The Cocoa Productivity and Quality Program

The Cocoa Productivity and Quality Program

Dear Cocoa-Sector Stakeholder, The Dutch Sustainable Trade Initiative is proud to announce its Cocoa Productivity and Quality Program Facility. This four-year program intends to help large numbers of smallholder cocoa farmers to move out of poverty and transform their operations into viable businesses of sustainable cocoa production. Over the last few years, we have learned much about effective farmer support, boosting productivity, and linking supply to the rapidly increasing demand for sustainably produced chocolate in consumer markets. In the coming years, the focus should be on mainstreaming these innovations, and thus achieve large-scale impact. Our program intends to help make this happen. We believe that the key to success lies with effective and costefficient collaboration of industry, governments, civil society organisations and donors. In the coming half year, we hope that agile coalitions emerge that throw their weight behind result-oriented programs aiming for mainstream impact. We will actively help to facilitate this process and co-invest in the programs that deem most promising. GOVERNMENT The ideas and concerns shared through this process have been instrumental in shaping our understanding of how to support the development of healthy, sustainable value chains in the cocoa sector. A full report of this analysis and consultation can be found at www.dutchsustainabletrade.com/en/cpqp in the readout from the Technical Meeting. The development and approval of programs co-funded by this facility will take around half a year. As a first step, concept notes will be solicited from industry players that wish to increase their investments in sustainable cocoa production and trade. An independent assessment committee made of technical advisors will evaluate these program ideas. Upon approval by this group, industry will be asked to reach out to their supply chain partners, local governments and NGOs to develop actionable programs of committed parties. We will facilitate to shape and refine the programs, and ensure that they align with local government needs. The final decisions for match-funding the first round of programs is expected by the end of 2011, with a second round planned for 2012. The programs will be limited to Côte d Ivoire, Ghana, Cameroon, Nigeria and Indonesia. DONOR INVESTMENT BUSINESS sustainable cocoa economy CIVIL SOCIETY The opportunities and challenges facing the cocoa sector require immediate action. We encourage and invite interested parties to join in this partnership with us and build high-impact programs. We look forward to working with you to help build a sustainable cocoa economy. This prospectus provides our vision for these programs as well as details on its process and criteria. Kind Regards, Stakeholder consultation has been an important part of our design process. Over the last year, we analyzed the cocoa market and consulted closely with local governments, industry, NGOs with cocoa expertise, and intergovernmental institutions. This included hosting a multistakeholder Technical Meeting in December 2010 at which many potential initiatives were discussed. Joost Oorthuizen Executive Director Jonas Mva Mva Senior Cocoa Program Manager

