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Action

A path to sustainable cocoa: financial solutions for Côte d’Ivoire

The EU REDD Facility and the Finance Initiative of the UN Environment Programme (UNEP FI) have proposed financial solutions to scale-up zero-deforestation cocoa production to the Ivorian Government and its partners. These solutions were developed based on the economic modelling of agroforestry and intensification schemes currently piloted by three private sector actors in the cocoa sector.

The study, titled ‘Economic and financial challenges to scaling up sustainable cocoa production in Côte d’Ivoire,’ was commissioned by the Permanent Executive Secretariat of REDD+ in Côte d’Ivoire, in support to the implementation of Côte d’Ivoire’s National REDD+ Strategy.

Key facts

  • Year: 2018
  • Country: Côte d’Ivoire
  • Partners: UNEP FI, SEP-REDD
  • Budget: EUR 25 000
  • Funded by: EU REDD Facility, UN Environment

The objective

Agroforestry can play a key role in addressing the critical situation of Ivorian forests, improving soil fertility and diversifying the income of producers. Many agro-industrialists who have made ambitious international commitments to produce without deforestation by 2020 have initiated agroforestry pilots inside cocoa plantations in Côte d’Ivoire.

Achieving zero-deforestation cacao production implies short-term scaling up of sustainable production models, but several obstacles prevent plantation owners fully adopting this transition. To offer small cacao farmers new production models that are potentially profitable, the economics of cocoa production need to be better understood. Scaling up sustainable cocoa production models requires economic and financial solutions that can cover investment gaps and provide incentives for sustainable practices. 

The challenge 

At the current rate of deforestation, Côte d’Ivoire will irretrievably lose all its forest cover by 2034. The country is the world's largest producer of cocoa and the extension of farmland for cocoa cultivation is one of the main drivers of deforestation. Decoupling cocoa production from deforestation is therefore crucial for Côte d’Ivoire to achieve its commitment to produce zero-deforestation cocoa from 2017 and to restore the forest cover to 20% of its territory by 2030. 

Agroforestry is a type of land management involving the growing of trees together with agriculture. It is a way to produce cocoa while restoring forest cover, improving soil fertility and diversifying the income of producers. However, there are many obstacles to its adoption by farmers. First, there is no reliable scientific data illustrating the impact of tree association on cocoa yields. This hinders the examination of the effects of agroforestry on the profitability of cocoa production.

Furthermore, despite the importance of cocoa in the national economy, most Ivorian planters live below the poverty line. Their low incomes prevent them from investing and create a vicious circle where the lack of fertilisers leads to unproductive plantations. 

To enable small planters to fully embrace the short-term transition to sustainable production models, adequate economic and financial solutions need to be provided by public and private actors. A thorough understanding of the economics of smallholder cocoa production must underpin these solutions.

 

The approach

The study is based on a review of different technical options for sustainable cocoa production, combining the intensification of production and agroforestry. Agroforestry pilots in cocoa plantations mix a variety of trees for multiple purposes: firewood, fruit trees and timber. 

On the basis of three pilot projects studied, two types of models were identified. Type A combines firewood and timber with a high preponderance of firewood, representing 75% of the associated trees (concentration). Type B combines firewood, fruit trees and timber (diversification). 

Compared to the reference model (a 20 year-old monoculture of cocoa in direct sunlight), the shortfall of the type A model is significant and lasts a long time. For this reason, without specific assistance, the financial risk associated with this type of pilot will only attract plantation owners whose cocoa is not their main source of income. 

In the type B model, food crops income offsets the loss of cocoa revenues in the first years. The small amount of firewood does not make their sale significant for the income of the plantation owner. Since there is less timber, the peak income in year 25 is less significant than in the type A model. The shortfall period from the reference model is very short. The income of the plantation owner increases greatly. This model is therefore attractive for all plantation owners.

Results and Impact

Results

Plantation owners need funding to offset the losses incurred in the early years of the agroforestry transition. However, local banks do not lend to smallholders due to several reasons. 

To address this challenge, several possible financing solutions for small producers exist:

  • A short-medium term loan (four years) can be set up to cover the expenses of year 1 and the regeneration of the plantation. The sale of firewood of year 4 in a type A pilot would be used to repay it.
  • The purchase of long-term purchase contracts with the chocolatiers to smooth the plantation owner’s cocoa incomes and provide them with constant income over the period.

The study details these two solutions and identifies other mechanisms that could help finance the shortfall. It also describes some supportive measures.

Impact

  • Over the next ten years, the implementation of the zero-deforestation agricultural policy will be key to achieving the National REDD+ Strategy and the national investment framework. This scaling up implies the conversion of an estimated two million hectares to agroforestry. Based on the results of the model of this study, this would correspond to a financing requirement equivalent to a cumulative deficit of 671 million euros over the first three years.
  • Macroeconomic issues currently affecting the sector must be taken into account in the context of scaling up pilot agricultural intensification and agroforestry initiatives in cocoa plantations. The intensification of cocoa cultivation by replacing existing plant material with improved plant material would enable maintaining constant production while decreasing cultivated areas. This would free up areas for other uses, such as reforestation or subsistence food crops. 
  • This study offers private sector partners and the Ivorian Government an economic modelling tool to help them optimise proposed agroforestry models taking into account the economic perspective of smallholders, in particular in the context of private companies’ action plan under the Cocoa and Forest initiative.
  • This study highlights the importance of funding agroforestry and combining it with other solutions to effectively combat deforestation. This will be key to ensuring coherence among the commitments of Côte d’Ivoire, the sustainability strategies developed by actors in the cocoa sector, in particular through the Action Plan of the Cocoa and Forests Initiative, and the economic reality of small cocoa plantation owners.
     

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