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FTA Events: CIFOR’s Peter Holmgren on finance, fairness and future development


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At the Global Landscapes Forum 2016: The Investment Case, Peter Holmgren, Director General of the Center for International Forestry Research (CIFOR), gave an interview about finance, fairness and future development. The Forum is a key event under the CGIAR Research Program on Forests, Trees and Agroforestry. Originally published at landscapes.org. See the transcript below.

Why hold a Global Landscapes Forum?

We thought that one of the biggest gaps in the whole development discourse is, how do we find the finance that needs to be invested in fair and equitable ways to achieve all the things we need to achieve on the ground?

What is the case for investment?

The development frameworks that we see emerging now – both the Agenda 2030 with its Sustainable Development Goals and also the Paris Agreement on climate change – they both call for engagement of the finance sector.

What do you mean by ‘landscapes’?

I think there is a point not to define it too strongly or too clearly, because when we talk about landscapes, we talk about all the activities, all the small businesses, all the different sectors that are active on the ground. It’s forestry, it’s farming, it’s fisheries, it’s many other things. And we don’t want to separate them, we want to talk about them together. That’s why we talk about landscapes.

What needs to be done?

Many of the Sustainable Development Goals will have to be achieved in the landscapes, whether we’re talking about reducing poverty, reducing hunger, improving food security, improving access to water, improving the way we protect nature.

What next?

I’d say that we can’t have conferences and discussions for the sake of having conferences and discussions. We also need to make sure that we move towards action on the ground. The ‘Dragon’s Den’ represents an opportunity to actually move ahead, to take action and to develop the investment opportunities.


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  • FTA event coverage: Concrete solutions to boost private sector investment in landscapes

FTA event coverage: Concrete solutions to boost private sector investment in landscapes


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Expert discussion at Global Landscapes Forum: The Investment Case, London 6 June 2016. Photo: CIFOR
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By Leona Liu, originally posted at Forests News

Expert discussion at Global Landscapes Forum: The Investment Case, London 6 June 2016. Photo: CIFOR
Expert discussion at Global Landscapes Forum: The Investment Case, London 6 June 2016. Photo: CIFOR

In addition to addressing climate finance, one of the main topics discussed at the Global Landscapes Forum: The Investment Case was decoupling deforestation from supply chains.

“The Paris Agreement is significant because it brought forward the aspiration of staying below 2 degrees Celsius and put forests in the text,” said Marco Albani, Director of the Tropical Forest Alliance (TFA) 2020.

“But the Sustainable Development Goals (SDGs) are perhaps even more important. Among the various wedges in the current climate policy, the land use one probably has the biggest implications for all the other SDGs.”

The TFA 2020 was created in 2012 at Rio+20 after the Consumer Goods Forum (CGF) committed to zero net deforestation by 2020 for palm oil, soy, beef, and paper and pulp supply chains. The CGF partnered with the US government to create the public-private alliance with the mission of mobilizing all actors to collaborate in reducing commodity-driven tropical deforestation.

Global Landscapes Forum: The Investment Case, London, 6 June 2016. Photo: CIFOR
Global Landscapes Forum: The Investment Case, London, 6 June 2016. Photo: CIFOR

“There is a big role for the financial sector to play- particularly in terms of investment in the sustainable intensification of commodity production, which allows companies to meet their high demand for commodities, but without harming the forests,” he said.

“But it’s not easy because it involves more than the private sector. It also involves the government on all levels- national, regional and local- regarding land allocation decisions. It also involves domestic banks, state-owned banks, and trade finance that is done largely through the supply chains.”

As of today, financial institutions are not the biggest players in supply chains. Local finance institutions are generally the ones providing finance to smallholders.

“The big issue is that the majority of smallholders are independent like palm oil farmers in Indonesia, for example,” said Pablo Pacheco, Principal Scientist and Team Leader of Value Chains, Finance and Investments at CIFOR. “Smallholders have access to informal sources of finance, so companies often struggle to connect directly with them.”