This document describes the Cocoa Productivity and Quality Program (CPQP). The purpose of this program facility is to help transform cocoa farming into a viable and sustainable business for smallholders, through a market-driven approach. Vision: Investing in the Opportunities of a Sustainable Cocoa Economy Major trends in the cocoa sector have created a unique opportunity to help catalyze large-scale, positive change. The triple combination of broad alignment, strong market demand, and widespread innovation is creating a powerful investment environment for revitalization of the cocoa sector. Governments, industry, farmer organizations, NGOs, multilateral institutions, and donors are increasingly focused on the same priorities for strengthening the sector. The new International Cocoa Agreement encourages the development of a sustainable cocoa economy. ICCO, WCF, UNDP, and other donors are aligning their efforts amongst each other and in lock-step with the strategic priorities of producing country governments. Issues like improved productivity and quality, more extensive agronomic training, professionalization of farmers, farmer aggregation, access to finance, and infrastructure are crucial for nearly everyone. Market demand and farm gate prices for cocoa are higher than they ve been for decades. While there are promising signs of a strengthening supply base, it is estimated that an additional 100-120k tons of cocoa will be needed each year to meet 2020 global demand. Especially in demand are total quality cocoa beans those with not only excellent physical quality characteristics but also with socio-economic and environmental benefits. Demand for sustainable cocoa produced against credible standards is expected to reach as much as 50% of total world demand by 2020. With these market pressures looming, partners across the entire supply chain are collaborating intensively to secure long-term supply of sustainable cocoa. Innovations in supply chain management, plant science, financing mechanisms, public-private partnerships, and ways to link farmers to markets are pushing the boundaries of what is possible within the sector. Novel approaches to traceability, breeding, risk-sharing for input financing, and the use of mobile telephony for extension services just to name a few create new opportunities for impact. The innovation engine in the sector is only beginning to reach its potential influence, but is already a powerful force for change. In sum, we believe that these current trends in the cocoa sector, if well responded to, could become the drivers for a thriving, sustainable cocoa economy. At the core of a revitalized cocoa sector is the transformation of cocoa farming itself into a viable business for smallholders. Most farmers have vast, untapped potential in their cocoa farms. Due to sheer poverty, many are locked into production levels as low as 300kg/ha. The economic sustainability of cocoa farmers will likely require production of 1000kg/ha or more. Ultimately, the combination of greater productivity, higher quality, diversification, and stronger market connectivity can unlock hidden income and turn struggling farms into profitable ventures. Such an achievement will draw greater investment from existing farmers and attract critically needed new, younger farmers into the profession. There is currently unprecedented commitment from governments, major companies, and donors to co-fund activities that help farmers to increasingly professionalize and generate considerably more income from their farms. The need, the will, the mechanisms, and the initial funding all exist to combat widespread poverty by supporting hundreds of thousands of smallholders to be successful cocoa farming entrepreneurs. We believe that now is the time to channel that funding in a focused way and take large-scale action to strengthen the sector. The cocoa sector vitally needs an integrated approach to improved quality, heightened productivity, and professionalization of farmers and their organizations. There are many conditions that need to be in place in order to cultivate a thriving cocoa economy. These three areas seem to stand out. The current dynamics of the sector can be effectively leveraged to build innovative programs that drive progress across these domains. By scaling proven and innovative initiatives in these areas, the sector will make great strides towards becoming more economically, socially, and environmentally sustainable. Many success cases and innovative solutions exist; what is needed for the greatest impact is to mainstream their dissemination across the sector.

