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  • FTA Highlight No. 10 – Sustainable Value Chains, Finance and Investment in Forestry and Tree Commodities

FTA Highlight No. 10 – Sustainable Value Chains, Finance and Investment in Forestry and Tree Commodities


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Analysis shows that between 2012 and 2019 the estimated volume of global trade in key forest commodities (oil palm, soy, cocoa, rubber, coffee and timber) has grown significantly. This production growth has put increasing pressure on forests, across landscapes in the tropics and subtropics of Latin America, sub-Saharan Africa and Southeast Asia, leading to multiple environmental challenges linked to losses in forest cover and biodiversity.

The growth in the trade of commodities also presents social challenges, including threats to local food and nutrition security and tenure rights and to the livelihoods of Indigenous Peoples and local communities.

For a decade FTA’s research has focused on supporting transitions to more sustainable and inclusive value chains, finance and business models for these commodities in order to meet growing global demands for food, feed and fibre from sustainable sources.

Download the volume! [PDF]
Within the context of the new series of highlights from 2011 to 2021, the CGIAR Research Program on Forests, Trees and Agroforestry (FTA) is now publishing the volume on Sustainable Value Chains, Finance and Investment in Forestry and Tree Commodities.

Annually, billions of dollars flow into rural landscapes worldwide. However, many investments fail to address a number of important goals of the inhabitants of these landscapes. FTA’s research links the impacts of global trade and investments to state- and market-driven responses in order to address their socio-environmental impacts from the subnational to the global level.

FTA has worked to address these themes over 10 years, providing critical results and improvements. FTA’s Flagship Program 3 on value chains and business models addresses three main themes:

  • which policy arrangements have the most potential for enhancing sustainability and social inclusivity in the value chain?
  • what support is needed to involve smallholders and SMEs in ways that are economically viable, socially inclusive and environmentally sustainable?
  • what mechanisms could promote more widespread adoption of responsible finance that improves sustainability and supports smallholders’ access to finance?

FTA’s efforts in the forestry sector and with tropical commodities such as coffee, cocoa and bananas have been at the forefront of certification and sustainability initiatives. In Indonesia extensive engagement with national and provincial authorities supported smallholders to meet the new challenge of timber legality accreditation through collective action.

Extensive FTA research has also contributed to improved policies and practices that support environmentally conscious and socially inclusive palm oil value chains. FTA researchers have also analyzed Fairtrade coffee value chains and their gendered dimensions.

Efforts increasingly aim to de-link deforestation from supply chains and to achieve zero deforestation. FTA research has shown, however, that commitments to zero deforestation should not be considered in isolation from the wider processes of forest degradation.

The growth in the trade of agricultural commodities is also linked to rising carbon emissions. FTA’s work over the past decade also helps to achieve broader objectives of low-emissions development and climate change mitigation and adaptation in production landscapes.

Private initiatives implemented at the supply chain level alone are insufficient — public and private arrangements that involve supply chains and landscape goals are needed. FTA research has used the Landscape Assessment of Financial Flows to assess how private-sector investments can contribute to income generation and resilient landscapes.

Landscape analysis of financial flows, Gunung Tarak landscape, Indonesia

The complexity of the governance of supply chains in the palm oil sector has led to multiple approaches to implement sustainability initiatives that also relate to how supply chains are structured. Numerous publications produced by FTA contributed to putting the domestic timber sector on the political agenda of many producer countries and the European Commission.

During the past decade, the emphasis of FTA analyses has shifted to embracing different types of suppliers — from smallholders to large-scale loggers and farmers. FTA research on value chains focuses on the inclusion of smallholders and small and medium enterprises (SMEs) at the landscape scale. Public-private initiatives are also engaging with processes for reform.

Future strategic initiatives will need to strengthen partner capacities in developing countries to co-design and deliver evidence-based solutions to address supply chain and investment constraints.

Download the report to find out how future initiatives can build on FTA results and work in ways that ensure sustainable and inclusive value chains and support climate change mitigation and adaptation in production landscapes.

Published volumes until today include:

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  • Finding effective ways to ensure sustainable supplies of forest-risk commodities

Finding effective ways to ensure sustainable supplies of forest-risk commodities


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Shea nut processing in Burkina Faso. Photo by Ollivier Girard/CIFOR
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Cross-sectoral jurisdictional approaches offer promise  

The increased consumption and production of a range of raw material and commodities, so-called “Forest-risk commodities” such as palm oil, soy, cocoa, coffee, rubber, timber and beef, contributes significantly to global tropical deforestation and forest degradation.

As both global and domestic demand grows for such commodities, they constitute one of the biggest threats to forests, leading to tree and vegetation removal – often due to burning – biodiversity loss and the release of greenhouse gases into the atmosphere. Often their cultivation through large industrial-scale estates can also pose threats to the livelihoods of Indigenous Peoples and local communities.

