has become more focused on identifying crises before they happen and disbursing financing in advance to try to prevent them.

These forecast-based financing techniques have been used before in weather related risk transfer and management, meaning capital can flow to where it is needed before conditions worsen, to help pay for relief, recovery and resilience building.

The capital markets can act as a financing partner here and with famine closely linked to weather outbreaks it is possible that a similar model to the pandemic facility (PEF) could result in the catastrophe bond structure being used as a way to bring reinsurance type capital to bear on preventing famines around the globe.

“What’s interesting about FAM is that you bring together three things. You bring together data – analysis and capacity to detect situations, financing, and implementation. So, the three things, instead of being separated, are put together in a collective response that prevents, reacts, and creates resilience for the future,” UN Secretary-General António Guterres said.

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