Five major developments are necessary to achieve widespread improved productivity, quality, and famer professionalization. First is the need for improved integration and coordination of existing initiatives. For example, the drive for farm productivity should be clearly integrated with the burgeoning movement in standards systems to create a highly-productive, total quality supply chain. Additionally, the various training approaches to farmer professionalization require better integration and alignment, resulting in one consolidated training approach that is fully supported and endorsed by local governments. At the broadest level of integration, we see the need for countryspecific alliances of government, industry, NGOs with cocoa expertise, multilateral institutions, and donors. These alliances would galvanize around a common vision and strategy for a thriving cocoa economy, closely monitor needs, track progress and performance, and ensure that each piece of the puzzle is attended to in order to ensure sector transformation. Local governments need to take the lead and ownership of such alliances. Secondly, there is a need for highly-improved efficiencies. Many efforts to make the cocoa sector more sustainable are currently too expensive to scale. By aligning training and standards across an entire country, considerable costs can be eliminated while keeping program quality high. In a similar manner, by coordinating the approach to the delivery of inputs such as fertilizers and new planting material, broad cost efficiencies can be achieved. A third major development concerns the embedding of sustainability initiatives within existing government structures and semi-governmental institutions. Major sustainability initiatives need to be institutionalized at country levels to be viable. All international actors must work closely with producing country governments to build the local capacity required to transform the sector. Vastly increased use of inputs is the fourth fundamental shift required in the sector. While this issue varies from country to country, and regionally within countries, in general there is a tremendous need for additional inputs. Field tests suggest that it is possible to at least triple typical farm yields (i.e., 450kg/ha to over 1500kg/ha) with the combination of best management practices, pest control, improved plant material, and appropriate fertilizer application. New varietals alone can double production for an average farmer. To achieve this at scale will require considerable pre-competitive collaboration between industry actors and careful coordination with local governments. The final critical development required to advance the sector is a greater role for financial institutions. The financing of inputs, in particular, is needed throughout much of the cocoa sector. While new, and in some cases, forward-thinking programs are running, they only touch the surface of deep and widespread financial needs. Unlocking the potential of a thriving cocoa economy will require far more financial innovation. Novel risk-sharing mechanisms and finance delivery models must be established that allow banking to reach every farmer who needs it. These solutions will need to come out of strong coalitions of traders, banks, input suppliers, local governments, and donors. Four tools seem to offer the greatest promise for advancing progress in quality, productivity, and farmer professionalization. While a large variety of tactics and tools will be required to cultivate significant change in cocoa production, these four tools are instrumental and need to be heavily leveraged. They are Good Agricultural Practices (GAP), standards systems, farmer aggregation, and financing mechanisms. 1. Good Agricultural Practices. At the heart of many challenges in the cocoa sector is the fact that most farmers are not knowledgeable of or actually apply GAP. The quality and yield increases from proper usage of GAP are undeniable. While many programs promote GAP, their uptake from country to country, and regionally within countries, varies widely. GAP clearly has not been taken to scale to the degree required, and the sector needs to continue to invest in activities to disseminate and ensure its uptake. A key missing element may be a market linkage associated with the application of GAP. Standards systems, discussed below, may be a mechanism to propagate GAP if it is included as part of their training. 2. Standards systems have the potential to become an important vehicle for change. If executed efficiently and well, they directly link producers to the market, strengthen supply chain infrastructure, add value and marketability to beans, help increase productivity and quality by professionalizing farmers, accelerate farmer aggregation, and support improved social and environmental conditions. The complex needs and desires of consumers, governments, and industry have created the conditions for cocoa standards to develop. In turn, they could become a critical piece of the puzzle for building a new cocoa economy based upon more profitable farmers. Several major branded manufacturers have made significant long-term commitments to sourcing total quality cocoa that is produced using standards. These public commitments combined with increasing pressures from consumers ensure the presence of such standards for years to come. While standards systems offer strong promise, some actors in the sector have expressed valid concerns regarding their impact and viability. Important questions include: What is their true impact especially on famers incomes? How can we ensure that they become a powerful vehicle for rising out of poverty? Who will ultimately pay for the costs of standards compliance? And how can the differing existing standards be aligned, made more efficient, and not confuse producers? Key questions such as these can and must be resolved. However, the potential of standards systems is clear. Initial trials are demonstrating that they can unlock significant investment opportunities and deliver strong results in terms of increased quality, productivity, and farmer income. 3. Farmer aggregation is another essential tool for transforming the cocoa sector. With their unique ability to serve as delivery mechanisms for agronomic training, awareness raising, inputs and financing, cooperatives and other organizational forms are invaluable structures. Widespread efforts are needed to create effective farmer organizations, whatever their form. Existing cooperatives need to be strengthened, where appropriate, in order to attract new members and increase the value provided to all members. Beyond classical models of organization, new forms of group aggregation will be required, especially to reach farmers far from population centres. A second promising development involves increased formalization of existing local trading structures. Significant innovation and field testing is needed in this area as soon as possible. 4. Financing mechanisms are the fourth crucial tool needed to vitalize the cocoa sector. Specifically, they are at the heart of creating an efficient business environment and instrumental for building professional small- and medium-sized enterprises (SMEs). The financing of fertilizers, pesticides, and new planting materials is arguably the number one driver for large-scale productivity increase. It is strategically imperative to stimulate the local financial services sector in cocoa communities. This may be able to be done by developing innovative funding facilities based on cooperation and risk-sharing in the value chain that provide low-interest loans rather than grants. Additionally, critical to improving trust between farmers and bankers may be the dissemination of practical assessment tools coupled with technical training to measure and improve the bankability of cocoa SMEs. Ultimately, how to provide sustainable, widespread access to financing is the key question. The integration of finance, input use, farmer training, and standard systems may create the synergies needed to reach millions of farmers. It is clear that the sector needs an assertive approach that rapidly tests many new models and scales the successes. photo: Solidaridad Olaf Hammelburg