How to secure the sustainable production and consumption of such commodities, without impinging on forests, is therefore a key challenge for public and private actors. But acting on commodities and value chains to reduce deforestation is complex because of several factors.

First, value chains can be very long or complex, making the link between production and consumption very distant. Second, the way production chains, logistics and markets are organized make products difficult to trace, making attribution and accountability difficult. Third, how these value chains operate within landscapes is often not controlled either at the value chain or the landscape level. How public and private actors can effectively work together in landscapes and along value chains is key to solving these problems.

Cable system to transport oil palm harvest in San Martin, Peru. Photo by Juan Carlos Huayllapuma/CIFOR

Expansion of trade in forest-risk commodities led to increased pressure from civil society organizations, consumers, international banks and shareholders of consumer goods companies to develop and implement a diverse array of instruments and tools to promote sustainable or deforestation-free sourcing, and as a way to reduce their exposure to reputational, financial and regulatory risks. Multi-stakeholder platforms and commodity roundtables also emerged, in response to criticisms of government failures.

FTA’s new Working Paper  “Reviewing initiatives to promote sustainable supply chains” focuses on on forest-risk commodities [PDF]
Researchers at the Center for International Forestry Research (CIFOR), France’s International Cooperation Center in Agricultural Research for Development (CIRAD) and the World Wildlife Fund for Nature (WWF) through the CGIAR Research Program on Forests, Trees and Agroforestry (FTA) have conducted a comprehensive review of initiatives to promote sustainability including recent “hybrid” initiatives that involve governments at the national or subnational levels to create a better enabling environment for the private sector.

The multiplication of sustainability initiatives has also been driven by the growing complexity and diversity of conditions under which agri-food and timber supply chains operate. Private sector actors increasingly define and monitor their own sustainability performance by using certification standards or by developing their own procedures and criteria.

More recently, a discernible shift from supply-chain-based or sectoral approaches toward landscape or jurisdictional approaches has been seen as a way to meet sustainability goals. However, the growing complexity of policy regimes results in ambiguities and can lead to trade-offs between gains and losses. The findings of the FTA review suggest that many aspects of complex policy regimes are not yet well understood by policymakers, scientists or the public.

Amongst the supply-chain based and sector-based approaches, Voluntary Sustainability Standards (VSS), are market-driven mechanisms introduced to ensure that social economic and environmental sustainability issues are addressed in the production, processing and trade of agricultural and forestry commodities.

“Although VSS have been widely adopted, they have come under greater scrutiny in recent years and are often associated with high transaction costs (usually transferred to the end-consumers), the need to meet increasingly complex sustainability and legality standards, the exclusion of smallholders, the frequent lack of any premium for certified products and weaknesses in compliance,” said Andrew Wardell, a principal scientist with CIFOR.

The scientific evidence on the economic, environmental and social outcomes of tropical forest certification is encouraging although regional differences do occur. Take, for example, the Forest Stewardship Council (FSC), which since the early 1990s ensures that the chain of custody for production, transformation and sales of timber complies to specific voluntary, third-party audited standards, including covering sustainable forest management and avoiding deforestation.

“There is no doubt that the FSC has achieved a great deal of progress, but it’s not an unqualified success,” said Marie-Gabrielle Piketty, a researcher with CIRAD and a joint author on a review of FSC in Brazil. “Like most sustainability standards, it faces the classic dilemma of balancing stringency needed to ensure the sustainability of FSC-certified forest management, while becoming more inclusive.”

As a result, new public and private commitments have emerged to reduce deforestation and include initiatives based on either sectoral approaches with a focus on supply-side interventions, or mixed supply-chain and territorial approaches at the jurisdictional level. Government-led regulations can guide the private sector to ensure greater third-party accountability and reduce reputational risk.

Timber processing in Yaoundé – Cameroon. Photo by Ollivier Girard/CIFOR

Similarly, environmental non-governmental organisations (NGOs) are increasingly engaged as intermediaries to help companies address social and environmental risks in the supply chain, and to support sub-national governments in meeting their sustainability commitments.

“We need greater transparency to ensure that companies aren’t just paying lip service to environmental sustainability initiatives, but that they can substantiate claims that deforestation has been reduced,” Wardell said.

FTA’s brief on FLEGT-like approaches for West and Central Africa Cocoa’s sustainability [PDF]
To this end, the Accountability Framework initiative (Afi) developed a global disclosure system which aims to stimulate ethical supply chains by tracking progress toward eliminating deforestation and other forms of ecosystem conversion from corporate supply chains. Uptake and compliance challenges remain and Afi released a baseline for 2020 in an effort to improve disclosure for deforestation-free supply chains.

