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  • Financing farmers: Can funds for oil palm help save our forests?

Financing farmers: Can funds for oil palm help save our forests?

A worker wheels a barrow of oil palm fruit. Photo by Icaro Cooke Vieira/CIFOR
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Oil palm fruits in Jambi, Indonesia. Photo by Iddy Farmer/CIFOR

Palm oil: people love it, hate it or maybe just use it without even knowing. The controversial vegetable oil is found in thousands of consumer products from soap to lipstick, frozen pizza, ice cream and even fuel.

World demand continues to increase rapidly and is placing pressure on forests, mainly in Indonesia. But, for now, the profitable commodity is here to stay. So what can be done to reduce the pressure on forests?

Efforts are ongoing to stop the rapid destruction of tropical forests through more sustainable business practices. In 2004, the Roundtable on Sustainable Palm Oil (RSPO) was launched with the vision to “transform markets to make sustainable oil palm the norm”. Pressure from activists on big corporations that use palm oil in their products has also had some impact, leading them to make commitments to sustainable supply and zero deforestation.

Most action to date has focused on how large palm oil companies do business but increasingly, concerns comprise what the implications are for smallholders, and how smallholders can capture greater benefits from engaging in palm oil supply chains.

In Indonesia — one of the biggest palm oil producing countries alongside Malaysia — up to 40 percent of the land used to grow oil palm is cultivated by smallholders who farm, on average, just 2 hectares each.

The sustainability of the palm oil sector has also triggered Indonesian government efforts to improve the policy environment for inclusion of smallholders, and channeling resources for them to improve practices in management and replanting. There is also an ongoing effort to strengthening the national standards for sustainable palm oil (ISPO).

Read more: Towards responsible and inclusive financing of the palm oil sector

Three teams of researchers from the Center for International Forestry Research (CIFOR) as part of its work under the CGIAR Research Program on Forests, Trees and Agroforestry (FTA) and from partner institutions have produced a series of infobriefs looking at how smallholders can improve their lives and, at the same time, protect remaining forests. The major challenge, according to their findings? Money.

“Oil palm provides more economic benefits to smallholders than other crops, and it’s expanding,” says Pablo Pacheco, a Principal Scientist at CIFOR. “Yet smallholders have to adopt more sustainable practices. Research has to contribute to this, and identify options for them to improve their practices, as well as identify what resources are needed to make that change happen.”

“That’s where financing comes in, and becomes an important key resource for smallholders to be able to access,” he adds.

THE REPLANTING CHALLENGE

A worker wheels a barrow of oil palm fruit. Photo by Icaro Cooke Vieira/CIFOR

The Indonesian government estimates that a total of 175,000 hectares of oil palm farmed by smallholders needs to be replanted each year, and this alone creates major challenges for farmers. 

Hans Harmen Smit, global coordinator for palm oil at the Netherlands Development Organization (SNV), one of the partner organizations, was part of the team that examined current finance practices. Their focus was on Indonesia and Malaysia, which together account for about 85 percent of total global palm oil production. Smit says that without proper financing, farmers only replant when they can afford to.

“The problem is, once they replant, they have to wait three years at least for the new plantation to become productive, and during that time they have no income,” he says.

Smallholder income from oil palm varies. On average, smallholders with around two hectares of land can earn a gross monthly income of US$290 to US$400.

Researchers say that without financial support, farmers do not have the resources to replant year after year on the same plot, and so they tend to move to peatlands and forested areas, “slash and burn” the land, and plant the only crops available to them, which are often low-quality varieties.

Smit points out that in Malaysia, the sector has better systems in place for replanting, and smallholders can more easily obtain financial support. In Indonesia, there is the Crude Palm Oil (CPO) Fund that supplies replanting loans, but it is often difficult to access, especially for smallholder farmers with limited funding.

“The lesson learned here is that saving for replanting is often not done as it should be. The government needs to engage more and manage programs to help farmers save for replanting,” says Smit.

He adds that one of the main problems is a lack of available information for financial service providers (FSPs) to evaluate the lending risks and set appropriate interest rates. He says the loans are often too small on an individual level, and this makes the loan origination costs too high compared to their value.

“We need to start by supporting better data collection on the cash flows of smallholders. Once this data is available, we can create investible portfolios for investors,” says Smit.

Read more: The long and winding road to sustainable palm oil

FUNDING THE GAPS

A couple works together on a plantation. Photo by Icaro Cooke Vieira/CIFOR

The researchers also identified major gaps between existing credit schemes and what farmers actually need. Addressing this could pave the way for more sustainable palm oil for smallholders.

One key finding was that lenders who do offer credit only provide it in the short term. But what smallholders actually need is both working capital and credit in the long term for replanting and financing other management practices.

“Most lenders also don’t have schemes that take into account the fact that oil palm farmers don’t make any money in the first three or four years, so they can’t make payments at this time unless they find additional sources of income, which is difficult,” says Pacheco.

Another issue is repayment of loans. When ‘tied’ farmers, who are under contract with oil palm plantations, access funds through a cooperative, profits from their harvest are used to pay back their loans. But when individual farmers seek loans, they have to pay back in cash.

Smallholders trying to access loans also face major challenges when trying to meet the requirements of most FSPs.

“Sometimes they don’t have savings accounts or own the land, so they can’t provide collateral,” says Pacheco.

Pricing of the fresh fruit bunches (FFB) produced by oil palm can also be a challenge for farmers. FFB prices are set by governments and oil palm companies, and tied farmers are paid more than independent farmers.

But there are ways to help smallholders overcome these challenges. Incentives and technical support to meet sustainability requirements, land tenure security, and support for FSPs to assess and manage risks, and build the capacity of smallholder organizations, could all have an impact, the research finds.

FINDING SUSTAINABLE FINANCE

Most of the financing for major palm oil companies comes from FSPs based in Asian countries like Japan, Malaysia, Indonesia and Singapore. And on the whole, these do not employ adequate environmental, social and governance (ESG) policies, the research suggests.

“American- and European-based FSPs’ policies are more advanced, but even they don’t fully address how financial resources can be better channeled to smallholders,” says Pacheco.