“The private sector offers smallholders a secure market for their products, but they don’t necessarily pay for the costs to improve farming practices. For example, in the beef sector in Brazil, only big ranchers have enough capital to improve their farming practices. But medium scale and smallholders don’t have the capital to make these investments.”

Pacheco says new business models are urgently needed to share the costs, risks and benefits between companies and smallholders. Most of the business models that exist today transfer costs to the smallholders upstream in the supply chain, but not the benefits.
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Global Landscapes Forum: The Investment Case, London, 6 June 2016. Photo: CIFOR

Zwide Jere, Managing Director of the Malawi-based NGO Total Landcare, echoed Pacheco’s sentiment. “Today, there are very high interest rates for smallholders to access capital, especially in developing countries like my own. Interest rates are about 45 percent in Malawi. It’s sad that farmers need to accept these bad rates because they desperately need the access to finance.”

Still, progress on greening supply chains is encouraging.

“When I started working in this space, it was impossible even to know exactly how much deforestation there was, let alone where it was occurring,” said Albani. “Today, we have almost instantaneous information. We are able to trace back deforestation and allocate it to specific supply chains in a way that we’ve never been able to do before.”

Creating concrete solutions

Other key challenges tackled at the Forum included unclear tenure and government regulations, weak institutions, and the uncertain returns and unforeseen risks currently inhibiting investments at scale.

According to Holmgren, there are three key areas that require urgent attention. One is on the finance side- new tools are needed to help minimize the risks of investments and scale them up. Secondly, there is need on how financial services are done on the ground through local finance institutions. Thirdly, there is a need to better measure progress, both in terms of return on investments, but also in terms of sustainability outcomes.

Sessions at this year’s Forum ranged from diversifying financial instruments to realize REDD+, risk reduction measures for private sector investment in landscape restoration, the assessment of legal and policy frameworks for landscape investment in Africa, and how to link angel investors to land use startups.

Some of the liveliest discussions took place at a packed debate on the rise of financial system innovations like block-chains, mobile banking and the Internet of Things and how they can affect landscapes.

Digital innovations to enable and disrupt financial services, referred to as fintech, alongside mobile applications and GPS mapping software are helping to unlock the large-scale finance needed to address climate change and development challenges globally.

“About a year ago, we were looking for a solution for a low-cost way to connect smallholders to large capital,” said Christopher Botsford, CEO and co-founder of ADM Capital, an investment manager that looks to achieve long-term capital appreciation by investing in opportunities across Asia and Central and Eastern Europe.

His solution? Software.

Software like GeoTraceability, recently acquired by PriceWaterhouse Coopers, offers specialized tracking and data collection technology like GPS mapping for natural resources including cocoa, coffee, and minerals globally.

It has facilitated the mapping and data collection of over 120,000 hectares of production in 11 countries, using GPS and GIS technologies. It has also collected data from 106,000 smallholders in developing countries, giving them information to help improve their production, farming practices, and supporting their access to international supply chains.

This technology helps mitigates the risk for investors who are wary of investing in smallholders, and encourages them to scale up their commitments.

“We can then attract off-takers to give us long-dated contracts and that’s how we can convert from liaising with diverse independent smallholders into a format that is bankable on a wholesale basis. That’s our objective.”

Prior to this, it was immensely complicated given the daunting task of aggregating millions of disparate smallholders. “There are four million smallholders in Indonesia alone involved in palm oil,” said Botsford. “A lot of them don’t have land titles. Two-thirds of them are in debt. So on the face of it, it’s just not bankable as a sector.”

But financial technology has changed all that by making these investments scalable.

“For the first time, you can address millions of smallholders at once. Before this software came along, you couldn’t do that. What it’s done, is make all these people eligible for finance and to bring them into the modern world, so it’s very exciting.”

Walking the talk

Beyond just stimulating conversation, the Forum’s key objective was for its participants to walk away with seeds of viable solutions for connecting capital to smallholders.