Some state-led interventions can be effective. For example, the European Union Forest Law Enforcement Governance and Trade action plan (FLEGT), restricts imports of unsustainably produced and illegal timber. The European Commission is currently exploring ways to enforce a Due Diligence based regulation for other forest-risk commodities. Nevertheless, the New York Declaration on Forests (NYDF), a voluntary public-private commitment to halve deforestation by 2020 will be missed and meeting its 2030 target of ending deforestation will require an unprecedented reduction in the rate of annual forest loss, according to a recent assessment.

Seeking solutions

Jurisdictional approaches, which align governments, businesses, non-governmental organizations, social organizations and local stakeholders in specific areas around common interests in land-use governance, are now often considered to have the most potential. They can ensure and provide incentives for sustainability compliance across a whole geographic area, a key issue which value-chains or sector-based approaches fail to address, or often only partially address given the existence of spatial leakage (when some areas in a landscape are not compliant) or sectoral leakage (when some value chains in a landscape are not covered by a sustainability scheme). Some of these initiatives have been developed around the notion of enhancing regulatory frameworks and enforcement, while others constitute partnerships for improving the uptake of good practices for a specific commodity within wider land-use planning and service provisions schemes. Others involve de-risking schemes for financial actors when they invest in forest-risk landscapes or constitute wider partnerships to advance sustainability at the jurisdictional level.

Soy beans, Santa Cuz, Bolivia. Photo by Neil Palmer / CIAT

“Some corporate actors are actively developing place-based solutions not only as a risk management strategy to delink their supply chains from deforestation, but also to benefit from longer term investments in the sustainability of the landscapes or jurisdictions on which their sourcing depends,” said Pablo Pacheco, global forests lead scientist at WWF.

“We shouldn’t focus only on the negative consequences associated with the expansion of forest-risk commodities, but also contribute to the development of a more positive agenda, which supports livelihoods and local people’s rights, protects nature and restores forests in addition to slowing deforestation,” he added.

“Trying to bring together disparate people to achieve common goals isn’t easy because supply chains and jurisdictional governments have different priorities,” Wardell said.

“Several teams – and some through FTA – have started to better highlight some possible impact pathways and shortcomings of jurisdictional approaches, but empirical knowledge remains incomplete,” Piketty said. “Lessons from existing case studies need to be systematized.”

“There’s a clear need to better understand how interactions between state regulations and non-state sustainability initiatives can combine supply chain management and jurisdictional approaches to stimulate wider uptake of improved practices by smallholders,” Wardell said.

“As well, determining how to evaluate impact is a key challenge, due to the many variables that come into play, thus research and science will continue to have an important role to play,” he added.

This article was written by Julie Mollins.

This article was produced by the CGIAR Research Program on Forests, Trees and Agroforestry (FTA). FTA is the world’s largest research for development program to enhance the role of forests, trees and agroforestry in sustainable development and food security and to address climate change. CIFOR leads FTA in partnership with ICRAF, the Alliance of Bioversity International and CIAT, CATIE, CIRAD, INBAR and TBI. FTA’s work is supported by the CGIAR Trust Fund.

 

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  • CGIAR Research Program on Forests, Trees and Agroforestry Annual Report 2015: Landscapes – livelihoods – governance

CGIAR Research Program on Forests, Trees and Agroforestry Annual Report 2015: Landscapes – livelihoods – governance

10 August, 2016

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Authors: CIFOR

With more than 600 publications from research spanning smallholder livelihoods, biodiversity, commodities, climate change, landscapes and many other topics, 2015 was a remarkable year for the CGIAR Research Program on Forests, Trees and Agroforestry (FTA). In the just published Annual Report 2015, the six FTA partners look back on their most important achievements. Illustrative stories come from the Congo Basin, the Amazon and the Indonesian archipelago, among others. For the first time, the FTA Annual Report was designed in the form of a brochure.

Series: CRP Annual Report

Publisher: Center for International Forestry Research (CIFOR), Bogor, Indonesia

Publication Year: 2016

Also published at Center for International Forestry Research (CIFOR)

 

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  • Situating smallholders at the fore

Situating smallholders at the fore


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Photo: Achmad Ibrahim/CIFOR
A child rests amid felled trees in Central Kalimantan, Indonesia. Achmad Ibrahim/CIFOR

By Deanna Ramsay, originally published at CIFOR’s Forests News

Mediating the push and pull of agricultural expansion and conservation is no easy task. Add to that smallholders – who play a crucial role in producing agricultural commodities but whose economic disenfranchisement can incline to unsustainable practices – and the situation becomes even more complex.

With increasing corporate commitments to eliminate deforestation from supply chains, the integral, and precarious, situation of smallholders must be addressed. But how can companies help to empower them, disincentivizing deforestation and unsustainable practices? What must government, civil society and the financial sector do? And, what would a successful smallholder empowerment project look like?

At the upcoming Asia-Pacific Rainforest Summit (APRS) in Brunei from 3 to 5 August, these questions will be discussed by diverse representatives from government, business, civil society and the research community.