Overview of the CPQP Facility In sum, it is wholly possible to create robust and sustainable supply chains that work for all. The trends of broad alignment, strong market demand, and widespread innovation can become drivers for a sustainable cocoa economy. The focus must be on the farmer, ensuring that cocoa farming becomes sustainably and sufficiently profitable. Increased productivity, improved quality, and professionalization of farmers and their organizations are three of the most important outcomes needed now. This will require deep integration across initiatives, a continual quest for efficiency gains, the embedding of many key activities within government structures, major increases in input access and usage, and financial institutions taking greater responsibility for the health of the sector. Some of the most important tools to be leveraged are GAP, standards systems, farmer aggregation and innovative financing mechanisms. The CPQP Facility has been created to help achieve this vision. Leadership across the sector knows what needs to be done. Now is the time for integrated and aligned investment and action. Working together, we can build public-private partnerships that transform today s reality into a cocoa sector we are proud of and that farmers deserve. The Cocoa Productivity and Quality Program Facility (CPQP) has been established to accelerate development of a viable and sustainable cocoa economy. This facility will work through effective and efficient public-private partnerships to help develop a highly productive, total quality supply chain that delivers large-scale economic, social, and environmental impact. The CPQP will help develop and provide match-funded capital for programs that advance the cocoa market in these areas: Quality Productivity Professionalization of farmers and their organizations Total quality standards systems Financing Coordination & Alignment See below for further details and objectives related to each of these areas. Current funding for CPQP is 7 million Euros for the period of 2012-2015. This funding will be released in two traunches: Traunch 1: Program development and funding release in 2011; program implementation 2012-2015. Traunch 2: Program development and funding release in 2012/2013; program implementation 2012/13-2015. The infusion of additional resources by other institutional donors with aligned interests may increase the funding available for this facility. The aim of the CPQP facility is to increase and align investments of both private and public sector actors in sustainable cocoa production. Our investments are conditional to at least equal investments of industry, and significant investments of local governments in alignment with the programs. PRODUCTIVITY TOTAL QUALITY STANDARDS COORDINATION & ALIGNMENT QUALITY PROFESSIONALIZATION OF FARMERS & FOs Olaf Hammelburg FINANCING

Purpose of the CPQP Facility To help transform cocoa farming into a viable and sustainable business for smallholders, through a marketdriven approach.

CPQP Focus Areas and Objectives CPQP programs will take an integrated approach to six focus areas. The ultimate impacts this facility intends to deliver are increased production, improved quality, and large-scale professionalization of farmers and their organizations. Two primary tools that this facility is committed to supporting and developing which will help achieve the desired impacts are total quality standards systems and innovative financing mechanisms. Finally, coordination and alignment across industry actors and with local governments is essential. These six areas therefore define the full focus of this facility. The following details the objectives for each. Quality Involves the intensification and scaling of total quality cocoa production throughout the sector, resulting in added value at the farm gate. Total quality, refers to cocoa bean production that has: A) High physical quality specifications needed by manufacturers; and B) Strong non-physical quality characteristics that address socio-economic, environmental, and ethical issues. Enhance support to farmers to improve and manage quality at a farm level; Further develop systems to manage and promote total quality within the supply-chain. Productivity Involves the development of capacity and infrastructure required to increase productivity in the cocoa supply chain. This area includes programs that will work to address systemic issues, such as aging trees and lack of affordable fertilizer, thereby ensuring that productivity is sustained over the longer term. Enhance farm-level yields, striving for upwards of 1000kg/ha; Promote good agricultural practices and train farmers in effective input usage; Address farm rehabilitation and regeneration through improved planting materials. Professionalization of Farmers and Farmer Organizations Involves the development of systems and institutions to reach farmers with training, information and inputs. It also includes the expansion of market infrastructure needed to effectively reach unorganized farmers. Increase the number of farmers that are associated with cooperatives and other forms of farmer organization (FO); Develop the human resources and capacity of farmer organizations; Develop new ways of reaching farmers that are not associated with FOs. Total Quality Standards Systems Concerns the development and dissemination of systems to monitor, track, and support the production of total quality cocoa. This includes standards that define total quality cocoa. It also relates to systems to facilitate traceability and which create linkages across the supply chain, especially directly to markets. Strengthened local government engagement with and support for total quality standards systems; Expanded farmer awareness of and access to total quality standards systems; Widespread uptake of total quality standards systems by farmer organizations. Financing Involves the development of financing vehicles for farmers and farmer organizations to purchase inputs, improved planting material, and processing equipment. It also includes savings and capitalization strategies, access to working capital by farmer organizations and assessment tools to determine the bankability of such organizations. Widespread productivity gains due to increased access to inputs and planting materials; Strengthened integration of financing, farmer training, and total quality standards systems; Strengthened bankable farmer business organizations. Coordination and Alignment Concerns vertical alignment up and down a supply chain, horizontal alignment amongst industry actors, and intersectoral alignment between government, business, civil society, and multilateral institutions. It also involves the integration of new cocoa programs into currently running programs and existing infrastructure. Clear synergies, efficiencies, and cost reductions from deep alignment and coordinated action on pre-competitive issues; The development or strengthening of platforms that facilitate coordination and joint activity; Joint innovation ventures to address some of the most challenging issues and bottlenecks.