He warns that there is the danger of a two-tier marketplace developing: one in Asia, where there is less consumer pressure for sustainable palm oil, and a second focusing on US and European markets that have adopted more sustainable practices.

INVESTING IN PEOPLE

Pacheco says the future of smallholders holds a real dilemma. If they become more integrated into the existing supply chain, more productive, use better practices and have access to good financing and markets, they are likely to become more and more dependent on supply chains and companies for their livelihoods.

“You want smallholders to improve system practices, their knowledge of fertilizers, harvesting and so on, but without losing their freedom,” says Pacheco.

It all comes down to how farmers are empowered to negotiate prices, conditions with companies and so on, he adds.

“For me, social empowerment is critical, and I think that needs to be included in the debate. Up to now, the focus has been on efficiency, sustainability, less impact on forests — and not enough attention has been given to empowering these important players, the smallholders, who are trying to reap as much benefit as possible in the market,” he concludes.

By Suzanna Dayne, originally published at CIFOR’s Forest News

For more information on this topic, please contact Pablo Pacheco at [email protected].


This research was conducted by CIFOR in partnership with Profundo, the International Center for Applied Finance and Economics (InterCafe) at the Bogor Agricultural University (IPB), the Netherlands Development Organization (SNV) and Financial Access (FA).

This research forms part of the CGIAR Research Program on Forests, Trees and Agroforestry, which is supported by CGIAR Fund Donors

This research was supported by the United States Agency for International Development (USAID) through the project “The Role of Finance in Integrating Oil Palm Smallholders into Sustainable Supply Chains.”

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  • Local tree knowledge can fast-track agroforestry recommendations for coffee smallholders along a climate gradient in Mount Elgon, Uganda

Local tree knowledge can fast-track agroforestry recommendations for coffee smallholders along a climate gradient in Mount Elgon, Uganda

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Arabica coffee (Coffea arabica) is economically important for many smallholder farmers in the Mount Elgon region of East Uganda, but its production is increasingly threatened by climate change. However, ecosystem services (ES) provided by companion trees in coffee agroforestry systems (AFS) can help farmers adapt to climate change.

The objectives of this research were to develop agroforestry species recommendations and tailor these to the farmers’ needs and local context, taking into consideration gender. Local knowledge of agroforestry species and ES preferences was collected through farmer interviews and rankings. Using the Bradley-Terry approach, analysis was done along an altitudinal gradient in order to study different climate change scenarios for coffee suitability. Farmers had different needs in terms of ES and tree species at different altitudes, e.g. at low altitude they need a relatively larger set of ES to sustain their coffee production and livelihood. Local knowledge is found to be gender blind as no differences were observed in the rankings of species and ES by men and women.

Ranking species by ES and ranking ES by preference is a useful method to help scientists and extension agents to use local knowledge for the development of recommendations on companion trees in AFS for smallholder farmers.

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  • The long and winding road to sustainable palm oil

The long and winding road to sustainable palm oil

A worker collects oil palm fruit. Photo by I. Cooke Vieira/CIFOR
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A worker collects oil palm fruit. Photo by I. Cooke Vieira/CIFOR

Finding a way forward for profits, people and the planet.

The polemic around the expansion of oil palm plantations in the tropics continues, and increasingly involves consumers concerned with sustainability. At the core of the debate is the matter of hard trade-offs between conservation and development. Reconciling such trade-offs is still the major challenge facing governments and companies.

Available evidence suggests that palm oil production has contradictory impacts. It has positive impacts on both local and national economic growth, and in alleviating rural poverty. Yet plantations also drive social conflict in their development, and bring detriment to forests and peatlands as they expand, leading to negative impacts due to biodiversity loss and greenhouse gas (GHG) emissions.

The palm oil sector suffers from three performance issues, namely: land conflicts between local villagers and companies as well as immigrants, differences in yields between independent smallholders and industrial plantations, and a large carbon debt resulting from oil palm expansion into forestlands and peatlands. The challenge now is to find a way to ensure sustainable palm oil supply chains, in order to sustain economic gains while supporting conservation and climate action.

Employees drive to work on a plantation. Photo by I. Cooke Vieira/CIFOR

AIMING FOR CHANGE

Efforts are being made by governments, companies and civil society organizations on different fronts and at different levels to enhance the palm oil sector’s performance. Commitments to sustainability made by major palm oil companies have been accompanied by a more aggressive sustainability discourse by governments, and many civil society organizations have begun to play a new role as facilitators in the implementation of standards by companies, or as intermediaries between private and public actors.

In Indonesia, the previous government made important efforts to respond to the global climate change agenda, resulting in a moratorium on new licenses to develop primary forest or peatlands, which unfortunately in practice had limited impacts on reducing deforestation. The major corporate groups, through the Indonesian Palm Oil Pledge (IPOP) brought some new perspectives to halting deforestation through supply chain interventions, yet interestingly that triggered a strong political response from the government on the primacy of state regulations.

Two new fronts have since emerged. On one front, efforts are being made to enhance mandatory standards for sustainability by strengthening Indonesian Sustainable Palm Oil (ISPO) certification, accompanied by regulations on peatland intervention and restoration. On another front are efforts to safeguard the economic performance of the palm oil sector by expanding the domestic biodiesel market and applying subsidies to incentivize less competitive biodiesel production. In spite of strong arguments being made in favor of a social agenda, investments to support smallholders remain minimal.

An interesting turn of events has been the approval of an EU resolution suggesting that stronger constraints should apply to palm oil imports. This is not necessarily an opinion shared by some actors in Indonesia, who emphasize the importance of relying on national regulations. Signals have emerged that the government will be making the necessary steps to more fully embrace a sustainability framework. So far, the instrument for that seems to be a strengthened ISPO, with independent oversight. However, questions remain over the likely implementation costs, and institutional readiness at the local level.

Read also: Sustainable Palm Oil Production project synthesis: Understanding and anticipating global challenges

A young woman carries a bucket of harvested oil palm fruit. Photo by I. Cooke Vieira/CIFOR

WHOSE SUSTAINABILITY?