In an interview on the sidelines of the recent Global Landscapes Forum: The Investment Case, Center for International Forestry Research (CIFOR) principal scientist Pablo Pacheco – who will be chairing the smallholder session at APRS – addressed the thorny question of smallholders, investing and sustainability.

A lot of private sector investment today – in spite of all the capital – doesn’t seem to always reach smallholders. Any observations?

That depends whose sector we’re looking at. I think there’s a large amount of smallholders that don’t have access to capital. But there’s a small group of smallholders who embrace more commodity crops and they are more connected to companies and global markets who have some access to capital because that capital comes through the agreements that these smallholders have with companies.

And if they have access to some sources of funding or finance, often they have access to informal markets. Because in many cases it is the intermediaries who provide the capital to smallholders. But the fact is that the capital that’s coming from informal sources tends to be more flexible for smallholders. It works for smallholders in some contexts but it’s much more expensive. The money is less reliable. So they have access to capital, but it’s much more expensive.

I think the problem of smallholder finance has been how to make this access to capital more affordable.

Do you think over the years there has been improvement? In terms of private sector investment, has it managed to benefit smallholders?

That depends. I think there’s a portion of the private sector that has been able to build links with smallholders through outgrowing schemes. And I think you have companies that have been able to provide capital to smallholders, and not just capital but also technical assistance and to build the services into the links that they have for smallholders.

They have to ensure that they have enough quality of supply and stable supply coming from these outgrower smallholders. But the fact is that now companies are making commitments to source supply that is clean, that is deforestation free. And I think that’s one of the main issues that they’re struggling with is how to build these clean sources of supply that involve smallholders.

But that is going to imply for them to build some kind of agreements with these groups of smallholders that are supplying these companies. So that’s the big issue. Because the majority of smallholders are independent smallholders, like in the oil palm sector in Indonesia.

And who do you think should pay for the costs of smallholders transitioning to these more sustainable means of production?

I think what is needed is business models that are able to share those costs – share the cost, share the risks and share the benefits. Because in most of the cases you have business models that then transfer the costs to the producers that are upstream in the supply chains. So they are the ones who pay for the cost. In an ideal situation, the companies also should be able – if they are targeting deforestation free in markets – they should be able if there is some reward to transfer the rewards upstream in the value chains.

So the smallholders can also benefit or receive some compensation on the costs that they are investing in improving the production systems. But that is still an open question, and we don’t know if that’s going to work in that way.

What can the financial sector and banks do today to help the livelihoods of smallholders?

They are in a difficult position. Because even though they may have the willingness and the capital available for investing with smallholders, the transaction costs are very high for them to provide this capital to smallholders. So they really need these microfinance institutions, cooperatives, these aggregators. Channeling the money through aggregators could be a way to reduce the transaction costs of that lending.

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  • Assessment of governance mechanisms, livelihood outcomes and incentive instruments for green rubber in Myanmar

Assessment of governance mechanisms, livelihood outcomes and incentive instruments for green rubber in Myanmar

09 August, 2016

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Authors: Kenney-Lazar, M.

Over the past decade, rubber cultivation has expanded throughout the Mekong region, from established centers of production in Thailand, China and Vietnam to new sites in Laos, Myanmar and Cambodia. Rubber has brought opportunities for increased incomes and livelihood improvement as well as social and environmental risks. The2012 drop in rubber prices has sent the sector into disarray, halting the expansion of rubber and constraining the ability of farmers and companies to profit. This study examines how rubber production in Myanmar is governed, especially the socio-ecological dynamics of varying forms of production: smallholding, contract farming and large-scale estate plantations. Based upon an analysis of secondary literature and interviews with key stakeholders, it was found that rubber production in Myanmar is for the most part not ‘green’, meaning that it has not reduced poverty and protected ecosystem services and forested areas. The price crash has prevented most smallholding farmers from increasing their income. Wages on large-scale plantations have been low and only a limited amount of work for Myanmar people is available. Large-scale estates have been developed on land expropriated from communities and have replaced forested areas that provide important ecosystem services to local communities. The paper argues that if rubber is to be truly green then significant changes to production and trade must be made, including minimum price supports from the state, appropriate land use planning measures, the establishment of cooperatives, the protection of community land rights, and the implementation of agroforestry rubber production models.

Series: CIFOR Working Paper no. 207

Publisher: Bogor, Indonesia, Center for International Forestry Research (CIFOR)

Publication Year: 2016

Also published at Center for International Forestry Research (CIFOR)

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  • FTA events: Increased transparency is pushing private sector toward deforestation-free commodities

FTA events: Increased transparency is pushing private sector toward deforestation-free commodities

17 July, 2016

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The Director of the Tropical Forest Alliance 2020, Marco Albani, speaks on the sidelines of the Global Landscapes Forum: The Investment Case, held on 6 June 2016 in London, a key event under the CGIAR Research Program on Forests, Trees and Agroforestry.