For the first time ever, a Dragon’s Den was held to allow presenters to pitch concrete investment opportunities to a panel of investors, finance experts and land use practitioners. All pitches introduced real projects at an advanced stage.

The three pitches included: The Land Degradation Neutrality Fund, created by Mirova and the UNCCD Global Mechanism to support large-scale rehabilitation of degraded land for sustainable use with long-term private sector financing; the Sustainable Ocean Fund by Althelia Ecosphere, a new public-private partnership dedicated to making impact investments into marine and coastal projects, and the Sustainable Cocoa initiative in the Dominican Republic by NatureBank, which aims to achieve sustainability in cocoa by supporting communities that rely on cocoa for their livelihood.

These funds demonstrated the volume of sound projects that exist out there today thirsty for private sector investment.

In his remarks at the Forum’s Closing Plenary, Burrows compared the private sector’s mounting interest in sustainable landscapes investment to a cresting wave with a long period of trough. Until recently, that wave was still in formation.

“Last year, when I spoke at the launch edition of this event, I said that the wave was about to break. Well, I think it broke in Paris during the COP. My hope is that when we meet again here next year, we would have seen an enormous change in terms of attitudes from the global financing institutions to financing sustainable development.”

Paola Agostini, Global Lead Resilient Landscapes for the World Bank, has already witnessed a change. “This Forum would have been impossible ten years ago. When I was in Liberia working on forests, we were trying to do partnerships- there was the public sector and the NGOs, but the private sector was largely absent. That’s no longer the case.”


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  • FTA event coverage: Connecting funds to farms and forests

FTA event coverage: Connecting funds to farms and forests


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By Leona Liu, originally published at Forests News

OO0A5669-2Private sector investment in landscapes is no passing fad. It’s here to stay. That was the driving consensus among the 300+ participants of the Global Landscapes Forum: The Investment Case, which took place at the Royal Society of London on June 6. The Global Landscapes Forum is a key event under the CGIAR Research Program on Forests, Trees and Agroforestry (FTA).

“We’ve all noticed a very important paradigm shift in how the private sector has been contributing to concrete tangible solutions for climate change challenges all over the world,” said Forum attendee Ayman Cherkaoui, the UNFCCC COP 22 Adviser to the Environment Minister of Morocco.

“The future is synonymous with landscapes,” said Mark Burrows, Managing Director and Vice Chairman of Global Investment Banking at Credit Suisse. “This is going to be a five to seven-trillion dollar investment space within the next 10-15 years. Every bank and every institutional investor is now turning their attention to this space. The biggest problem today is not the weight of money. The capital is there. The main problem we’re dealing with now is: ‘How do we get this large bulk of money to trickle down to those who need it the most- the smallholders?’”

During the one-day, invite-only experts symposium, bankers and fund managers rubbed shoulders with government agencies and NGOs, and agriculture and forestry researchers in an attempt to provide solutions to this challenge. While at first glance they appear to be strange bedfellows, each of them holds a critical part of the green investment puzzle.
Participants favored a landscape approach. Photo: Tim Cronin/CIFOR
Participants favored a landscape approach. Photo: Tim Cronin/CIFOR

Indeed, a ‘landscape approach’ is largely about working across traditional institutional boundaries, which can hinder the integration needed to achieve progress. Among the biggest boundaries that exist today in relation to landscape approaches is the one between the private finance sector and the land-based sectors- hence the need for such an event.

“We need to move out of our comfort zones. That’s the philosophy of the Global Landscapes Forum– to bridge academic disciplines, expert communities and economic sectors to create a forum where everybody talks to everybody and crosses the traditional boundaries and innovates,” said Holmgren in his keynote speech at the Opening Plenary.

Given their diverse institutions, expertise and terminologies, the public and private sectors need to come together to find a common language in order to develop innovative solutions. The current climate and development frameworks provide a strong rationale and momentum for this to happen.