The dispute over which rules to follow, whether it be international private sustainability standards and/or methods toward zero deforestation, or mandatory national standards has brought to light competing notions of sustainability, how to achieve progress, and who should be taking the lead.

A policy network analysis of the palm oil sector in Indonesia suggests that standards and initiatives for sustainability have contrasting visibility and impact among stakeholders, for example among governments, the corporate sector and NGOs. The Roundtable on Sustainable Palm Oil (RSPO), stands as a reference, while efforts by the Indonesian government to promote its own standard with ISPO have yet to gain traction. Hopes remain that it could benefit from an emerging multi-stakeholder group.

Overall, the lack of progress in the uptake of sustainable palm oil practices on the ground, in the view of different stakeholders, appears to be caused more by political and legal barriers than by technical challenges or concerns for economic losses. The fact is that the palm oil sector, particularly in relation to land allocation and regulatory controls, is dominated by a complex and ambiguous layer of regulations. When we add vested local interests in profiting from plantation expansion, we are left with a difficult puzzle indeed.

The situation also calls for increased efforts to enforce regional initiatives on High Conservation Value (HCV) assessments to guide decisions on land-use planning, as well as efforts to support smallholders within wider landscapes. This is all the more important when considering proposals for limiting the expansion of concessions across the country without addressing existing concessions (‘land banks’) that are partially covered by standing natural forests, and placing little regulatory control on the additional pressures of smallholders on forest conversion.

A young man uses a contraption to harvest fruit from the oil palms. Photo by I. Cooke Vieira/CIFOR

Clearly, improvements are needed in communication and transparency among stakeholders, not only to raise the bar of sustainability beyond existing ISPO requirements and to provide a more conducive environment for corporate commitments, but also to enhance the rule of law and improve governance. Legality and law enforcement are absolute prerequisites for cleaning the sector of its worst players and practices.

THE COMPLEXITIES OF PALM OIL GOVERNANCE

Governance of the palm oil sector is becoming more complex over time. In addition to national regulations, it involves a transnational regime in the form of RSPO standards, which are widely accepted by the private sector as the benchmark criteria for sustainability, at least by players downstream the supply chain. Different initiatives by financial institutions and governments in consumer countries, grouped under the Amsterdam Declaration, as well the industry-led European Sustainable Palm Oil initiative (ESPO), are endorsing RSPO as a way to ensure uptake of sustainable practices.

Major corporate groups have also adopted individual and collective commitments to sustainability. Some of these commitments rely on RSPO as the privileged system to demonstrate achievements. Commitments to zero deforestation tend to make explicit their own criteria, targets and timeframes, which in some cases are rather ambiguous. In the palm oil sector, they often make use of High Carbon Stocks (HCS) as the approach to identifying forests to be protected.

As mentioned, the Indonesian government has embarked on a mission of strengthening ISPO, which originally emerged as a bundle of existing public regulations on palm oil production grouped under one instrument. However, doubts over ISPO’s effectiveness and slow implementation have forced the government to put in place a process to improve the scheme’s legitimacy, such as by drawing on a multi-stakeholder group, and conducting an ongoing consultation process to overcome the main design shortcomings. Much of the credibility of ISPO will nonetheless rely on how far it manages to closes the gaps with RSPO, particularly with regards to HCV and FPIC (Free, Prior and Informed Consent).

Due to the growing complexity of palm oil governance, what we have now are three simultaneous processes for moving toward sustainable palm oil that intersect, but in different ways. One is interested in “sustainable supply”, triggered by RSPO, another is interested in “clean supply”, motivated by private commitments to zero deforestation, and the third aims to achieve “legal supply”, supported by government through a strengthened ISPO. This creates some confusion, and it is not clear what the implications are of each on the move toward sustainability.

Read also: What will it take to make sustainable palm oil the norm?

Bunches of oil palm fruit await transportation in a wheelbarrow. Photo by I. Cooke Vieira/CIFOR

THE CHALLENGE OF INCLUDING SMALLHOLDERS

In this order of things, many independent oil palm smallholders are threatened with becoming alienated from formal markets because they lack the technical capacity and/or resources to comply with public and private sustainability standards. Thus, a major challenge is to find ways to improve conditions for smallholders in accessing finance and technical services.

Since resolving compliance barriers will require targeted interventions, it is becoming increasingly important to better understand the types of barriers faced by different types of smallholders. Research conducted in Riau, and in Central and West Kalimantan, highlights the sustainability, legality and productivity challenges arising from independent smallholder oil palm expansion. Gendered impacts of oil palm development also deserve special consideration, given the additional burden on women.

Understanding who smallholders are is important, since it has become the case that frontier expansion is often driven by larger, out-of-province and absentee farmers who engage in oil palm for investment purposes, rather than by smaller farmers (for example, with plots less than three hectares in area) who are dependent primarily on household labor. Some of this expansion is associated with land speculation, as a way to appropriate economic rents under the expectation of a future increase in the commercial value of cleared lands.

Tenure legality issues – faced especially by smallholders whose oil palm operations more closely resemble that of businesses – constitute the most significant compliance challenge. There is an ongoing debate over how to deal with illegality and to channel financial resources and technical support, not only to regulate oil palm expansion, but to enhance the performance of smallholders.

ADDRESSING CRITICAL CHALLENGES

Different and complementary initiatives are emerging to address performance issues in the sector. These embrace three broad objectives, namely: to implement traceability systems while overcoming challenges to involve smallholders; to refine and harmonize sustainability standards and tools; and to reconcile supply chain and landscape management approaches.

Enhancing traceability and smallholder inclusion

Major corporate groups in the palm oil sector are developing traceability systems to monitor and verify their performance with respect to their commitments to zero deforestation. Given the challenges to smallholder inclusion in this context, a number of companies and NGOs are collaborating to develop new business models and value chain strategies to support the inclusion of smallholders and enhance their compliance capacity. This is a work in progress.