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  • Agricultural investments in Mozambique: Unsustainable land grabs or elixir of rural development?

Agricultural investments in Mozambique: Unsustainable land grabs or elixir of rural development?


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Soy plantation in Niassa province, Mozambique. Researchers warn of labelling all agricultural investments as land grabbing. Photo: George Schoneveld/CIFOR
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By George Schoneveld, Senior Scientist, Center for International Forestry Research (CIFOR)

Soy plantation in Niassa province, Mozambique. Researchers warn of labelling all agricultural investments as land grabbing. Photo: George Schoneveld/CIFOR
Soy plantation in Niassa province, Mozambique. Researchers warn of labelling all agricultural investments as land grabbing. Photo: George Schoneveld/CIFOR

As global food and energy markets rallied in the late 2000s, scores of foreign agricultural investors sought to acquire land in sub-Saharan Africa to produce food and biofuel crops. During this period, investors managed to secure access to almost 23 million hectares according to some estimates. Assuming that these investments would bring in much needed capital to support domestic agricultural modernization and poverty alleviation objectives, many African host countries initially met this renewed interest in their agricultural sector with great optimism.

Many academics and civil society organization on the other hand were quick to caution against the potentially devastating social and environmental impacts. A rich emerging body of literature has also begun to paint a picture of agricultural investors being complicit in land grabbing, disrespecting customary land rights, displacing subsistence farming, and destroying environmentally significant landscapes. It has been argued that since investors favor business models that rely on large-scale plantation monoculture rather than those that productively integrate the rural poor, the touted development impacts have remained illusive.

Critics argue that processes of globalization have reproduced economic structures that enable foreign capital to exploit Africa’s natural resource wealth for external geopolitical and economic interests. It is common perception, for example, that many investors from high-income Northern economies invest in African agriculture to serve their own biofuel markets. However, renewable energy regulations linked to climate change and energy security agendas created those markets in the first place. Speculative sources of finance originating from hedge and private equity funds reportedly facilitated this trend.

Many agricultural investors from the Middle East and Asian countries such as China, South Korea, and India are rather seen as responding to opportunities in their home food markets; often with the financial support or directly involvement of their governments that seeks to enhance national food security. This suggests that Africa is increasingly servicing global resource scarcities without adequately benefiting itself.

Unpacking agricultural investment trends in Mozambique

Also read the Working Paper on agricultural investments in Mozambique
Also read the Working Paper on agricultural investments in Mozambique

Under the KNOWFOR program, funded by the UK Department for International Development (DFID), the Center for International Forestry Research, in collaboration with Utrecht University, studied the social and environmental performance of agricultural business models in Mozambique and other countries. Drawing on official investment statistics and surveys with 69 major investors, one part of the project sought to sketch a more nuanced picture of agricultural investment trends and social and environmental conduct. These findings, recently published as a CIFOR Working Paper, suggest that many of the popular preconceptions about agricultural investments in Africa fail to hold up to closer scrutiny.

While Mozambique is widely regarded as a major playground for biofuel investments, in practice they only comprise 8 percent of total registered investments and less than 1 percent of total active investments. Instead, findings show that almost three quarters of active agricultural investors are articulated solely to food markets, concentrating especially on the production of cereal and horticulture crops. Rather than exporting these, investors sold on average 73 percent of the crops on the Mozambican market.

Those investors that do export typically do so only to South Africa. Since prices for preferred investor commodities such as maize, soy, and rice are systematically higher on the domestic and regional markets than on the international market, most investors clearly operate by profit-maximizing principles.

In contrast to popular perception, Asian and Middle Eastern investors in Mozambique are apparently not driven by political interests of their governments. These investors comprise less than 9 percent of registered investments.

The products from agricultural investments in Mozambique tend to stay on the domestic market. Photo: Neil Palmer/CIAT
The products from agricultural investments in Mozambique tend to stay on the domestic market. Photo: Neil Palmer/CIAT

The majority of active registered investments originate from within the region, notably South Africa, Zimbabwe, and Mozambique, as do their financiers. This is followed by investments from former colonial power Portugal. Although Brazilian investors are often said to be making inroads into Mozambique as a result of increased Brazilian bilateral technical assistance, only two Brazilian investments were found to be operational on the ground. The relative importance of domestic and neighboring country capital sources and end-markets highlights that commercial agriculture expansion in Mozambique is primary driven by intra-regional dynamics, with international capital, markets, and political interests playing only a secondary role.

Business models and conduct

A rice processing plant in Zambezia province. Photo: George Schoneveld
A rice processing plant in Zambezia province. Photo: George Schoneveld

With 87% of sampled investors involved in direct cultivation activities, a preference for plantation-based business models is evident. Nevertheless, almost half of the investors in the survey were found to be sourcing from smallholders, typically to supplement in-house production. From those sourcing from smallholders, approximately half did so through contractual arrangements and half through open market sourcing mechanisms.