Proposal Design Process and General Criteria Proposal Timeline Traunch 1-2011 Concept notes solicited from industry Mid-April to mid-may Proposal Assessment Committee (PAC) evaluation of concept notes Proposal development and coalition building from parties with PAC-approved concept notes PAC evaluation of final proposals Notification of match-funding decision with stipulations, if any Final program tailoring, contracting, M&E system development First disbursement of funds Traunch 2 will start in 2012; a more specific timeline will be made available later. Program design and decision process Mid-May to early June June to mid-september Mid-September to mid-october Mid-October Mid-October to mid-november Mid-November There are three phases to proposal development (for both Traunch 1 in 2011 and Traunch 2 in 2012). For the first phase, concept notes with concrete ideas are solicited from industry actors. These will be evaluated by an independent Proposal Assessment Committee (PAC) made up of technical experts. For phase two, industry actors whose concept notes are approved by the PAC will be invited to reach out to supply chain partners, local governments, and NGOs to develop and submit a full proposal. During this phase, the CPQP Administrator (Jonas Mva Mva) will work closely with the coalitions to shape their proposals. While this involvement does not guarantee funding approval, it is intended to increase the quality and alignment of programs that are submitted for consideration. In the third phase, the PAC evaluates the proposals and makes their recommendation to the Executive Approval Committee (made up of donors to the CPQP facility). At this point, CPQP funding decisions will be made public. Approval may be contingent upon adjustments stipulated by the PAC. The proposal cycle concludes with final tailoring, contracting, development of the M&E system and the first disbursement of funds. General criteria Final proposals must: Not exceed 2 million Euros per project in CPQP financing and have an implementing period of no more than 4 years; Include Côte d Ivoire, Ghana, Nigeria, Cameroon or Indonesia as a target country; Provide an auditable, financial counterpart contribution equivalent to at least 100% of the amount requested from the facility. Note: Monetary contributions can be made directly to an implementing partner, or directly to projects in the field. In-kind contributions from companies or implementing partners are not eligible for match-funding from this facility. Final programs will be evaluated based upon these general criteria: Is this a high-impact program that mainstreams proven good practices or has significant potential for upscaling or replication? Does the program support the overall purpose of the CPQP and integrate many (at least three) of the focus areas? Are the objectives of the program sound, realistic, achievable and measurable? Does the applicant (including coalition members) have the financial and technical capacity to implement the program? Is the program built upon strong partnerships, including local government support for it? Please visit www.dutchsustainabletrade.com/en/cpqp For the concept note application, specific criteria, and other key background and support materials. Key Contact Jonas Mva Mva Senior Cocoa Program Manager mvamva@dutchsustainabletrade.com +31 30 2305 672

The Cocoa Productivity and Quality Program