Post-Paris, private sector engagement is needed more than ever

In 2015, three major policy outcomes reinforced the need for the private sector to step up to the plate: the UN’s Third International Conference on Financing for Development in Addis Ababa, Ethiopia, the signing of the Sustainable Development Goals (SDGs), and the adoption of the Paris Agreement.

Also watch the video on the event. Click to play.
Also watch the video on the event. Click to play.

Delivering on the promise of the Paris Agreement and the SDGs will not only require strong political commitment, but substantive capital. At the COP 21, more than 180 countries submitted their Nationally Determined Contributions (NDCs) pledges to the UNFCCC. According to these plans, $16.5 trillion is needed over the next 15 years to finance climate action. The public sector alone cannot meet this need.

“The Paris Agreement set a new playing field for us all. It set out the level of ambition to mobilize $100 billion by 2020,” said Andrea Ledward, Head of Climate and Environment Department at DFID and UK Board Member of the Green Climate Fund (GCF).

“It set out a particularly important role for the private sector and multilateral development banks (MDBs) to play. MDBs – being the largest financiers- are essential to catalyze the large sums of money needed to get us to the $100 billion. As a donor government, it’s important that we start thinking about how we use our public financing to mobilize these much larger flows that are coming through the private sector and MDBs.”

The Green Climate Fund (GCS)– established in 2010- is gearing up as the main vehicle for achieving the climate change objectives as defined at the COP 21. The Fund invests in low-emission and climate-resilient development. It is the only stand-alone multilateral financing entity that aims to deliver equal amounts of funding to mitigation and adaptation. This is extremely significant given the present parity between the two.

In the lead up to the COP 21, the think-tank Climate Policy Initiative (CPI) analyzed figures and found that climate finance flows in 2014 were $64 billion. Within that, only 16 percent of funding was used towards climate adaptation. This shows that mitigation projects are essentially larger and easier to finance. They also tend to occur in middle-income countries. Adaptation projects, on the other hand, are seen as more complicated and tend to occur within the poorest and most vulnerable countries.

The attention to equalizing private sector investment in mitigation and adaption is also a key priority for the COP 22 that will take place in Marrakech, Morocco this November.

“When it comes to private investment on the mitigation side, it’s becoming stronger and stronger with each passing day. We are seeing record levels of investment all over the world,” said Cherkaoui. “But at the same time, the investment case for the adaptation side needs to be strengthened. We are now seeking all types of inputs on how to do that.”


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Global Landscapes Forum–The Investment Case: “We need courage to go outside our comfort zones”


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Also watch the video on the event. Click to play.
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The Global Landscapes Forum: The Investment Case in London on 6 June 2016 brought together experts from the financial services industry with leaders from the corporate sector, government and academia to take investments into sustainable landscapes to the next level. This second edition of the event offered a unique platform for experts to explore the role of private finance in enhancing livelihoods and landscapes across the globe.
The event was attended by experts such as Peter Holmgren, Director General of the Center for International Forestry Research (CIFOR), World Bank Lead Environmental Economist Paola Agostini, CEO of ADM Capital Christopher Botsford and Tropical Forest Alliance Director Marco Albani. In this video, they speak about the importance of connecting finance and sustainable landscapes at the Forum, which is a key event under the CGIAR Research Program on Forests, Trees and Agroforestry.


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  • FTA event coverage: Leveraging finance to support solutions for smallholders

FTA event coverage: Leveraging finance to support solutions for smallholders


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Land cleared by swidden for an oil palm (Elaeis guineensis) plantation. Photo: Renee Miller/CIFOR
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This article is part of a special three-part series related to the Global Landscapes Forum 2016 – The Investment Case. This one-day experts symposium in London on June 6 aimed to accelerate investment in landscapes by connecting funds to farms and forests.

By Deanna Ramsay, originally published at Forests News

Oil palm mill in Indonesia. Photo: Agus Andrianto/CIFOR
Oil palm mill in Indonesia. Photo: Agus Andrianto/CIFOR

Financing sustainable landscapes – especially those associated with oil palm – is a delicate puzzle, but one with possibilities.