Refining and harmonizing sustainability standards and tools

The most relevant process in this regard has been the HCS Convergence Agreement, which harmonizes methodologies to estimate high carbon stocks, and complements HCV with HCS. Other ongoing initiatives include RSPO Next, which is a set of advanced, add-on criteria for palm-oil growers seeking to comply with the aims of “no deforestation, no fire, no planting on peat, reduction of GHGs, and respect for human rights and transparency”, as well as efforts to strengthen ISPO. A major issue is how to implement on-the-ground standards that are increasingly demanding technically, and for which there are no institutional conditions, such as legality.

Reconciling supply chain interventions and landscape management

The private sector and NGOs are increasingly acknowledging that progress will only be piecemeal if underlying structural issues affecting the palm oil sector are not comprehensively addressed. Supporting efforts in specific jurisdictions to identify and register smallholder lands, and to promote district-level monitoring, reporting and verification of land-use change, are being undertaken as part of wider jurisdictional-based initiatives, emerging as a way to scale up innovations and solutions. These approaches may have potential, but have yet to prove their effectiveness.

Watch: Sustainable development of Cameroon’s palm oil

Workers take before fertilizing the next line of trees. Photo by I. Cooke Vieira/CIFOR

LIKELY FUTURES OF OIL PALM EXPANSION

Different futures are possible for oil palm expansion, with diverse consequences for development and conservation and their trade-offs. All depends on how far the government and the private sector will go in embracing their sustainability policies, and how effectively they are implemented and monitored.

The most likely scenarios are: 1) a business-as-usual scenario, in which oil palm plantations continue to expand at the current rate; 2) a moratorium scenario, in which the government applies increasing constraints to development on primary and secondary forests and peatlands; 3) a zero-deforestation scenario, in which deforestation is completely stopped in oil palm concessions; and 4) a sustainable intensification scenario, in which expansion continues on suitable lands, with greater social inclusion.

Emerging findings from scenario analysis in Central Kalimantan, when looking at the impacts of oil palm expansion on ecosystem services (comprising carbon stock and storage, habitat quality, water yield and palm oil production), suggest that the zero-deforestation scenario is the most desirable option. This scenario, however, requires a review of the forest moratorium that should encompass all forest types, as well as a clear land-use policy, strategy and detailed land-use plan involving all jurisdictions and stakeholders. The next most desirable scenario is sustainable intensification that would avoid the release of carbon, while continuing to contribute to increased palm oil supply resulting from enhanced yields.

When looking at Indonesia as a whole, scenario research suggests that zero-deforestation commitments and the moratorium on large-scale oil palm plantation expansion could reduce deforestation by 25% and 28%, respectively. These measures could also cut GHG emissions from land-use change by 13% and 16%, respectively, over the period 2010–2030. Even under the zero-deforestation and moratorium scenarios, Indonesia is projected to increase palm oil supply between 97% to 124% over 2010–2030, partly due to higher production originating from smallholders. Both measures – zero-deforestation commitments and a moratorium on large-scale expansion – would limit future deforestation in Indonesia, while maintaining the country’s leading role in the global palm oil market.

Foresight analysis is key in the debate on sustainable palm oil development. It can provide data and information to allow for evidence-based policy making. Public and private decision-makers, and multi-stakeholder initiatives should pay more attention to likely futures analysis to guide their decisions on action to reduce deforestation and GHG emissions, while finding options to improve productivity, legality and inclusion in the palm oil sector, with solutions that are acceptable to all stakeholders, and the wider society.

By Pablo Pacheco, originally published at CIFOR’s Forests News

For more information on this topic, please contact Pablo Pacheco at [email protected].


This research is supported by USAID funding for CIFOR’s Governing Oil Palm Landscapes for Sustainability (GOLS) project, and this work is partly funded by the United Kingdom’s Department for International Development KNOWFOR Program Grant to CIFOR.

This research is part of the CGIAR Research Program on Forests, Trees and Agroforestry (FTA), which is funded by CGIAR Fund Donors.

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  • Sustainable development of Cameroon's palm oil

Sustainable development of Cameroon’s palm oil

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Cameroon’s tropical climate provides the perfect conditions for growing oil palm. The high-yield crop is liked by industrial farmers and smallholders, but some are concerned that vast plantations could undermine food security and prevent local families from getting the food they need.

Originally published by CIFOR.

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  • Agroforestry for livelihoods of smallholder farmers in Northwest region of Vietnam

Agroforestry for livelihoods of smallholder farmers in Northwest region of Vietnam

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Shifting cultivation and monocropping of staple food crops such as maize, rice, or cassava have been identified as the main reasons for declining yields due to soil degradation and soil erosion in the Northwest region of Vietnam. Recognizing the potential of agroforestry, the World Agroforestry Centre (ICRAF) is implementing a comprehensive agroforestry research with local partners in the region.

Originally published by ICRAF.

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  • Smart use of trees: Co-investment scheme improves livelihoods, maintains ecosystem services

Smart use of trees: Co-investment scheme improves livelihoods, maintains ecosystem services

A woman inspects buds on a tree as part of the Climate-smart, Tree-based, Co-investment in Adaptation and Mitigation in Asia project. Photo by ICRAF
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A woman inspects buds on a tree as part of the Smart Tree-Invest project in Indonesia. Photo by ICRAF

The World Agroforestry Centre (ICRAF) recently marked the end of its Climate-smart, Tree-based Co-investment in Adaptation and Mitigation in Asia (Smart Tree-Invest) project with a closing event in Jakarta. 

Smart Tree-Invest, supported by the CGIAR Research Program on Forests, Trees and Agroforestry (FTA) and the International Fund for Agricultural Development (IFAD), worked in watersheds in Buol, Central Sulawesi, Indonesia; Lantapan municipality, Bukidnon province, the Philippines; as well as Ha Thinh and Quang Binh provinces in Vietnam.

The project, which ran from 2014 to 2017, aimed to improve the livelihoods and resilience of smallholder farmers through the promotion of climate-smart, tree-based agriculture in the three countries, aimed at reducing their vulnerability to climate change.

It did so by developing co-investment models that involve smallholders as ecosystem service providers while local governments and the private sector invest as ecosystem service beneficiaries.