Because side-selling is endemic in Mozambique’s more commercialized grain markets, contract farming was found to be particularly prevalent for cash crops such as sugarcane, cotton, and bananas that lack alternative off-take markets. This implies that investors rarely invest directly in the productivity of important smallholder staple crops.

Some 54 percent of sampled plantation investments were found to be green field operations involving the acquisition of customary land. A green field investment is a form of foreign direct investment where a company starts a new venture by constructing new operational facilities from the ground up.

Approximately 83 percent of these investments caused displacement of smallholders. By contrast, investors that acquired land through other means such as renting and acquisition of land already titled for commercial agriculture only displaced smallholders in 19 percent of the cases.

While highlighting the adverse social footprint of many plantation investments, green field investments were, however, found to be considerably more attuned to community interests. They initiated on average four times as many local economic development activities and three times as many community infrastructure initiatives than the other plantation investments. These differences are foremost attributable to the negotiation space created by the community consultation and consent that the Mozambican land law mandates in cases where customary land alienations are involved.

Our results also show that investor origin strongly shapes its social conduct. For example, investors from Northern countries were found to be significantly more inclined to invest in local economic development activities and to pay significantly higher wages to its employees than Southern investors. This – perhaps controversially – could point towards differences in corporate social responsibility norms.

As investors favor large-scale plantation for their crops, it is feared that the rural poor will not benefit sufficiently from the investment boom. Photo: Neil Palmer/CIAT
As investors favor large-scale plantation for their crops, it is feared that the rural poor will not benefit sufficiently from the investment boom. Photo: Neil Palmer/CIAT

The sampled plantation investments left a significant environmental footprint: more than three-quarters were established through the conversion of natural habitats, notably forests in mosaic landscapes. The extent to which investors adopted measures to mitigate associated environmental impacts, though, varied widely and there was no correlation with the origin of the investor. Environmental conduct was found rather to be a product of investor compliance with voluntary third-party certification with environmental criteria such as GLOBAPGAP and FSC. Most certifying companies claimed that their decision to comply with a certification scheme was in turn motivated primarily by the demands of external markets. This compliance, however, was not found to translate into improved social conduct.

Putting preconceptions to rest

Our findings show that agricultural investments in Mozambique do not fit the mold of the popular debate. Rather than being a driven by global capital, those investments are primarily a manifestation of increasingly dynamic regional trade and investment relations. The notion that recent investments principally serve external food and energy security agendas does not hold true in Mozambique, as domestic market opportunities in particular feature prominently in investor business plans.

Similarly, while investors do appear to favor plantation-based business models, since many also engage smallholders and contribute to community development they cannot be simply viewed as capitalist enclosures. With Mozambique being one the largest agricultural investment destinations in Africa, these findings suggest that in many other African countries reality may be a little more complex than we are led to believe.

 

 

 

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  • The Investment Case: Financing smallholders for sustainable commodity supply

The Investment Case: Financing smallholders for sustainable commodity supply


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How will smallholder farmers get access to sustainable financing? Photo: Iddy Farmer/CIFOR
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By Pablo Pacheco

How will smallholder farmers get access to sustainable financing? Photo: Iddy Farmer/CIFOR
How will smallholder farmers get access to finance to start producing crops sustainably? Photo: Iddy Farmer/CIFOR

The ongoing search for sustainable agricultural supply brings the role of finance into the center of the debate. The key question is how can smallholder farmers gain access to sources of financing that supports the transition to more sustainable production systems. Pablo Pacheco, Coordinator of Flagship 5 of the CGIAR Research Program on Forests, Trees and Agroforestry will discuss this issue at the Global Landscapes Forum: The Investment Case in London on 6 June 2016. Ahead of the event, he shared his reflections on the burning question of linking smallholders to finance. He argues that sustainability in the commodity trade can only be achieved, if smallholders are part of the picture.

Several approaches have been tried to connect farmers to financial services such as rural micro-credit under relatively flexible conditions or formal credit through small-scale lending operations. Many success stories have been observed in a pilot scale as documented by institutions dealing with rural finance. Yet many constraints still prevent smallholders from accessing affordable and flexible sources of credit, the main ones being

  • financial inflexibility and limited potential to access inexpensive credit,
  • inability to meet requests from banks,
  • lack of tenure security which is still requested as collateral.
So this is a good time for FTA scientists to expand their research to finance for farmers. Photo: Kate Evans/CIFOR
So this is a good time for FTA scientists to expand their research to finance for farmers. Photo: Kate Evans/CIFOR

We live in times in which sustainability of agricultural supply is the order of the day. Both large-scale farmers and smallholders are under pressure to embrace environmental standards as part of their production systems. This may have benefits on improved yields that could ultimately translate into higher income and profits. But the danger is that these benefits will only materialize for some companies and smallholders who are not short on capital. Affordable credit is needed for expanding the supply base of smallholders while helping them to embrace more sustainable production systems.