There is little homogeneity in our world. This is true even among those cultivating a single crop like oil palm, and the complexities involved mean attempts to support sustainable practices can be tricky. But there are also opportunities, especially in Indonesia where oil palm has been expanding rapidly, largely due to smallholders.

“What is interesting to note in Indonesia is that there is not a scarcity of resources flowing to support investments in oil palm, which is associated with the rapid growth of smallholders in the sector,” said Pablo Pacheco, a principal scientist at the Center for International Forestry Research (CIFOR).

“Yet many of these smallholders do not embrace good production practices, and continue to face low yields,” he added. “A major challenge is thus to put in place the necessary conditions to support the smallholder transition to more sustainable models of production.”

But who will pay for these costs?

“There is a lot of debate today over how to finance this transition, and what the role of financial players should be,” said Pacheco.

For those in the finance sector, the search for the best methods to support sustainable practices among smallholders, such as those typically cultivating small land plots measuring less than two hectares, has only just begun.

Land cleared by swidden for an oil palm (Elaeis guineensis) plantation. Photo: Renee Miller/CIFOR
Land cleared by swidden for an oil palm (Elaeis guineensis) plantation. Photo: Renee Miller/CIFOR

“Sustainability standards have been produced to guide sustainable production, but often from the perspective of large-scale producers. Those standards are not often embraced by smallholders – and this is just increasing the gap. We have to ensure that the move to sustainable commodity supplies doesn’t contribute to the continuing marginalization of smallholders.”

For instance, small oil palm farmers often have little control over what prices they receive for their harvests, and are generally dependent on mills owned by large corporations.

“The most important contribution of the finance sector, which strongly supports big plantation companies with equity investments and loans, is to use its influence to change the balance of power and let the plantation companies treat smallholders as equal partners with whom they strive for improved livelihoods and more sustainable production practices,” said Jan Willem van Gelder, Director of Profundo, an Amsterdam-based research consultancy specialized in international commodity chains.

Increasing yields

At the moment, smallholders have little access to high quality seeds or fertilizers, which leads to low yields. This means farmers often labor from harvest to harvest in a vulnerable state.

“One of the fundamental issues in upgrading the oil palm supply base is investing in increasing yields by replanting plots using better seed varieties,” said Sophia Gnych, a scientist at CIFOR.

“But there are complications associated with this. In pulling out old trees and planting new ones, the wait is three to five years before there are new fruits. This has income implications for smallholders and is a major finance challenge.”

According to Hans Smit, a senior advisor at the international development organization SNV, it is critical that smallholders are supported to increase yields through replanting rather than expansion. But that requires access to finance. 

Attractive loans for smallholders

“The challenge is to enable financial institutions to provide loans to smallholders at scale and at low interest rates,” he said. “In order to achieve that, financial institutions need to understand the risks and to provide sizeable loans at a group level.

“We have created a credit-scoring tool that maps out the cash flow for households in replanting scenarios and assesses their bankability. With such a tool, we can immediately see if a farmer is bankable, and if not why.”

With the information they are able to garner on the ground, risks can be better understood and groups of farmer loans could be packaged into portfolios to minimize risks and offer farmers competitive wholesale interest rates, Smit added.

Currently, many smallholders rely on credit through middlemen that charge high interest rates, but offer them the flexible terms they need.

“What is going to be important in the Indonesian case is considering how formal credit can compete with informal sources of credit that provide more flexibility to smallholders,” said Pacheco. “The question is how to make formal credit more attractive to smallholders, especially as it has more rigid terms for repayment.”

Blending informal and formal credit methods could be an option, Pacheco added.

Creating such solutions – with optimum results for both smallholders and financiers – requires discussion and collaboration.

“To find a successful model, various stakeholders need to be involved,” said van Gelder. “The finance sector, the plantation companies, the smallholders, as well as local and national governments that can make sure that land titles are clear, infrastructure is developed and that other risks are covered.”