Based on diagnostic studies of needs and opportunities in each country, the project introduced novel tree-planting schemes to improve the quality of home gardens, smallholders’ plantations, riparian and sloping land — and ultimately the quality of the environment and local livelihoods.

The process of identifying opportunities as well as new schemes for using resources available locally have been adopted by local governments in the three countries, overcoming their initial skepticism based on past ‘project’ experience. Moreover, toward the end of the project, private sectors were eager to join in initially monitoring ecosystem services in their sites in Indonesia, supporting market access for smallholders in Vietnam, and starting the initial incentive flow in the Philippines.

FTA researcher Beria Leimona speaks at the Smart Tree-Invest project’s closing event. Photo by Sidiq Pambudi/ICRAF

Smart Tree-Invest was the first project to explicitly pilot the development of Co-investment in Ecosystem Services (CIS) schemes, a concept that emerged from earlier Payment for Ecosystem Services (PES) ideas. More than 600 farmers from the three countries were involved in co-investment activities.

Watch: An introduction to the Smart Tree-Invest project

FTA researcher and ICRAF ecosystem services specialist Beria Leimona, who was the overall leader of Smart Tree-Invest, noted the similarities between the three countries.

“We chose these sites because we work closely with the International Fund for Agricultural Development or IFAD [which had established a presence in the areas through previous projects] and all of the sites are remote, and they are more or less the ‘poorest of the poor’,” she said.

The Lantapan watershed had previously hosted an investment in environmental services project. There was also investor interest in the areas in terms of the private sector, including a major hydropower company in the downstream. It was the first time co-investment had been implemented on the ground.

The area “had been degraded to some extent,” Leimona said. ICRAF has had a presence in Lantapan for quite some time, she explained, beginning with the Landcare initiative in the 1990s.

“With Landcare, we saw the potential: we gave the awareness [about tree planting], but what sort of incentives would make them want to sustain the pilot?”

Following that was the Rewarding Upland Poor for Environmental Services (RUPES) project with its incentive system for farmers.

Researchers subsequently “added information about what type of ecosystem services farmers and outside beneficiaries could get if they planted trees on their farms, which was in this case the watershed functions — increasing water quality for the company and also reducing erosion from farmland.”

“Through Smart Tree-Invest, we wanted to get more stakeholders involved in linking development programs with well-measured conservation objectives to result in green-growth scheme in their jurisdictions, including IFAD as the development agency and particularly the district and provincial government,” Leimona said.

Read also: 

A farmer shows off cacao pods growing on a tree as part of the project. Photo by ICRAF

Buol in Indonesia and Ha Tinh in Vietnam were more remote than the Philippines site. There was “almost no private sector,” Leimona said, adding that there was also less interest from business and infrastructure was less supportive.

She put this down to the area not being “sexy” or high-profile like locations such as Kalimantan, leading to almost no projects occurring there.

The silver lining was that “the enthusiasm of the local government was very high because they were quite eager to see what happened.”

Among the other notable differences between the sites were that in terms of the landscape structure, Vietnam did not have a mixed system or agroforestry. That stemmed from land-use policy, said Leimona, whereby farmers must follow government requirements on what to plant on their land.

In Buol, agroforestry existed with crops such as cacao, coconut and candlenut, Leimona explained. However, it had not been commercialized and was not well managed. “People didn’t think it could be a source of future profits,” she said, adding that farmers previously concentrated more on their patchouli or paddy fields.

Among other approaches, the project used the Capacity Strengthening Approach to Vulnerability Assessment (CaSAVA) framework, which ICRAF developed. The participatory approach of CaSAVA helped the collection of local ecological knowledge from smallholders in Lantapan, according to researcher Kharmina Anit in the Philippines, and increased their awareness of the issues in their landscapes, encouraging practical adaptation solutions at the community level.

The project also provided best practices in support of the implementation of policies in each country.

In Buol, the local administration has committed to replicating Smart Tree-Invest activities including farmers’ learning groups and watershed and tree-planting monitoring. The project was implemented in two subdistricts in the Buol watershed, and the district administration is set to expand activities to the Mulat-Lantika Digo watershed, using its own funding.

FTA scientist Meine van Noordwijk (left) poses for a photograph with members of the Smart Tree-Invest Vietnam team. Photo by Sidiq Pambudi/ICRAF

The administration has requested ICRAF’s support through continued technical assistance as it replicates the project activities after the project’s end.

Watch: Impacts of Smart-Tree Invest project after 3 years

In summing up the project’s impacts and its relation to greater goals at the closing event in Jakarta, FTA scientist Meine van Noordwijk said it was “not only about healthy food but also healthy farmers and healthy forests […] in the frame of climate change.”

Unlike management systems that require results to be outlined beforehand and achieved, Van Noordwijk added, Smart Tree-Invest made a commitment and then awaited the impacts. The “open-ended” learning approach fit into existing structures of regulations and funding mechanisms, as well as working within local contexts.

“[This] provided food for thought on how we may see one object from different perspectives, and end up with different results,” said ICRAF ecosystem services specialist Sacha Amaruzaman. “Professor van Noordwijk reflected on the different characteristics of three country sites; how the similar start in each site through the application of the CaSAVA framework ended up with different co-investment schemes.”

“Clarification of the issues, weighting the trade-off between options and considering context are the three actions required to achieve development goals,” he added.

The partnerships formed with governments and other stakeholders stand as testament to this, as does the continued commitment in the sustainability of the project.

By Hannah Maddison-Harris, FTA Communications and Editorial Coordinator. 


This work forms part of the CGIAR Research Program on Forests, Trees and Agroforestry (FTA). We would like to thank all donors who supported this work through their contributions to the CGIAR Fund. This project was  supported by the International Fund for Agricultural Development (IFAD).

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  • Smallholder farmers in REDD+ sites: The cost of missed opportunities

Smallholder farmers in REDD+ sites: The cost of missed opportunities

A man from Pangkalan Limus village collects wood from the surrounding forest in West Java, Indonesia. Photo by A. Erlangga/CIFOR
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A man from Pangkalan Limus village collects wood from the surrounding forest in West Java, Indonesia. Photo by A. Erlangga/CIFOR

Paying farmers not to clear forests could be more effective – if we had a better idea of how much income they really lose.