Less-endowed farmers continue to struggle to adopt improved practices, either due to the low quality of planting material, or lack of access to fertilizers and poor knowledge of management techniques. Particularly, this is the case for smallholder growers in the palm oil sector who still face low yields. Part of these barriers could be overcome with improved access to financial resources in flexible conditions. But not in all cases there is a shortage of credit, since flexible sources of capital also originate from informal sources, but those sources often comes at higher costs, and do not help with intensification of production.

There are two challenges: how can we promote the transition to more sustainable production systems and who will pay for the associated costs? Often commercial banks are only interested in financing the most profitable land-use activities under relatively rigid conditions, and mills only make money available to those smallholders under contract schemes. They did not care too much about sustainability in the past, but that is changing due to the increasing demands from manufacturing companies and retailers.

Also read White Paper
Also read White Paper

The transition to a more sustainable production is more difficult for independent smallholders. It will need concerted efforts from all stakeholders, including traders, industry, service providers, state agencies, and intermediaries to help smallholders overcome these difficulties. The financial service providers have a key role to play. They are starting to adopt environmental, social and governance criteria for screening their investments, and to more actively support inclusive business models. Yet, it will still take a long time for these efforts to materialize in effective outcomes on the ground.

In spite of that, new financing approaches are emerging which could be signs of hope for smallholders engaged in global commodity markets. They are related to efforts to link formal and informal finance providers, by leveraging local value chain actors for smallholder finance, and making use of technologies that can expand access to money while at the same time reducing its associated costs.

The emerging lessons in the palm oil sector will surely be taken up in future debates on how to reduce the sustainability gap that exists for smallholders and how to overcome their exclusion.

So this is a good time for Flagship 5 on Global Governance, Trade and Investment to expand its research agenda to include financing for farmers. We want to understand a few things:

  • what are the incentives and constraints that shape the implementation of responsible financing practices?
  • which factors restrict smallholders’ access to financial products and services? And
  • under what conditions can access to financing services be enhanced to support inclusive and sustainable development objectives?

At the Global Landscapes Forum: The Investment Case we will bring together representatives from finance, science, government and the corporate sector to discuss how to best support sustainability among smallholders.

 

 

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The sugar or the trees: Indonesia’s plans for sugarcane expansion come at a cost for the environment


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A woman prepares sugar in a traditional process in Puncak Lawang village in Bukittinggi, West Sumatra - an area known for its sugarcane. Photo: Udey Ismail
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Originally published at CIFOR’s Forests News

A woman prepares sugar in a traditional process in Puncak Lawang village in Bukittinggi, West Sumatra - an area known for its sugarcane. Photo: Udey Ismail
A woman prepares sugar in a traditional process in Puncak Lawang village in Bukittinggi, West Sumatra – an area known for its sugarcane. Photo: Udey Ismail

Research on key commodities such as oil palm, beef, soy and sugar forms part of Flagship 5 Global governance, trade and investment, of the CGIAR Research Program on Forests, Trees and Agroforestry (FTA). A new study suggests that Indonesia’s plans to expand sugarcane production endanger the country’s commitments to reduce emissions and pose a threat to forests and biodiversity. Harry Pearl spoke to researcher Sophia Gnych about her findings.

Key messages:

  • One million hectares of forest could be lost under sugarcane expansion
  • Expected emissions could thwart Indonesia’ GHG reduction efforts
  • Alternatively use already deforested land and increase productivity

While global attention is fixed on palm oil and logging as major drivers of deforestation in Indonesia, researchers have issued a dire warning about a new threat—sugarcane.

The sugarcane sector is on the brink of a “government-engineered boom,”according to a new study—a boom that, if fully developed, could result in huge forest loss and undermine Indonesia’s goal of cutting greenhouse gas emissions.

As part of its national food security program, the Indonesian government is seeking to convert more than 1 million hectares of tropical forests to sugarcane plantations.

“The sheer number of hectares that they are making available is quite shocking,” said Sophia Gnych, a research consultant at the Center for International Forestry Research (CIFOR), who worked on the study.

“It leaves things open for a lot of potential conflicts with local communities, vast impacts on biodiversity, and carbon emissions.”

A sweet investment

Sugarcane cultivation, here Vietnam. Photo: Manuel Boissiere/CIFOR
Sugarcane cultivation, here Vietnam. Photo: Manuel Boissiere/CIFOR

Commercial cultivation of sugarcane is not new to Indonesia. Plantations were first established by the Dutch colonial administration around 1830, mostly in central and eastern Java.

By the 1930s, Indonesia was the world’s second largest producer of sugar and a net exporter. But by the turn of the century—due to liberalization of sugar production and trade policies—things had started to unravel.