In one move toward crafting solutions, a session at the Global Landscapes Forum 2016: The Investment Case in London on June 6 addressed this knotty topic, bringing together diverse representatives from finance, development, government and the corporate sector to discuss how to best support sustainability among smallholders.


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  • FTA event coverage: Using financial technology to forge a more transparent world

FTA event coverage: Using financial technology to forge a more transparent world


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Photo: Terry Sunderland/CIFOR
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Technological innovations like blockchains are opening up new frontiers – for land rights, supply chain governance and more.

This article is part of a special three-part series related to the Global Landscapes Forum 2016 – The Investment Case. This one-day experts symposium in London on June 6 aimed to accelerate investment in landscapes by connecting funds to farms and forests.

Photo: Terry Sunderland/CIFOR
Photo: Terry Sunderland/CIFOR

By Deanna Ramsay, originally published at Forests News

Issues of provenance – regarding what is on your table, or what your table is made of – are increasingly important in the world today.

Amid rising awareness of the hastening depletion of the Earth’s resources, both producers and consumers are striving for sustainable supply chains that can be tracked and trusted.

But creating systems that can faithfully trace items from farm to table is difficult, requiring verifications and monitoring immune from tampering across wide, potentially global networks.

Recent technological advances may offer solutions, so consumers can rest assured their coffee is organic, the wood of their kitchen table was harvested legally and even that their property rights are secure.

Steven Lawry, a research director at the Center for International Forestry Research (CIFOR) who studies land tenure and resource governance, said certain innovations could help ensure that commodities meet rigorous environmental, social and government standards.

Amid rising awareness of the hastening depletion of the Earth’s resources, both producers and consumers are striving for sustainable supply chains that can be tracked and trusted. Photo: Terry Sunderland/CIFOR
Amid rising awareness of the hastening depletion of the Earth’s resources, both producers and consumers are striving for sustainable supply chains that can be tracked and trusted. Photo: Terry Sunderland/CIFOR

“The kind of authentication processes for sustainable supply chains that are currently in place are costly and there is a lot of leakage. Blockchains could offer that validation at lower costs,” he said.

The vast, transparent distributed ledgers known as blockchains, of which bitcoin is the best known, move and store information immediately without the need for intermediaries. Because of the security and encryption involved, blockchains offer trusted, tamper-proof information.

And, they could do so at a low price when the technologies are at industrial strength.

 FAST AND CHEAP

Juan Carlos Castilla-Rubio researches, develops and scales innovations at the intersection of technology, finance and sustainable development as chairman of Space Time Ventures.

He said the use of digital innovations to enable and disrupt financial services, referred to as fintech, may help unlock the large-scale finance needed to address climate change, sustainable development and food security across the globe.

“The financial system has historically been the highest technology user since its inception hundreds of years ago. However, because of the nature of dealing with money, with insurance, with trust, the adoption of newer technologies has not been as fast, deep or wide as it could be,” Castilla-Rubio said.

White Paper on financial technology for Global Landscapes Forum in London 2016
White Paper on financial technology for Global Landscapes Forum in London 2016

He added, “We’re in the early stages of fintech. There is huge momentum and huge excitement, in particular about the innovation potential of the combination of blockchains, internet of things and artificial intelligence.”

But, the use of these technologies is still in the early days.

“There is a lot of hype – the venture capital industry is spending billions a year,as are banks and insurance companies. There is a lot of early experimentation, but there is no definitive answer whether and how this can be transformational in terms of unlocking the trillions of dollars required to meet the sustainable development agenda,” he said.

The many applications of blockchains are a new frontier, one with the potential to clarify one of the oldest frontiers of land rights in the most modern of ways.

And those within the sector are exploring how such transparent databases could validate property rights and create authoritative records, despite the present challenges.

SOLID GROUND

Frank Pichel of the Cadasta Foundation, which works on land and resource rights and data, said the toughest issue in land administration is the initial demarcation of land, adjudication of conflicts and documentation of rights.