It is clear that REDD+ has changed from what was first envisaged. First formulated in 2005 as part of the United Nations Framework Convention on Climate Change, the approach attracted high hopes for slowing down climate change by reducing emissions from deforestation and degradation. An integral part of the approach that was originally conceived included direct payments to forest users for not deforesting or degrading forests.

This has not turned out to have been as central to REDD+ implementation as initially expected. There is still, however, broad consensus that the global beneficiaries of climate change mitigation should provide benefits greater than the burdens faced by local forest users who are asked to conserve forest.

A new paper by CGIAR Research Program for Forests, Trees and Agroforestry (FTA) scientist Dr. Amy Ickowitz of the Center for International Forestry Research (CIFOR) and colleagues Erin Sills and Claudio de Sassi shows just how much smallholder farmers in a variety of REDD+ sites would actually lose if they were to stop all deforesting and degrading activities, and were not compensated. The paper also outlines how these costs vary between the richest and poorest farmers.

ON THE CHEAP?

Using data from CIFOR’s Global Comparative Study on REDD+ (GCS REDD+), taken from a number of sites across six tropical countries, the new paper shows that initial estimates of how much smallholder farmers should be compensated for their losses from foregoing deforesting and degrading activities were underestimated.

That led to a mindset in which policymakers and donors thought they could reduce emissions “very cheaply,” according to Ickowitz.

In some cases, this is true. But in many others, it is not. This mindset does not adequately take into account the fact that costs vary widely, even within the same community.

The study separated costs by income group to show how the opportunity costs of deforestation and degradation differ between the richest and poorest members of the communities. As it turns out, these differences can be very large indeed.

Making payments based on more accurate opportunity cost estimates would make REDD+ programs more equitable and likely more effective, says Ickowitz.

She adds that the research shows how a system of flat payments — per hectare, or per household — could be a “pro-poor” approach, as lower-income households have lower average opportunity costs compared to richer farmers in all study sites considered across all six countries.

DEFINING OPPORTUNITY COSTS

So what exactly is an ‘opportunity cost’?

Simply put, it is the income a forest-user loses after complying with REDD+ restrictions on his or her land. If a farmer used to clear trees and grow crops on that land, the opportunity cost is the value of the production he or she has had to give up.

Based on household data and estimates of carbon stocks from six tropical countries, Ickowitz and her team found that opportunity costs per ton of carbon for most of the smallholders in the study exceed current market prices on the voluntary carbon market.

In the early days of REDD+ thinking, estimates of smallholder opportunity cost were much lower than they turned out to be. At the same time, carbon market prices did not rise to the level that many had anticipated.

“One of our main findings is that despite many concerns that REDD+ would mostly hurt poor farmers, if payments were made to farmers based on average community opportunity costs, they would most benefit the poorer farmers in our sample,” says Ickowitz.

But even if carbon prices were to rise to a level that would be able to fully cover average opportunity costs of forest users, there would still be distributional considerations.

A flat payment system could increase transparency, reduce transactions costs, and benefit the lowest income households. But under this type of system, forest-users with higher incomes would not be fully compensated unless payments were set at higher-than-average costs – thus they would either opt out, or lose out from participating in REDD+.

If compensation costs were set at higher-than-average rates to attract the higher income households, costs would substantially increase.

A smallholders farm is seen in Acre, Brazil. Photo by K. Evans/CIFOR

GLOBAL BENEFITS 

On the other hand, the opportunity costs to smallholders in all but one of the sites sampled were less than the social cost of carbon as estimated by an Interagency Working Group of the US federal government.

Therefore, reducing deforestation by smallholders and consequent carbon emissions “would generate net global benefits,” Ickowitz and her colleagues conclude.

But the research also makes clear just how serious an economic loss REDD+ restrictions can impose on small farmers if they are not compensated adequately.

“This, to me, is the real significance of having real numbers from real people across many different places,” says Ickowitz.

And because it is so hard to conduct detailed household surveys at all locations where REDD+ will be implemented, the wide range of sites sampled across the tropics increases the value of the data.

While REDD+ may have evolved into a different type of mechanism than originally conceived, ultimately, it is still about getting forest users to change their behavior.

The research brings us back to looking at what is required to compensate smallholder forest users fairly if they are asked to change their activities. Without equitable compensation, forest-users are not likely to cooperate. This means getting compensation right may well be one of the many issues REDD+ needs to overcome to fulfill its objectives at meaningful scale.

By Andrew North, originally published at CIFOR’s Forests News

For more information on this topic, please contact Amy Ickowitz at [email protected].


This research forms part of the CGIAR Research Program on Forests, Trees and Agroforestry. We would like to thank all donors who support this work through their contributions to the CGIAR Fund.

This research was supported by Norwegian Agency for Development Cooperation (Norad), the Australian Department of Foreign Affairs and Trade (DFAT), the European Commission (EC), the International Climate Initiative (IKI) of the German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB), the United Kingdom Department for International Development (UKAID). 

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  • Estimating smallholder opportunity costs of REDD+: A pantropical analysis from households to carbon and back

Estimating smallholder opportunity costs of REDD+: A pantropical analysis from households to carbon and back

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FTA COMMUNICATIONS TEAM

Compensating forest users for the opportunity costs of foregoing deforestation and degradation was one of the original distinguishing features of REDD+ (Reducing Emissions from Deforestation and Degradation). In the early days of REDD+, such costs for tropical smallholders were believed to be quite low, but this has increasingly been questioned.

A decade after the concept was proposed, direct payments to forest stakeholders remain rare, while concerns about safeguarding livelihoods are increasing. Households facing restrictions on forest-based activities will have to be compensated, yet evidence on actual costs to households, their distribution, and implications for efficiency and equity is limited.

We estimate smallholder opportunity costs of REDD+ in 17 sites in six countries across the tropics. We use household data collected from multiple sites in multiple countries using a uniform methodology. We find that opportunity costs per tCO2 emissions from deforestation are less than the social costs of tCO2 emissions ($36) in 16 of the 17 sites; in only six of the sites, however, are opportunity costs lower than the 2015 voluntary market price for tCO2 ($3.30).