Indonesia now has a deficit of 3 million metric tons of sugar per year.

That looks set to change, however, with government plans to boost production in the name of food self-sufficiency. Sugar, along with rice, corn and beef, is one of the four key commodities at the heart of Indonesia’s food security program.

As of 2011, Indonesia had 457,000 hectares of sugarcane plantations, but that will rise significantly if the government’s plan to expand outside of Java (the hub of Indonesian production) goes ahead, according to the researchers.

The government has developed preferential policies to boost production. In 2010, a law was passed allowing sugarcane concessions of up to 150,000 hectares—more than three times the maximum area allowed for other commodities, according to the study.

In Papua, the maximum area of sugarcane plantations has been set at 300,000 hectares, the authors say.

It is feared that the expansion plans for sugarcane will lead to further deforestation in Indonesia, here a scene from Jambi. Photo: Patrice Levang/CIFOR
It is feared that the expansion plans for sugarcane will lead to further deforestation in Indonesia, here a scene from Jambi. Photo: Patrice Levang/CIFOR

Sugarcane is also exempt from Indonesia’s Forest Conservation Moratorium. The moratorium, signed into law by former president Susilo Bambang Yudhoyono in 2011, is a key plank in the government’s plan to reduce the country’s greenhouse gas emissions—more than 80 percent of which are caused by deforestation and land conversion.

With the exemption in place, the report’s authors say more than one million hectares of forest—roughly the size of Jamaica—is marked for conversion to sugarcane.

Gnych says the extent and size of the proposed plantations is “much greater than other commodities”. “That acts as an incentive for investors. For investors to really develop the infrastructure and the processing facilities needed to go along with the plantations in these areas, a massive incentive needs to exist.”

A bitter taste

Click on the image to read the new study on sugarcane
Click on the image to read the new study on sugarcane

The main areas targeted for expansion are the southern part of Papua province and the nearby Aru Islands. They are covered in large tracts of primary and secondary tropical forest, and home to endemic biodiversity and vulnerable species.

The study warns that biodiversity will be threatened by conversion, as well as indigenous land claims. Furthermore, vast amounts of carbon could be released into the atmosphere.

Using IPCC Guidelines for National Greenhouse Gas Inventories, the study estimates that sugarcane development in the Aru Islands may result in the release of 106,274,212 tons of CO2 into the atmosphere, while in Papua the volume of net carbon loss may be 19,217,775 tons of CO2.

“Cumulatively, the development of sugarcane plantation in these areas would increase Indonesian greenhouse gas (GHG) emissions from land-use change and forestry by 20 percent, effectively negating the efforts and progress with REDD+ in other parts of the country,” the study concludes.

Alternative sweeteners

However, the authors say there are ample opportunities to increase sugar production without the expansion of plantations.

Among the study’s suggestions include the revision of existing plantation permits and spatial plans to strengthen the legal status of smallholder farmers. Smallholders dominate production in Indonesia, but many smallholder farms are located on land that is not registered with the national land agency. Gnych says this lack of legal clarity makes it hard for farmers to access credit. It also makes them less likely to participate in capacity building.

To achieve “significant gains” the study recommends:

  • Improving smallholder productivity, or sustainable intensification
  • Replanting with high-yield varieties and
  • investing in transportation infrastructure and new mills.

Gnych says there are parallels with other agricultural commodities produced in Indonesia, including palm oil. Many of the challenges are common themes, such as improving efficiency and yield on land already under production. “This is something that you hear said again and again: there is already land that is under development, or is degraded and we should be looking to develop on that and improve yields among smallholders to meet the market demand,” she said.

“But the main challenges lie in capacity building, access to financing, and clarity on who can deliver that.”

 

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  • Taking the Bitter with the Sweet: Sugarcane’s Return as a Driver of Tropical Deforestation

Taking the Bitter with the Sweet: Sugarcane’s Return as a Driver of Tropical Deforestation

26 April, 2016

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Click on the image to read the new study on sugarcane
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Authors: Obidzinski, K.; Kusters, K.; Gnych, S.

Over more than 400 years, large areas of tropical forest in Brazil, the Caribbean, the Philippines, Australia, and other parts of the world were cleared to make way for sugarcane plantations. There is a general consensus in the scientific community that since the 1950s, the frontier expansion of sugarcane has stabilized and direct pressure on tropical forests from sugarcane expansion has diminished. Here, we show, however, that sugarcane plantations are on the cusp of returning as a major driver of deforestation in Indonesia.

The Indonesian government has developed preferential policies designed to boost sugar production in the name of national food security, and is seeking to convert more than 1 million hectares of tropical forest into sugarcane plantations. If fully developed, the plantation expansion program will undermine Indonesia’s goal of reducing greenhouse gas emissions. The scale of the expansion program is such that it will radically alter the global environmental impact of sugarcane.

Publication Year: 2015

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