“There has been a lot of general discussion and interest surrounding blockchains. People and groups looking into it that were fairly new to the land sector realized that land administration is more complex than they had thought – particularly in emerging economies. But the question remains, can we put land records on the blockchain and make them more secure?”

He sees the most promise with virtual notarization services that can document the date, time and parties involved in a transaction and the recording of property rights in the U.S. and Europe, where mature systems are already in place and initial registration has long since occurred.

One of the issues, according to Lawry, is that information like property ownership must be accurate when it enters a blockchain, and in many parts of the world government recordkeeping is imprecise, erroneous or non-existent.

“All the blockchain can do is reflect the state record. In many settings that record is not going to be accurate for a whole host of reasons,” Lawry said.

Those records are extremely important for smallholder farmers, especially in emerging economies where many require support.

Castilla-Rubio said, “Blockchains would enable the issuing of land titles without the usual high transaction costs in the developing world, and could be enabled at scale. This is a prerequisite for blended financing that would in turn support the sustainable intensification process of smallholder farmers.”

Concurring with Lawry, he added, “It is not necessarily a panacea because once you put information in a blockchain you can’t take it out – which is good if it is clean and accurate when it enters the blockchain. “But you can’t reverse a blockchain if fraud is involved.”

TECHNOLOGY AND POWER

Who controls information is of course an age-old issue. Pichel said of his work with land registries, “We wrestle with equalizing how land information can be recorded, as people with the power to record tend to be more affluent.”

It is such technologies as blockchains that hold out the promise to rebalance power and revolutionize the way information is controlled, with its perhaps radical decentralizing and equalizing properties. And this is exactly where success in sustainable development lies.

In one move toward addressing challenges and looking to the application of such ideas on the ground, a session at the Global Landscapes Forum 2016: The Investment Case in London addressed this cutting-edge topic.

The one-day experts symposium brought together diverse representatives from finance, development, government and the corporate sector to discuss how to use fintech to improve sustainable development. Participant Castilla-Rubio said, “I am trying to answer a deceptively simple question that actually is not: ‘How can fintech innovations help or hinder us to harness the financial system to help us achieve sustainable development at scale?’”


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  • How can the financial services sector strengthen the sustainability and inclusivity of smallholder farming in the supply of global commodity crops?

How can the financial services sector strengthen the sustainability and inclusivity of smallholder farming in the supply of global commodity crops?


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Also read White Paper
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White Paper for The Global Landscapes Forum: The Investment Case, London, 6 June 2016, related to the discussion forum Smallholder finance – evidence from the tropics, organized by Pablo Pacheco, coordinator of Flagship 5 of the CGIAR Research Program on Forests, Trees and Agroforestry.

Authors: Noemi Perez, FAST International; Jan Willem van Gelder, Profundo; Hans Smit, SNV; Pablo Pacheco and Sophia Gnych, CIFOR

Smallholder farmers play a key role in the production of agricultural crops for local, national and, increasingly, international markets, including high-value tree crops.1 As commercial-scale agriculture has expanded and markets have seen greater integration, smallholders are forced to compete with agribusiness to meet a rising demand for food, fiber and fuel. But smallholders remain disenfranchised, often facing economic, financial and institutional constraints that make the adoption of more efficient practices and technologies more difficult and limit productivity and local livelihoods.

A good example of this are oil palm smallholders in Indonesia, whose participation in the sector is growing rapidly. Despite their important contribution to national production, oil palm smallholders risk exclusion from global markets as agricultural standards evolve, and they struggle to adopt improved production practices.4 Finance has the potential to play a significant role in supporting the upgrading of production systems and delivering more effective resource management5 , as well as helping to fulfill a growing demand for agricultural and tree-crops that meet sustainability standards.

Download here


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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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Recent years have seen an expansion of commitments by forest country governments, corporations, donors, and investors to reduce deforestation and land-use emissions. However, these commitments have proven difficult to implement owing to the complex challenges of shifting from business-as-usual to a forest-friendly model of rural economic growth.