While opportunity costs per tCO2 are of interest from an efficiency perspective, it is opportunity costs per household that are relevant for safeguarding local peoples’ income. We calculate opportunity costs per household and examine how these costs differ for households of different income groups within each site. We find that poorer households face lower opportunity costs from deforestation and forest degradation in all sites.

In a system of direct conditional payments with no transactions costs to households, poorer households would earn the highest rents from a system of flat payments. Our findings highlight that heterogeneity and asymmetrical distribution of opportunity costs within and between communities bear important consequences on both equity and efficiency of REDD+ initiatives.

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  • 'Turning the onus of restoration into a bonus for farmers' in Brazil

‘Turning the onus of restoration into a bonus for farmers’ in Brazil

David Kenduywo is pictured at his farm in Kembu, Kenya, where he grows fodder trees, shrubs and grass for his dairy cattle. Photo by Sherry Odeyo/ICRAF
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David Kenduywo is pictured at his farm in Kembu, Kenya, where he grows fodder trees, shrubs and grass for his dairy cattle. Photo by Sherry Odeyo/ICRAF

A recent article on research in Brazil yields seven flexible options for farmers who wish to use agroforestry as a means to comply with regulations while benefitting their land and livelihoods.

Setting aside conservation areas on Brazil’s farms and rural properties isn’t just good for the ecosystem, the climate and biodiversity – it’s the law. In 2012, the country passed a new Brazilian Forest Code known as the Law for Protecting the Native Vegetation.

This code expands on an older law that obliges all farmers and rural property owners to set aside a portion of their land, known as Permanent Preservation Areas and Legal Reserves, for conservation.

Mandating the restoration of a portion of a farmer’s land with a mix of native species carries potential negative short-term economic impacts despite the collective environmental services. Obligatory conservation and/or restoration using conventional methods consisting of planting native trees can reduce the immediate economic potential of the land, which could otherwise be used to farm commercial crops. But this is not necessarily the case.

For the many smallholders, or ‘family farmers’ in Brazil, incorporating agroforestry systems (AFS) is a legally acceptable land use which satisfies the definition of a conservation area. However, regulation is still fledgling and consistency in its application has been erratic.

So what is the best way to incorporate AFS into farm land and rural areas while maximizing species diversity, ecosystem benefits, and ultimately, livelihood benefits?

A farmer walks through an area where intercropping of rubber and food crops takes place. Photo by Julius Atia/ICRAF

The answer is complex due to inconsistencies in regulation, and substantial differences among farmers’ means and goals, access to markets and biophysical conditions, crop choices, and scant access to knowledge on landowners’ restoration options. To help alleviate these knowledge and practical gaps and to strengthen enabling factors like policy and regulation, a body of research was conducted in the Cerrado and Caatinga biomes to analyze the best AFS options.

Through a literature review, interviews with stakeholders, a national workshop and a series of on-site farmer experiences and observations, the research team led by the World Agroforestry Centre (ICRAF) and partners, including FTA researchers, set out to determine if and how AFS was indeed a viable option for smallholders to both fulfill their legal obligations to conserve and/or restore land and maximize livelihoods and other benefits.

Read the full open source article on Cambridge University Press.

Based on the research, and accounting for biome or landscape context and farmer experiences, seven broad options were identified for farmers and rural landowners as flexible solutions that are adaptive enough to fit most circumstances and cater to individual needs and capabilities. While uptake of these techniques by farmers is a key component, an equally significant result is that state regulators and extension agents, armed with an understanding of these options, are better able to oversee implementation of the new Forest Code and therefore generate consistent services and policy.

The options are:

  • high-input successional agroforestry systems for the Cerrado: planting in beds with annual crops and vegetables with rows of fertilizer trees and agroforestry species;
  • planting alternate strips of agroforestry and native species;
  • planting ‘fertilizer’ and ‘engineer’ species in rows or ‘islands’ (clusters) throughout the area;
  • planting seeds and seedlings for enrichment and managing natural regeneration;
  • agroforestry for restoring steep hillsides in terraces or swales in the Cerrado or soft slopes in the Caatinga;
  • forage agroforestry systems in the Caatinga; and
  • restoring degraded lands in the Caatinga beginning with “engineer” and “fertilizer” species.

This study concludes that AFS is a viable option for smallholder farmers to reconcile with the Forest Code’s goal of increasing conservation while improving the land, and reaping economic and environmental benefits. As notably stated in the article, [AFS] “can indeed provide practical solutions for turning the onus of restoration into a bonus for farmers.”

Originally published on the IUCN website.


This study is part of a partnership between IUCN and ICRAF funded by ‘Improving the way knowledge on forests is understood and used internationally (KNOWFOR)’ under a grant awarded to IUCN by UK Aid from the UK government. In Brazil, this project is coordinated by ICRAF in partnership with IUCN, Embrapa (Brazilian Agricultural Research Corporation), ISPN (Institute for Society Population and Nature), SFB (Brazilian Forest Service), ISSA (Instituto Salvia) and Mutirão Agroflorestal. 

The research forms part of the CGIAR Research Program on Forests, Trees and Agroforestry (FTA), supported by CGIAR Fund Donors.

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  • Stepping up to the challenge to end poverty and hunger without trashing the planet

Stepping up to the challenge to end poverty and hunger without trashing the planet

Cocoa is one of the tree crops this research focuses on. Photo: Neil Palmer/CIAT
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Agroforestry activity, West Kalimantan – Indonesia, 2009. Photo: Ryan Woo/CIFOR

By Fergus Sinclair, Leader Agroforestry Systems, World Agroforestry Centre and Coordinator Flagship 2

The livelihood systems flagship of FTA has set out a bold research agenda from 2017 to 2022 to enhance how trees and forests contribute to smallholder livelihoods, particularly by improving food and nutrition security and increasing household income in the face of global change.

Not everyone agrees that trees can make a difference, and much of the agricultural establishment still sees an antipathy between farming and forestry, but we have more and more evidence that, if managed appropriately, trees can sustain and increase agricultural productivity for many smallholders in developing countries, and address the simultaneous need for food, energy and water in a sustainable way.

