Investing in Small Farm Renovation: The Business Case

However, upfront R&R costs can be very high. When adopting R&R, farmers may need to wait several years before they again break even financially. Medium and long-term financing is scarce. The good news is that with the right financial support including partial compensation for loss of income and the introduction of food crops for income, farmers who are able to replant can reap enormous rewards from increased productivity that often kicks in years three to five (see Figure 1). By using high-yielding cocoa varieties, a typical farmer may see his output double or even triple once the new trees enter their productive life. The food crops can help offset the loss of cocoa income during the initial years after R&R.

Several financial analyses have been conducted to show the long-term economic benefits of R&R at farm level, which have helped us model project or landscape-level investments. These models demonstrate that, with innovative financing, good quality planting materials and proper practices, cocoa farming can be profitable even for smallholders.

Emerging Financing Models at the Service of Smallholder Farmers

Through recent work done in collaboration with the Rainforest Alliance, we identified three scenarios that represent typical farm profiles in West Africa.

The first type was a farm heavily infected by CSSV and entirely replanted over a four-year period. This aggressive scenario translates into a substantial loss of income to the farmer in the first four years (Figure 1). The second and third farm types were not heavily infected by CSSV but still needed to replace diseased or old trees. For the second type we elected to replant 60 per cent of the trees over four years, while for the third type only 20 per cent of the trees were replaced. In all scenarios, we assumed that climate smart cocoa practices and good agricultural practices were applied. These scenarios, less drastic in nature than in the first type, resulted in smaller income loss in the early years and smaller financing needs over time – demonstrating the benefits of a gradual replanting strategy.

What is needed are financial solutions to support farmers in the early stages of R&R, when they are seeing little or no financial returns from their cocoa trees. Private sector pilots have shown that financing smallholder cocoa farm renovation and rehabilitation is possible. The Union of Cooperatives Ecookim implemented a pilot project with financing from social lender Alterfin, grant money from responsAbility Technical Assistance Facility and support from the Rainforest Alliance. The first two campaigns of loans have yielded positive results, despite the recent drop in cocoa prices, and allowed project partners to learn about loan structuration and effective ways to ensure repayment. Other smallholder finance schemes implemented by local finance institutions such as Advans in Côte d’Ivoire, or directly by traders, are also demonstrating  that it is possible to invest in smallholder cocoa farming.

But given the number of farmers concerned and the potential magnitude of financing need, we will need partners capable of leveraging multiple delivery mechanism and reasonably large ticket size. Larger-scale financing mechanisms, such as the recently launched Land Degradation Neutrality Fund managed by Mirova, offer the promise of  channeling the growing amount of funds available to achieve climate mitigation – or more broadly the United Nations’ Sustainable Development Goals – into impactful smallholder finance products. To move forward, we will need bold leadership from the cocoa sector and the commitment and cooperation of various stakeholders to take reasonable risks and explore innovative approaches.