Can cocoa farmers afford reforestation?

Deforestation is one of the biggest problems facing the West African cocoa industry. A sound business plan and financial products can help African farmers make choices that will benefit them and the sector as a whole.

More than two-thirds of the world’s cocoa beans are produced in the West African countries of Ivory Coast, Ghana, Nigeria and Cameroon. Most cocoa farms in these countries are family-run businesses on plots measuring no more than a half to five hectares.

As a rule, the farmers lack the knowledge of new agricultural practices, and invest little in improving the soil or the quality of cocoa beans. Intensive cultivation of cocoa depletes the soil, forcing farmers to move to new, forested areas to keep up their production. As a result, fertile land is becoming scarce and deforestation has reached alarming dimensions.

Various parties are now working together in West Africa, often in public-private partnerships, to make the cocoa sector in this part of the world stronger and more sustainable. Among them are major cocoa companies such as Barry Callebaut, ECOM, and Touton. Rabo Partnerships’ advisers work on their behalf, examining which specific solutions can help farmers based on their extensive knowledge of the sector and the region. Rabo Partnerships (formerly Rabo International Advisory Services, or RIAS) is focusing on increasing access to financial services and expanding the range of financial products.

A farmer in Ivory Coast prunes a cocoa tree as part of the Nestlé Cocoa Plan to improve yields. (Image: Nestlé)

Rock solid business plan required

“More and more companies are working with West African governments to make a sustainable cocoa sector a reality,” says Sander Muilerman, Program Manager Climate-Smart Cocoa at the World Cocoa Foundation (WCF). “Last year, 24 of the largest companies in the Cocoa & Forests Initiative promised to eradicate cocoa-related deforestation in Ghana and Ivory Coast from their supply chains entirely.” This organization has over 100 members, representing around 80% of the global cocoa and chocolate market. WCF is one of Rabo Partnership’s regular clients, as are many of WCF’s members.

“Rabo Partnerships work from the perspective of farming families”

- Sander Muilerman, Program Manager Climate-Smart Cocoa at the World Cocoa Foundation

“The pattern of cutting down forests for cocoa is outdated,”according to Muilerman. “We have to help motivated and qualified farmers and their families draw up a rock solid business plan, so that they can replant their former cocoa plots with strong cocoa plants, alternated with food crops and useful shade-providing trees. That will keep the soil healthy and to diversify their income. To achieve that, they need technical support, financial products and professional services.”

Muilerman thinks that Rabo Partnerships is a valuable partner in this respect. “They work from the perspective of farming families and cooperatives to find financial solutions. In addition, they have a long-term vision which is an important prerequisite for dealing with the challenges in the cocoa sector.”

“Replanting will lead to a negative cash flow for a period of time”

- Corné de Louw, Project Manager Agribusiness & Cooperative Development at Rabo Partnerships

Financial solutions

Corné de Louw, Project Manager Agribusiness & Cooperative Development at Rabo Partnerships warns that deforestation is a complex problem. “To be able to replant existing land, the farmer must first chop down some of his current cocoa plants. As it can take three to five years for trees to mature and yield sufficient cocoa beans, it will lead to a negative cash flow for a period of time.

“That is why we are working with the major cocoa companies to develop financial solutions that fit in with the farmer’s cash flow. These companies offer advice on how a farmer can gradually replant his land and what other produce he can grow to secure his cash flow. Farmers have to diversify anyway, because the price of cocoa fluctuates regularly. Cocoa should become just one part of the farmer’s total revenue stream. At the same time, the farmer needs long-term funding. We also play a role in providing that.”

Rabo Partnerships works with local banks on this project which is currently at the start-up stage. De Louw says, “Based on our findings, we provide advice and new financial products which are tailored to the specific needs of the end-customer.”

Rabo Partnerships is part of Rabo Development. They offer advice and management support to financial institutions in developing countries and emerging markets. Their consultants work for large international clients in the food & agri sector and focus primarily on value chains in sectors with small-scale farm holdings such as the dairy, coffee, rice and cocoa branches. Rabo Partnerships mainly provide support in developing banking, cooperative management and the value chain in the agricultural sector, from production and processing to sales.