Not all roads lead to Rome: Inclusive business models and responsible finance in pursuit of sustainable cocoa in Ghana
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The document discusses approaches to achieving sustainable cocoa production in Ghana by 2020. It identifies several challenges in the cocoa sector including low productivity, rural poverty, and deforestation. It analyzes different stakeholder approaches and finds they mainly focus on increased productivity, while social and environmental issues are addressed less. Inclusive business models include many smallholder farmers but benefits are not always equitable. Responsible finance from impact investors and social lenders has potential to leverage more equitable models and landscape restoration, but investments have not been well adapted for cocoa sectors. A "multi-chain approach" is proposed to better leverage finance through a portfolio of value chains at the landscape level.
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Not all roads lead to Rome: Inclusive business models and responsible finance in pursuit of sustainable cocoa in Ghana
- 1. Transforming Lives and Landscapes with Trees Not all roads lead to Rome: Inclusive business models and responsible finance in pursuit of sustainable cocoa in Ghana Dietmar Stoian, World Agroforestry Gianpiero Menza, Bioversity International 4th World Congress on Agroforestry "Agroforestry: Strengthening Links between Science, Society and Policy" Montpellier, France, May 19-22, 2019
- 2. Transforming Lives and Landscapes with Trees High stakes: chocolate industry aims to achieve sustainable cocoa sector by 2020 Challenge – persistent problems in cocoa sector: ➢ persistent rural poverty (cocoa income below 'living wage') ➢ low productivity ➢ limited producer organization ➢ competing land uses (food/cash crops, mining) ➢ deforestation to expand production ➢ child labour ➢ aging farming population ➢ poor rural infrastructure and services ➢ climate change
- 3. Transforming Lives and Landscapes with Trees Proposed solutions – divergent views of sustainability
- 4. Transforming Lives and Landscapes with Trees Objectives of the study 1) Identify synergies and trade-offs between different approaches to cocoa sustainability 2) Determine the potential for inclusive business models and the leverage of responsible finance 3) Based on possible blind spots, develop scenarios for the way ahead toward sustainability
- 5. Transforming Lives and Landscapes with Trees Some definitions Inclusive business models Business models that include and substantially benefit large numbers of poor people – often smallholders, but also artisans or small-scale retailers – as well as their business partners. Responsible finance Investments made by companies, organizations, and funds with the aim to generate measurable social and environmental impact, in addition to financial returns
- 6. Transforming Lives and Landscapes with Trees Methodology 1) Analysis of secondary information 2) Collection of primary data – key informant interviews (n=26): ➢ Government agencies: COCOBOD, Department of Cooperatives ➢ NGOs and projects: Solidaridad, Agro Eco, SNV, IDH, MEDA, RA Climate Cocoa Project, CARE ➢ Certification bodies: Fairtrade, Rainforest Alliance, Utz, ISEAL ➢ Impact investors and social lenders: FAST, Bridges Funds, MustardSeed, Clarmondial, OikoCredit, Shared Interest ➢ Cocoa buyers: Ecom/Armajaro, PBC, Transroyal, Tuton ➢ Cocoa coops: Cocoa Farmer's Cooperatives and Marketing Unions in Fanteakwa and New Juaben, Kuapa Kokoo 3) Validation: stakeholder workshops in Accra and Kumasi to feed back preliminary results and corroborate information
- 7. Transforming Lives and Landscapes with Trees Coverage of approaches to sustainable cocoa Challenge Coverage How addressed Low productivity Strong Most stakeholders through technical assistance and inputs Low degree of producer organization Medium Mainly by NGOs, projects and certification systems Competing land uses (food crops, mining) Limited / Medium Some NGOs and projects supporting smallholders beyond cocoa Deforestation Limited / Medium Mainly by certification systems, NGOs and projects (recently also by companies) Child labour Limited / Medium Often no explicit approaches Aging farming population Limited / Medium Some NGOs, projects and companies with explicit focus on youth Poor infrastructure Limited / Medium Mostly government investments Climate change Limited / Medium Research into adapted germplasm and AFS; dissemination by companies/NGOs
- 8. Transforming Lives and Landscapes with Trees Inclusive business models • Smallholders dominate production (>90%), but weak position in value chain • Large number of unorganized farmers • Even when organized, cocoa cooperatives with limited technical and financial capacities and bargaining power • Certifications require smallholder organization, but conditions vary: ➢ Legally established organization for Fairtrade certification (benefits: minimum price and fixed price premium) ➢ Relatively loose organization for Rainforest Alliance/Utz certification (benefit: negotiable premiums) ➢ Emerging private labels (benefits not subject to third-party scrutiny) • Arrangements with companies (inputs, training, advances) vary widely
- 9. Transforming Lives and Landscapes with Trees Responsible finance Impact investors ▪ interested, but yet to become engaged in Ghana's cocoa sector ▪ main focus on energy, transport and related sectors ▪ limited engagement in agricultural sector (coffee, responsible oil palm) ▪ funding volume: US$4-8 million (or more) per investment case Social lenders ▪ some active (e.g. Shared Interest) ▪ others interested (e.g. OikoCredit) ▪ funding volume: US$ 500,000 - 1 million per coop or company ▪ type of funding: short-term loans (working capital) at below-market rates ?
- 10. Transforming Lives and Landscapes with Trees Conclusions (1) • Approaches to sustainability vary widely across sectors ➔ increased productivity as least common denominator; environmental and social challenges mainly addressed by NGOs and projects • Business models inclusive (large number of smallholders) but not equitable • Cocoa incomes are critical, but limited and seasonal ➔ need for supplemental income and global review of pricing ('living wage') • Price volatility partially managed through COCOBOD, but price risks remain … and production risks borne exclusively by smallholders • Value adding (milling): currently out of reach for smallholders • Value adding (certification) ➔ welcome supplement but not significant • Need for inclusive & equitable business models ➔ stronger mechanisms for sharing benefits and risks
- 11. Transforming Lives and Landscapes with Trees Conclusions (2) Potential to leverage responsible finance ➢ Impact investing incipient, with limited current engagement in cocoa and other land use sectors ➔ High leverage potential, but investments yet to be adapted to the realities and needs of the cocoa and other land use sectors ➢ Social lending clearly geared toward smallholders, with concrete options for cocoa and related sectors ➔ leverage potential given, but more limited funding volumes ➢ Need for large-scale investments in cocoa-based agroforestry systems ➔ landscape restoration, climate investments, multi-sector focus (blended finance; beyond cocoa)
- 12. Transforming Lives and Landscapes with Trees The way ahead: Multi-chain approach – Leveraging responsible finance for inclusive & equitable business models at landscape level Global value chains (e.g. cocoa, coffee, nuts, honey)Regional value chains (e.g. timber, fruits, livestock) Local value chains (e.g. fuelwood, staples, livestock) Image credit: Landscapes for People, Food and Nature ! Key aspects: • Portfolio of value chains • Private-public finance and associated services • Smallholder organization • Equitable business models • Credible metrics • Continuous improvement
- 13. Transforming Lives and Landscapes with Trees World Agroforestry (ICRAF), United Nations Avenue, Gigiri, P.O Box 30677-00100, Nairobi, Kenya Phone: +254 20 722 4000 Fax: +254 20 722 4001 Email: [email protected] Website: www.worldagroforestry.org Thank you! Emails: [email protected] & [email protected]