Financing sustainable cocoa: solutions for Côte d’Ivoire smallholders

When you buy a chocolate bar, it’s quite likely that the cocoa in it came from Côte d’Ivoire, the world’s top producer. If so, it is almost certain that the cocoa plants were grown where dense rainforest once stood.

Expansion of cocoa production into new areas is amongst the main drivers of deforestation in Côte d’Ivoire. At current rates, the country will lose all its forest cover by 2034. Decoupling cocoa production from deforestation is therefore crucial if Côte d’Ivoire is to achieve its goals of producing zero-deforestation cocoa and restoring forest cover to 20% of its territory by 2030.

But how can Côte d’Ivoire’s smallholders invest in agroforestry when they live below the poverty line and have limited access to finance? And how can large chocolate manufacturers that buy cocoa from smallholders help?

These questions are closely linked to ongoing efforts for the implementation of the OECD-FAO Guidance for Responsible Agricultural Supply Chains, which was on the agenda of the 6th OECD Global Forum on Responsible Business Conduct that took place this week. The guidance helps enterprises meet standards of responsible business conduct and undertake due diligence along agricultural supply chains to ensure that their operations contribute to sustainable development.

Recent work undertaken by the European Forest Institute’s EU REDD Facility for the Ivoirian ministry in charge of the environment illustrates the potential challenges of putting su guidance into practice.

One project is piloting a scheme that pays smallholders and communities for participating in forest restoration initiatives such as agroforestry, tree-planting and conservation. Chocolate manufacturer Mondelez International, for example, partnered with Côte d’Ivoire’s government to test this ‘payments-for-environmental-services’ approach in the company’s supply chain with a view to achieving zero-deforestation commitments.

second project zoomed in on agroforestry. It looks at financial solutions to scale up models of deforestation-free cocoa production being piloted by private companies in the framework of the Cocoa and Forests initiative. The EU REDD Facility and the UNEP Finance Initiative produced a study and created an economic modelling tool to help large chocolate companies and the Ivoirian government optimise proposed agroforestry approaches, taking into account the economic perspective of smallholders.

Cocoa bean.

So, what have we learned from Côte d’Ivoire?

  • Significant efforts and innovative solutions are needed to scale up zero-deforestation cocoa production approaches being piloted in the context of private sector sustainability commitments. As smallholder farmers are at the heart of this transition, incentives and enabling frameworks should focus on improving their agricultural practices.
  • Agroforestry can play a key role in addressing the critical situation of Ivoirian forests while ensuring the future of cocoa production, a major sector of the country’s economy. To that end, a national agroforestry definition including quantitative elements is needed to make sure investments are consistent with national policies and harmonised with socioeconomic and environmental objectives.
  • Scientific data showing how the presence of trees on farms affects cocoa yields is lacking. This hinders an understanding of the profitability of cocoa production in agroforestry systems, making it more difficult to build robust business cases.
  • Public and private actors need to provide economic and financial solutions to enable smallholders to embrace the short-term transition to sustainable production models. A thorough understanding of the economics of smallholder cocoa production must underpin these solutions.
  • Small plantation owners in particular need funding to offset losses incurred in the early years of the transition to agroforestry. But local banks do not lend to smallholders. To address this, we identified several possible financing solutions for small producers. One solution could be long-term purchase contracts with the chocolate companies to smooth out small planter’s cocoa incomes and provide them with a steady income.

Over the next ten years, it will be crucial for Côte d’Ivoire to implement its zero-deforestation agricultural policy to achieve its international climate commitments, ensure the sustainability of cocoa production and lift farmers out of poverty. This will mean converting an estimated two million hectares of cocoa plantations to agroforestry. The EU REDD Facility and the UNEP Finance Initiative study suggests this would correspond to a financing requirement equivalent to EUR 671 million over the first three years.

Funding agroforestry and combining it with other solutions to effectively combat deforestation are critical. The mix will be key to ensuring that Côte d’Ivoire’s climate and zero-deforestation commitments are coherent with the sustainability strategies of actors in the cocoa sector —particularly through the Action Plan of the Cocoa and Forests Initiative — and with the harsh economic reality of small cocoa plantation owners. Côte d’Ivoire must take into account macroeconomic issues affecting the sector when considering scaling up agricultural intensification and agroforestry pilots in cocoa plantations.

If Côte d’Ivoire can strike the right balance, it may be possible within a decade to buy chocolate whose production is not only deforestation-free but also allows rainforests to spread once more. Ultimately, what could taste better than chocolate that is good for the climate, for biodiversity and for the farmers who produce it?

– This article first appeared on the OECD Development Matters blog

This story has been produced with the financial assistance of the European Union. The views expressed herein can in no way be taken to reflect the official opinion of the European Union.

Author: Adeline Dontenville, EU REDD Facility

Date: 20 August 2018