It is time to change outdated perspectives: trees and forests should take their rightful place in meeting the United Nations Sustainable Development Goals.

A Systems Approach

In a recent independent evaluation of the Trees for food security project funded by ACIAR (the Australian Centre for International Agricultural Research), farmers in Ethiopia articulated the need for a systems approach to agricultural improvement far more eloquently than researchers have ever done.

Exchanging ideas about agroforestry practices. Photo: ICRAF

They were appreciative of the trees established on their farms through the project, but they pointed out that they also needed better water management to realize the potential of the trees (as well as for domestic use and crop irrigation) and to control livestock grazing, if the trees were not to be eaten in the dry season, when herds of camels moved across their landscape. This points to a key problem with much agricultural research.

Often researchers are focused on one component of a farming system: the trees, the maize or the livestock and assume that, as in industrial agricultural systems of the North, maximizing the yield of one component is the key objective.

This is not what smallholders want. They need to maximize the total factor productivity of their whole livelihood system, and this includes more than just agriculture, they may be involved in processing and marketing their farm produce, utilization of forests, or opportunities to earn off-farm income.

Better management of trees can be central to sustainable intensification of smallholder farms through managing interactions–for example producing fuelwood and fodder on the farm from trees, means that people–usually women–don’t have to spend time collecting them and can devote that time to other productive endeavors.

A Lubuk Beringin villager, Rahimah, 70, harvests palm nut or areca nut on her agroforestry farm at Lubuk Beringin village, Bungo district, Jambi province, Indonesia. Photo: Tri Saputro/CIFOR

But, agroforestry is not yet considered in global assessments of research impact, because the crop production models that drive them can’t accommodate interactions between trees and crops. Our flagship will be changing this in 2017 through a strategic collaboration with the Australian Commonwealth Scientific and Industrial Research Organisation (CSIRO) to develop globally calibrated crop models that incorporate trees.

Flagship 2 is also breaking new ground by using systematic planned comparisons embedded in development initiatives to accelerate development impact. Through key investments from ACIAR, the United Nations International Fund for Agricultural Development (IFAD) and the European Union, and the UK Department for International Development (DFID), thousands of farmers across five countries in Africa will be involved in trying out different options for using trees to improve food and nutritional security, and restore degraded land.


Read also: “Influence flows both ways”: Partnerships are key to research on Livelihood systems


Already this year, the only maize that some farmers in Kenya will harvest is coming from what they planted in trial water harvesting basins, but the power of the planned comparison approach is that it not only delivers locally adapted options today, but also international public goods in terms of understanding how contextual factors condition suitability of options that will enable scaling out.

The food, water, energy nexus

Building on the need for adopting a systems approach, Flagship 2 has a research cluster that focuses on smallholders’ production of timber, food, fuel and non- timber forest products and their marketing.

This connects to research on trees in support of sustainable intensification which looks at how trees impact water cycling on fields and farms and to research under Flagship 4 addressing how trees and forests impact water cycling at landscape and continental scales.

There is a strong focus on value chains that has attracted investment principally from ACIAR and IFAD to develop novel market-based agroforestry options in Uganda, Zambia, Indonesia and Vietnam, and new approaches to managing the forest-farm interface in Burkina Faso and Ghana.

Cocoa is one of the tree crops this research focuses on. Photo: Neil Palmer/CIAT

Tree crop commodities

Some of the most valuable globally traded commodities coffee, cocoa, oil palm and rubber are derived from tree crops, and the majority of production comes from smallholders rather than from large plantations. However, plantations are often the more familiar images that people have in their minds.

Cote d’Ivoire produces around 40% of the global supply of cocoa mainly from smallholder farms, many run by migrant people from drier countries to the north. The cocoa production is now threatened by aging cocoa farms that need rejuvenation (including re-stocking and appropriate fertilization) and by the spread of the virulent cocoa swollen shoot virus disease (CSSVD) that destroys cocoa plants.

Funded by a public private partnership with Mars, we are at the forefront of arresting the spread of CSSVD in Cote d’Ivoire and developing strategies how to rejuvenate and fertilize the crops.

In 2017, this research cluster will also work with Natura on USAID-funded research on oil palm diversification in Brazil and with a range of partners on cocoa and coffee production systems at the forest margin in Peru.


Read also: “Scientists without borders”: ICRAF’s Director General on CGIAR Research Program on Forests, Trees Agroforestry


Trees in support of sustainable intensification

The largest investment in our portfolio goes to research on how trees underpin soil health and can intensify system interactions on smallholder farms to improve farm income and food and nutrition security.

This research builds on research from FTA Phase 1 that established how trees in fields support greater abundances and activity of beneficial soil organisms as well as tighter water and nutrient cycling.

Fertilizer trees have been shown to be a low-cost way to increase crop yields across Africa, but the performance of different options varies greatly with soil, climate, topographical position, altitude, farm system, household endowments, market access, social capital and the prevailing policy and institutional context within which farmers operate.

For the first time, Flagship 2 will measure the performance of tree-intensification and restoration options with thousands of farmers, across thousands of hectares in five countries in sub-Saharan Africa, using systematic planned comparisons coupled with recent advances in information technology to capture monitoring data from large sample sizes with simple data recording formats with smart phones apps.

This will generate unique data from which a much deeper understanding of the factors that control performance of different agroforestry options (tree species and management practices) can be derived.

Silvopastoral systems

2017 sees the dawn of a new research cluster within our Flagship on silvopastoral systems. It will be co-ordinated by CATIE in Costa Rica but involves research globally, including on the effect of pruning fodder trees in the Sahel, dairy development in East Africa and the value of bamboo as a fodder resource.

In addition to being a strategic fodder resource, trees on pastures have huge potential to reduce stress on livestock that accounts for huge production losses and for animal welfare concerns.

We will work with FTA Flagship 5 on the key role that trees on pastures can play in climate mitigation and adaption strategies for cattle production systems and hence with FTA Flagship 3 how they can underpin sustainable beef certification.


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