Political leaders in three critical jurisdictions at the forefront of practice presented their cases: East Kalimantan, Indonesia; Para, Brazil; and Yucatan, Mexico.

For more information visit Global Landscapes Forum


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The Discussion Forum highlighted the results achieved on the ground by seven projects that were developed by countries and organizations under the auspices of the 20×20 Initiative. Deborah Bossio, Director of Soil Research of FTA partner CIAT, was one of speakers, together with many business leaders.

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What are the trends regarding strategic resource cycles?

What are the conditions required and the obstacles?

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Originally published at Global Landscapes Forum 2015

CIRAD’s Plinio Sist is an advocate of “tropical managed forests“. The Director of CIRAD’s Research unit BSEF made the case for the concept of tropical managed forests for example at the 2015 Global Landscapes Forum, with the discussion forum Managing and restoring natural tropical forests: Ensuring a sustainable flow of benefits for people in the context of global change

The obvious reasons to study tropical forests come from the sheer facts: they make up half of the earth’s forests, are home to half of the species on land, and they gather nearly a third of the terrestrial carbon stocks. At the same time, deforestation is concentrated in the tropics. The FAO estimated forest loss from 2010 to 2015 at close to nine million hectares (i.e. 90,000 km2) per year. That is nearly the size of Portugal or Hungary in forest cover lost every year.

Plinio Sist countered the view that deforestation equals logging and argued for Reduced Impact Logging (RIL) which disturbs the forest, but doesn’t destroy it. The main actors whose interests have to be balanced are forest companies, smallholder farmers and forest communities.

The discussion forum revolved around the challenges of

  • forest degradation, management and restoration (also in the context of landscape management)
  • tropical forests versus plantations
  • food production versus environmental services

Presentations focused on

  • FSC certification in the Brazilian Amazon,
  • concessions 2.0 in Central Africa, which suggests land-sharing through a hybrid of a company and a territorial institution
  • managing tropical forests in an era of change in South East Asia, in which FTA Director Robert Nasi and his co-presenter Michael Galante make the case for new approaches to managing logged-over forests and benefits
  • forest restoration as key component to tackle climate change, which argues that the underlying factors of deforestation have to do with governance

Also see the presentation here


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Posted by

FTA

CIRAD’s Plinio Sist is an advocate of “tropical managed forests“. The Director of CIRAD’s Research unit BSEF made the case for tropical managed forests for example at the 2016 Global Landscapes Forum, with the discussion forum Managing and restoring natural tropical forests: Ensuring a sustainable flow of benefits for people in the context of global change

The obvious reasons to study tropical forests come from the sheer facts: they make up half of the earth’s forests, are home to half of the species on land, and they gather nearly a third of the terrestrial carbon stocks. At the same time, deforestation is concentrated in the tropics. The FAO estimated forest loss from 2010 to 2015 at close to nine million hectares (i.e. 90,000 km2) per year. That is nearly the size of Portugal or Hungary in forest cover lost every year.

Plinio Sist countered the view that deforestation equals logging and argued for Reduced Impact Logging (RIL) which disturbs the forest, but doesn’t destroy it. The main actors whose interests have to be balanced are forest companies, smallholder farmers and forest communities.

The discussion forum revolved around the challenges of

  • forest degradation, management and restoration (also in the context of landscape management)
  • tropical forests versus plantations
  • food production versus environmental services

Presentations focused on

  • FSC certification in the Brazilian Amazon (slide 7-12),
  • concessions 2.0 in Central Africa, which suggests land-sharing through a hybrid of a company and a territorial institution (slide 13-25)
  • managing tropical forests in an era of change in South East Asia, in which FTA Director Robert Nasi and his co-presenter make the case for new approaches to managing logged-over forests and benefits (slide 26-34)
  • forest restoration as key component to tackle climate change, which argues that the underlying factors of deforestation have to do with governance (slides 35-47)

The presentation was originally published at Global Landscapes Forum 2015

Please contact us at cgiarforestsandtrees@cgiar.org if you need individual versions for each of the presentations.

 


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